67794 Federal Register / Vol. 83, No. 249 / Monday, December 31, 2018 / Notices 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The term ‘‘User’’ means any Options Member or 

Sponsored Participant who is authorized to obtain 

access to the Exchange’s System (as defined below) 

pursuant to Rule 11.3. See current Rule 16.1(a)(63) 

(proposed subparagraph (64)). 

4See Securities Exchange Act Release Nos. 82052 

(November 9, 2017), 82 FR 53547 (November 16, 

2017) (SR–BatsBZX–2017–76) (modifying fees for 

physical ports on an immediately effective basis); 

and 61650 (March 4, 2010), 75 FR 11951 (March 12, 

2010) (SR–BATS–2010–005) (adopting initial fees 

for BZX Options, including description of logical 

and physical ports). 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

GEMX–2018–43 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–GEMX–2018–43. 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–GEMX–2018–43 and 

should be submitted on or before 

January 22, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28390 Filed 12–28–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84928; File No. SR– 

CboeBZX–2018–092] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Relating To 

Adopt Definitions of Ports and 

Discontinue Bulk Order Functionality 

and Implement Bulk Message 

Functionality 

December 21, 2018. 

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 December 

18, 2018, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX Options’’) 

proposes to adopt definitions of ports 

and discontinue bulk order 

functionality and implement bulk 

message functionality. 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://www.cboe.com/ 

AboutCBOE/CBOELegal

RegulatoryHome.aspx), 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 

In 2016, the Exchange’s parent 

company, Cboe Global Markets, Inc. 

(‘‘Cboe Global’’), which is the parent 

company of Cboe Exchange, Inc. (‘‘Cboe 

Options’’) and Cboe C2 Exchange, Inc. 

(‘‘C2’’), acquired the Exchange, Cboe 

EDGA Exchange, Inc. (‘‘EDGA’’), Cboe 

EDGX Exchange, Inc. (‘‘EDGX or EDGX 

Options’’), and Cboe BYX Exchange, 

Inc. (‘‘BYX’’ and, together with C2, Cboe 

Options, the Exchange, EDGA, and 

EDGX, the ‘‘Cboe Affiliated 

Exchanges’’). The Cboe Affiliated 

Exchanges are working to align certain 

system functionality, retaining only 

intended differences between the Cboe 

Affiliated Exchanges, in the context of a 

technology migration. Cboe Options 

intends to migrate its technology to the 

same trading platform used by the 

Exchange, C2, and EDGX Options in the 

fourth quarter of 2019. The proposals set 

forth below are intended to add certain 

functionality to the Exchange’s System 

that is more similar to functionality 

offered by Cboe Options in order to 

ultimately provide a consistent 

technology offering for market 

participants who interact with the Cboe 

Affiliated Exchanges, as well as codify 

certain functionality. Although the 

Exchange intentionally offers certain 

features that differ from those offered by 

its affiliates and will continue to do so, 

the Exchange believes that offering 

similar functionality to the extent 

practicable will reduce potential 

confusion for Users. 

Port Definitions 

The Exchange currently provides 

access to BZX Options to Users 3

through various ports. These ports have 

been previously described in multiple 

filings submitted by the Exchange 4 and 

are referenced on the Exchange’s fee 

schedule. However, the Exchange has 

not previously maintained any language 

in its Rules related to such ports. The 

Exchange proposes to add language to 

Rule 21.1(l) to provide additional clarity 


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5See C2 Rule 1.1 (definition of port); and EDGX 

Options Rule 21.1(j). 

6See proposed Rule 21.1(l)(1). 

7See proposed Rule 21.1(l)(2). 

8See Cboe Options Rule 1.1(ppp). 

9See Cboe Options Rule 6.14B (which describes 

how the Exchange routes orders (specifically 

intermarket sweep orders) but not quotes route to 

other exchanges); see also Nyse Arca, LLC (‘‘Arca’’) 

Rule 6.37–O(a)(3)(D) (which states quotes do not 

route). 

10The Exchange understands this is common 

practice by Market-Makers throughout the industry, 

and is consistent with Cboe Options functionality, 

which cancels all unexecuted resting Market-Maker 

quotes at the close of each trading day. 

Additionally, it is consistent with Market-Makers’ 

obligation to update market quotations in response 

to changed market conditions. See Rule 22.5(a)(5); 

see also Cboe Options Rule 8.7(b)(iii). 

11See Technical Specifications for binary order 

entry (BOE) available at http://markets.cboe.com/ 

us/options/support/technical/. For instance, when 

initially adopted by the Exchange for its equities 

platform, bulk order entry was described as a ‘‘bulkquoting interface’’ and such functionality was 

limited to BZX market makers. See Securities 

Exchange Act Release No. 65133 (August 15, 2011), 

76 FR 52032 (August 19, 2011) (SR–BATS–2011– 

029). Bulk quoting was shortly thereafter expanded 

to be available to all participants on BZX Options 

but the focus remained on promoting liquidity 

provision on the Exchange, even though the types 

of messages permitted were not limited to liquidity 

providing orders. See Securities Exchange Act 

Release No. 65307 (September 9, 2011), 76 FR 

57092 (September 15, 2011) (SR–BATS–2011–034). 

12See Rule 21.1(d)(8) for the definition of ‘‘Post 

Only Orders.’’ 

13See Rule 21.1(f)(3) for the definition of the 

‘‘Day’’ Time-in-Force. 

14See Rule 21.1(f)(1) for the definition of the 

‘‘GTD’’ Time-in-Force. 

15See Rule 21.1(d)(8), which provides that an 

order with a Post Only instruction may not route 

away to another exchange. 

16See supra note 12. 

17See supra note 13. 

18Proposed Rule 16.1(a)(4) defines a bulk 

message as a bid or offer included in a single 

electronic message a User submits to the Exchange 

in which the User may enter, modify, or cancel up 

to an Exchange-specified number of bids and offers 

(which number the Exchange will announce via 

Exchange notice or publicly available technical 

specifications). This is similar to Cboe Options Rule 

1.1(ppp), which provides that electronic quotes may 

be updated in block quantities. The limit on bids 

and offers per message is a reasonable measure for 

the Exchange to use to manage message traffic and 

activity to protect the integrity of the System. 

Proposed Rule 16.1(a)(4) also states that a User may 

submit a bulk message through a bulk port as set 

forth in proposed Rule 21.1(l)(3), and that the 

System handles a bulk messages in the same 

manner as it handles an order or quote, unless the 

Rules specify otherwise. In other words, a bulk 

message will be treated as an order (or quote if 

submitted by a Market-Maker) pursuant to the 

Rules, including with respect to priority and 

allocation. The proposed rule change identifies the 

rule provisions pursuant to which bulk messages 

will be handled in a different manner. The 

proposed rule change also amends the paragraph 

numbering in Rule 16.1(a) to account for the 

addition of bulk messages in subparagraph (a)(4). 

19 In other words, for example, a Market-Maker 

cannot designate one bulk message bid within a 

single message as Post Only and designate another 

bulk message bid within the same message as Book 

Only. 

20See proposed change to Rule 21.1(d)(6). 

21See proposed change to Rule 21.1(h), which 

provides that the display-price sliding process 

applies to orders and all bulk messages, except that 

a Post Only bulk message that locks or crosses a 

Protected Quotation displayed by the Exchange 

(unlike a Post Only order) upon entry will be 

cancelled, as further discussed below (proposed 

Rule 21.1(l)(3)(A)(vi) states the System cancels or 

rejects a Post Only bulk message bid (offer) with a 

price that locks or crosses the Exchange best bid 

(offer) or ABO (ABB)). 

22This is consistent with how Users may submit 

single orders to the Exchange through bulk order 

ports today, and thus the proposed rule change is 

merely codifying this functionality. 

in the Exchange’s Rules and to conform 

to the Rules of other Cboe Affiliated 

Exchanges that include definitions of 

ports.5

The Exchange proposes to define 

three different types of ports, 

specifically, physical ports, logical 

ports, and bulk ports. Currently, the 

Exchange also offers bulk order ports. 

However, as discussed below, the 

Exchange intends to enhance those 

ports with bulk message functionality 

and rename them as bulk ports, so the 

proposed rule change does not define 

bulk order port. 

The Exchange proposes to define a 

‘‘physical port’’ as a port that provides 

a physical connection to the System. 

The Exchange also proposes to note that 

a physical port may provide access to 

multiple logical ports.6

The proposed rule change states that 

a ‘‘logical port’’ or ‘‘logical session’’ 

provides Users with the ability within 

the System to accomplish a specific 

function through a connection, such as 

order entry, data receipt, or access to 

information.7

Bulk Message Functionality 

Cboe Options currently offers quoting 

functionality to Market-Makers, which 

permits Market-Makers to update their 

electronic quotes in block quantities.8

Quotes on Cboe Options do not route to 

other exchanges,9 and Market-Makers 

generally enter new quotes at the 

beginning of the trading day based onthen current market conditions.10 The 

Exchange currently offers bulk order 

functionality, which is intended to 

provide Users, and Market-Makers in 

particular, with a way to submit orders 

that simulate quoting functionality.11

However, while bulk order functionality 

simulates quoting functionality, bulk 

order functionality provides Users with 

a less efficient way to update multiple 

bids and offers. To update multiple bids 

and offers, a User must submit multiple 

messages at the same time, compared to 

quoting functionality, which generally 

permits a market participant to update 

multiple bids and offers in a single 

quote message. Specifically, a bulk 

order port is a dedicated logical port 

that provides Users with the ability to 

submit single and bulk order messages 

to enter, modify, or cancel orders 

designated as Post Only Orders 12 with 

a Time-in-Force of Day 13 or Good-tilDate (‘‘GTD’’) 14 with an expiration time 

on that trading day. Like quotes, bulk 

order messages do not route to other 

exchanges because they include a Post 

Only instruction.15 Use of the Day or 

GTD Time-in-Force is consistent with 

Market-Maker’s entry of new quotes at 

the beginning of each trading day.16

Unlike current Cboe Options quoting 

functionality, bulk order ports on the 

Exchange are available to all Users, not 

just Market-Makers. The Exchange 

makes bulk order ports available to all 

Users to encourage them to provide 

liquidity to the Exchange’s market. 

The Exchange proposes to replace 

bulk order functionality with bulk 

message functionality substantially 

similar to the quoting functionality 

available on Cboe Options. The 

proposed bulk message functionality is 

similar to but more efficient than 

currently available bulk order 

functionality.17 A ‘‘bulk port’’ is a 

dedicated logical port that, as proposed, 

would provide Users with the ability to 

submit: 

(1) bulk messages,18 subject to the 

following: 

(a) a bulk message has a Time-inForce of Day; 

(b) a Market-Maker with an 

appointment in a series may designate 

a bulk message for that series as Post 

Only or Book Only (which Post Only or 

Book Only designation, as applicable, 

applies to all bulk message bids and 

offers within a single message),19 and 

other Users must designate a bulk 

message for that series as Post Only; 

(c) a User may establish a default 

Match Trade Prevention (‘‘MTP’’) 

Modifier of MTP Cancel Newest 

(‘‘MCN’’), MTP Cancel Oldest (‘‘MCO’’), 

or MTP Cancel Both (‘‘MCB’’), and a 

default value of Attributable or NonAttributable, for a bulk port, each of 

which applies to all bulk messages 

submitted to the Exchange through that 

bulk port; 

(d) a User may designate a bulk 

message as ‘‘Price Improving’’ (which 

Price Improving designation applies to 

all bulk message bids and offers within 

a single message); 20 and 

(e) a bulk message is subject to the 

display-price sliding process in Rule 

21.1(h) 21; and 

(2) single orders in the same manner 

as Users may submit orders to the 

Exchange through any type of port,22

including designated with any Order 


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23See supra note 12. 

24See Rule 22.5(a)(5). 

25See supra note 13. 

26 Incoming market-maker quotes on some 

options exchanges may execute against interest 

resting in the book (see, e.g., Arca Rule 6.37A– 

O(a)(3)), while on other options exchanges they may 

not (see, e.g., Box Options Exchange, LLC (‘‘BOX’’) 

Rule 8050, IM–8050–3). 

27See also Cboe Options Rule 6.14B; and Arca 

Rule 6.37A–O(a)(3)(D). 

28See Cboe Options Rule 6.53(v). 

29Users may enter an instruction to not subject 

Price Improving Orders to the display-price sliding 

process. See Rule 21.1(d)(6). 30See proposed Rule 21.1(h)(4); see also proposed 

Rule 21.1(l)(3)(A)(vi). 31See Rule 21.1(d)(8). 

Type and any Time-in-Force in Rule 

21.1(d) and (f), respectively. 

Proposed Rule 21.1(l)(3)(A)(i) states 

that bulk messages have a Time-in-Force 

of Day. As discussed above, this is 

consistent with current Cboe Options 

quoting functionality, which cancels all 

resting quotes at the close of the trading 

day.23 This is also consistent with a 

Market-Maker’s obligation to update its 

quotations in response to changed 

market conditions in its appointed 

classes.24 Unlike current bulk orders, 

the GTD Time-in-Force with an 

expiration time on that trading day will 

not be available for bulk messages. 

Users will continue to have the ability 

to manually cancel bulk messages at any 

time during the trading day, they will 

just not be able to have bulk messages 

automatically cancel at a specific time 

on that trading day. Additionally, Users 

may apply the GTD Order Type to 

orders submitted through a bulk port (as 

further discussed below) or other type of 

port. 

Unlike Cboe Options quoting 

functionality, which is only available to 

Cboe Options market-makers, the 

proposed bulk messages will be 

available to all Users (as bulk orders are 

today). While all Users will be able to 

use bulk messages (and may currently 

use bulk orders), the primary purpose of 

bulk orders and the proposed bulk 

messages has always been to encourage 

market-maker quoting on exchanges.25

The proposed rule change provides that 

a Market-Maker with an appointment in 

a series may designate a bulk message 

for that series as ‘‘Post Only’’ or ‘‘Book 

Only.’’ This will provide Exchange 

Market-Makers with functionality 

substantially similar to Cboe Options 

quoting functionality currently available 

to Cboe Options market-makers, which 

permits Market-Makers’ incoming 

quotes to execute against resting orders 

and quotes.26 The Exchange believes 

permitting Market-Makers to use bulk 

messages to remove liquidity from the 

Book (if they so elect) will put Exchange 

Market-Makers on an even playing field 

as market-makers on other exchanges 

that offer quoting functionality. 

Additionally, Market-Makers are subject 

to various obligations, including 

obligations to provide two-sided quotes, 

to provide continuous quotes, and to 

trade at least 75% of its contracts each 

quarter in appointed classes. The 

Exchange believes providing MarketMakers with flexibility to use the Post 

Only or Book Only instruction with 

respect to bulk messages will provide 

Market-Makers with additional tools to 

meet their obligations in a manner they 

deem appropriate. The Exchange further 

believes this may encourage liquidity 

providers to register as Market-Makers. 

The proposed rule change provides 

that other Users (i.e., non-MarketMakers or Market-Makers without an 

appointment in a series) must designate 

a bulk message for that series as ‘‘Post 

Only.’’ This is consistent with current 

bulk orders available to these Users, and 

will continue to provide Users with 

flexibility to avoid incurring a take fee 

if their intent is to add liquidity to the 

Book. The Exchange notes these Users 

may apply the Book Only instruction to 

orders submitted to the Exchange 

through bulk ports or other ports. The 

proposed rule change also amends Rule 

21.9 to make clear that bulk messages 

(like current bulk orders) are not eligible 

for routing (which is consistent with the 

Order Types of Post Only and Book 

Only, which do not route to other 

options markets).27

The proposed rule change also 

permits Users to establish a default MTP 

Modifier of MCN, MCO, or MCB that 

would apply to all bulk messages 

submitted through a bulk port. Cboe 

Options currently offers a Market-Maker 

Trade Prevention Order, which would 

be cancelled if it would trade against a 

resting quote or order for the same 

Market-Maker, and also cancel the 

resting order or quote.28 This is 

equivalent to the MCB Modifier (except 

the MCB Modifier may be used by all 

Users rather than just Market-Makers). 

The proposed rule change provides 

Users with the ability to apply the same 

trade prevention designation that is 

available for quotes on Cboe Options to 

bulk messages (MCB), as well as two 

additional MTP options (MCN and 

MCO) (the Exchange notes there is 

currently no trade prevention 

functionality equivalent to MCN or 

MCO available on Cboe Options for 

quotes). Allowing three MTP 

designations for bulk messages will 

provide Users with additional control 

over the circumstances in which their 

bulk messages (and resting orders 

(including bulk messages)) will interact 

with each other. The Exchange does not 

believe there is demand by Users for the 

MDC and MCS modifies (which are 

available on the Exchange for orders) for 

bulk messages (the Exchange notes there 

is currently no trade prevention 

functionality equivalent to MDC or MCS 

available on Cboe Options for quotes). 

The Exchange notes all Users may 

continue to apply all MTP Modifiers to 

orders submitted through a bulk port (as 

further discussed below) or any other 

type of port. 

The Exchange believes permitting 

Users to designate bulk messages as 

Price Improving and subjecting bulk 

messages to the display-price sliding 

process will encourage Users to submit 

aggressive bids and offers and will 

provide market participants with 

additional opportunities for execution 

and price improvement. Price 

Improving bulk messages will function 

in the same manner as Price Improving 

Orders,29 except all Price Improving 

bulk messages will be subject to the 

display-price sliding process. With 

respect to the display-price sliding 

process, bulk messages will be handled 

in the same manner as orders, except a 

Post Only bulk message that locks or 

crosses a Protected Quotation displayed 

by the Exchange upon entry will be 

cancelled.30 This is unlike a Post Only 

Order, which, if it locks or crosses a 

Protected Quotation displayed by the 

Exchange upon entry and is subject to 

the display-price sliding process, will 

execute against an order resting on the 

BZX Options Book if the value of price 

improvement associated with such 

execution equals or exceeds the sum of 

fees charged for such execution and the 

value of any rebate that would be 

provided if the order posted to the BZX 

Options Book and subsequently 

provided liquidity.31 The Exchange 

believes it is reasonable to cancel a Post 

Only bulk message, which will be 

subject to the display-price sliding 

process, rather than execute it if the 

price improvement value would exceed 

a rebate, because it is consistent with 

the purpose of a Post Only bulk 

message, which is to provide liquidity 

to the BZX Options Book. 

Generally, the System will handle 

bulk messages in the same manner as it 

handles orders with the same Order 

Types and Times-in-Force that will be 

available for bulk messages, including 

prioritizing, displaying, and executing 

them pursuant to Rule 21.8. Proposed 

Rule 21.1(l)(3)(A)(vi) and (vii) adds 

detail regarding how the System will 

handle bulk messages. Specifically, 

proposed subparagraph (A)(vi) states the 


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32 ‘‘ABBO’’ means the best bid (offer) 

disseminated by other exchanges. 

33See Rule 21.1(i). Pursuant to the Price Adjust 

process, the System ranks and displays a buy (sell) 

order that, at the time of entry, would lock a 

Protected Quotation of the Exchange or another 

Exchange at one minimum price increment below 

(above) the current NBO (NBB). The System 

executes a Book Only order against orders and 

quotes and cancels any unexecuted portion if 

displaying the order on the Book would create 

violation of Rule 27.3, and the System rejects a Post 

Only order that locks or crosses the opposite side 

Exchange best bid or offer (‘‘BBO’’) or if displaying 

the order on the Book would create a violation of 

Rule 27.3. Bulk messages will not be eligible for the 

Price Adjust process, and thus will be handled 

similar to an order not subject to the Price Adjust 

process. See proposed Rule 21.1(i)(5) (which 

clarifies that the Price Adjust Process will not apply 

to bulk messages). 

34See Rule 21.1(d)(8). 

35See Chapter XXVII of the Rules; see also 

Options Order Protection and Locked/Crossed 

Market Plan (the ‘‘Linkage Plan’’). 

36See id. 

37See id. 38See Cboe Options Rule 6.14(b) (if Cboe Options 

is not at the NBBO, the System rejects a quote back 

to a Market-Maker if the quote locks or crosses the 

NBBO, which is the ABBO) and (c) (if the Cboe 

Options System accepts a quote that locks or 

crosses the NBBO, it executes the quote against 

quotes and orders in the Cboe Options Book at the 

price(s) that is the same or better than the best price 

disseminated by an away exchange(s) up to the size 

available on the Exchange and cancels the 

remaining size if the quote’s price locks or crosses 

the ABBO or books any remaining size); see also 

Rule 6.37A–O(a)(3). 

39See Cboe Options Regulatory Circular RG18– 

008 (March 6, 2018), which provides that each 

market-maker acronym may only have one quote 

(which is considered to be a two-sided quote) in 

each series at a time. An EFID is comparable to an 

acronym. Under Cboe Options rules, the term 

Market-Maker generally refers to an individual (and 

thus a person with a specific acronym), except as 

otherwise provided in the Rules. See, e.g., Cboe 

Options Rule 8.7(d)(ii)(B) (which provides that 

market-maker continuous electronic quoting 

obligations may be satisfied by market-makers 

either individually or collectively with marketmakers of the same TPH organization). The 

interpretation in the circular referenced above is 

consistent with this term and a Market-Maker’s 

obligations set forth in Rule 8.7 (e.g. market-Makers 

must contribute to the maintenance of a fair and 

orderly market, including by competing to improve 

markets, update quotes in response to changed 

market conditions, and price options contracts 

fairly). 

40See Rule 21.17(b). Orders submitted through 

bulk ports will be subject to the current order price 

protection mechanisms, such as limit fat finger 

check in Rule 21.17. The proposed rule change 

amends Rule 21.17(a) through (e) (and the 

introductory language to that rule) to make clear 

that the price protections and risk controls in those 

paragraphs will not be applicable to bulk messages. 

System will cancel or reject a Post Only 

bulk message bid (offer) with a price 

that locks or crosses the Exchange best 

offer (bid) or the ABO (ABB).32 This is 

consistent with how the System would 

handle a Post Only order not subject to 

the Price Adjust process.33 Pursuant to 

the Post Only instruction, an order (or 

bulk message as proposed) may not 

remove liquidity from the Book or route 

away to another Exchange (subject to 

certain exceptions).34 If a Post Only bulk 

message locked or crossed the best 

contra-side interest on the Exchange, the 

System would cancel it to prevent 

execution of the bulk message against 

the interest on the Exchange in 

accordance with the User’s instructions 

and to prevent the Exchange from 

displaying a locked or crossed market.35

Similarly, if a Post Only bulk message 

locked or crossed an away market, the 

System would cancel it since it cannot 

route in accordance with the User’s 

instructions and to prevent the 

Exchange’s dissemination of a locked or 

crossed market.36

Similarly, proposed subparagraph 

(A)(vii) states the System will execute a 

Book Only bulk message bid (offer) that 

locks or crosses the ABO (ABB) against 

offers (bids) resting in the Book at prices 

the same as or better than the ABO 

(ABB) and then cancels the unexecuted 

portion of that bid (offer). This is 

consistent with how the System would 

handle a Book Only order not subject to 

the Price Adjust process. Pursuant to the 

Book Only instruction, an order (or bulk 

message as proposed) may not route 

away to another Exchange. If a Book 

Only bulk message locked or crossed an 

away market, the System would execute 

it to the extent it could against contraside interest on the Exchange and then 

cancel it since it cannot route in 

accordance with the User’s instructions 

and to prevent the Exchange’s 

dissemination of a locked or crossed 

market.37 In addition to being similar to 

current Exchange Rules regarding the 

handling of Post Only and Book Only 

Orders not subject to the Price Adjust 

process, the Exchange notes that 

proposed subparagraphs (A)(vi) and (vii) 

are substantially the same as another 

exchange’s handling rules applicable to 

quotes.38

Proposed Rule 21.6(a) provides that a 

User may enter only one bid and one 

offer for a series per Executing Firm ID 

(‘‘EFID’’) per bulk port. The Exchange 

believes this will encourage Users to 

submit their best bids and offers in 

series, and thus provide displayed 

liquidity to the market and contribute to 

public price discovery. Note firms may 

have multiple EFIDs and multiple bulk 

ports, and thus will have the ability 

through separate ports or EFIDs to 

submit additional bids and offers using 

bulk messages in the same series if they 

choose. This provision is consistent 

with the rule interpretation of another 

exchange.39

In addition to permitting Users to 

submit bulk orders (which functionality 

the Exchange will discontinue and 

replace with bulk message 

functionality), current bulk order ports 

permit Users to submit single orders to 

the Exchange. To encourage Users that 

may not have quoting systems to 

provide liquidity to the Exchange, the 

proposed rule change will permit Users 

to continue to submit single orders to 

the Exchange through these ports in the 

same manner as they do today, which 

are proposed to be renamed as bulk 

ports. Proposed Rule 21.1(l)(3)(B) will 

permit Users to designate these orders 

in the same manner Users may submit 

orders to the Exchange through any 

other type of port, including designated 

with any Order Type and any Time-inForce in Rule 21.1(d) and (f), 

respectively. This will provide Users 

with the same functionality that is 

available for single orders submitted 

through bulk ports today, and allow 

their liquidity to rest on the Exchange 

for multiple trading days, if Users so 

choose. This will also provide Users 

with additional control over the orders 

they use to provide liquidity to the 

Exchange through bulk ports. 

While liquidity providers are most 

commonly registered market-makers, 

other professional traders also provide 

liquidity to the options market, which 

contributes to price discovery. As a 

result, unlike other exchanges that 

restrict quoting functionality to marketmakers, the Exchange believes it is 

appropriate to make bulk messages 

available to all Users to encourage them 

to provide liquidity, which is critical to 

the Exchange’s market. Additionally, 

permitting orders to be submitted 

through bulk ports will continue to 

provide all liquidity providers with this 

functionality that is available today, as 

well as additional flexibility with 

respect to this functionality they may 

use to provide liquidity to the Exchange. 

The proposed rule change adds a 

price protection mechanism for bulk 

messages similar to the fat finger check 

the Exchange currently provides for 

orders. Proposed Rule 21.17(f) states the 

System cancels or rejects any bulk 

message bid (offer) above (below) the 

NBO (NBB) by more than a specified 

amount determined by the Exchange. 

This is similar to the fat finger check 

currently applicable to limit orders.40

Bulk messages that cross the NBBO by 

more than a specified amount are 

rejected as presumptively erroneous. 

This proposed check will not apply to 

bulk messages submitted prior to the 

conclusion of the Opening Process or 

when no NBBO is available. The 

Exchange believes it is appropriate to 

have the ability to not apply this check 

during the pre-open or opening rotation 


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41See, e.g., Cboe Options Rule 6.14(a) and (b); 

Arca Rule 6.37A–O(a)(3). 

42See ‘‘cancel on reject’’ functionality in 

technical specifications available at http://

markets.cboe.com/us/options/support/technical/. 

43See, e.g., Cboe Options Rule 6.14(b); Arca Rule 

6.37A–O(a)(3)(C). 

44 15 U.S.C. 78f(b). 

45 15 U.S.C. 78f(b)(5). 

46 Id. 

47See supra note 13. 

48See Cboe Options Rule 1.1(ppp), which 

provides that electronic quotes may be updated in 

block quantities. 

so that the check does not impact the 

determination of the opening price. The 

Exchange also believes it is appropriate 

to not apply this check when there is no 

NBBO, as the Exchange believes that is 

the most reliable measure against which 

to compare the price of the bulk 

message to determine its reasonability. 

The proposed change is similar to a 

quote price protection mechanism 

available at other options exchanges.41

Proposed Rule 21.17(g) states if, 

pursuant to the Rules, the System 

cancels or rejects a bulk message bid 

(offer) to update a resting bulk message 

bid (offer) submitted for the same EFID 

and bulk port, the System also cancels 

the resting bulk message bid (offer). The 

Exchange currently offers Users similar 

functionality for orders, which is 

optional.42 Pursuant to the proposed 

rule change, the System will always 

apply this protection to bulk messages. 

The Exchange believes this will operate 

as an additional safeguard that causes 

liquidity providers to re-evaluate their 

bids and offers in a series before 

attempting to update them again. 

Additionally, when a User submits a 

new bulk message, it is implicitly 

instructing the Exchange to cancel any 

resting bulk message in the same series. 

Thus, even if the new bulk message is 

rejected as a result of this proposed 

check, the implicit instruction to cancel 

the resting bulk message remains valid 

nonetheless. The proposed rule change 

is substantially similar to a risk control 

applicable to quotes available at another 

options exchange.43

The proposed rule change also 

amends Rule 21.1(d), (f), and (g) to 

provide that eligible Order Types, Times 

in Force, and MTP Modifiers, 

respectively, are subject to the proposed 

restrictions in Rule 21.1(l) with respect 

to bulk messages submitted through 

bulk ports. The proposed rule change 

also amends Rule 21.1(c), (d), (f), and (g) 

to clarify which Orders, Order Types, 

Times in Force, and MTP Modifiers, 

respectively, are available and not 

available for bulk messages, as 

described above, in accordance with 

proposed Rule 21.1(l)(3)(A). 

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.44 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 45 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) 46 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, the Exchange is 

promoting transparency by adopting 

definitions within Rule 21.1 to describe 

various ports used to access the 

Exchange that are currently described 

on the Exchange’s fee schedule and in 

filings previously made by the 

Exchange.47 As noted above, the rules of 

EDGX Options and C2 include similar 

rules. As such, the proposed rule change 

would foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities and 

would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. 

The proposed rule change regarding 

bulk messages will remove impediments 

to and perfect the mechanism of a free 

and open market because it provides 

Users, including Market-Makers and 

other liquidity providers, with 

enhanced functionality to allow them to 

provide liquidity to the market and 

update bids and offers in response to 

changed market conditions. While 

current bulk orders simulate quotes, 

Users must submit multiple messages in 

bulk to update bids and offers in 

multiple series. The proposed bulk 

messages will permit Users to update 

multiple bids and offers in a single 

message, which will permit them to 

update bids and offers (for example, in 

response to changing market conditions) 

in a more efficient manner. The 

proposed ability to update bids and 

offers in block quantities is similar to 

that available on another options 

exchange.48

With respect to all Users, the 

proposed bulk messages are 

substantially similar to the current bulk 

orders available through bulk order 

ports—Users will be able to submit bulk 

messages that are Day and Post Only. 

However, the proposed rule change will 

permit them to do so in a single bulk 

message rather than in multiple 

messages. While the use of the GTD 

Time-in-Force will not be permitted for 

bulk messages as it currently is for bulk 

orders, Users may achieve the same 

result as GTD for their bulk messages by 

manually cancelling a bulk message at 

a specified time during the trading 

day—the proposed rule change merely 

does not provide a means for automatic 

cancellation of bulk messages at a 

specific time during the trading day. 

Additionally, Users may continue to 

apply GTD to orders submitted to the 

Exchange through bulk ports and other 

ports. 

The Exchange believes the proposed 

rule change will permit liquidity 

providers to more efficiently update 

their resting bids and offers, which may 

help them manage their risk exposure 

when, for example, updating their bids 

and offers in response to changing 

market conditions. The Exchange 

believes this will continue to encourage 

all Users to provide liquidity on the 

Exchange and avoid incurring a taker 

fee if their intent is to submit bids and 

offers to add liquidity to the Book. 

Additionally, subjecting bulk messages 

to display-price sliding and permitting 

them to be designated as Price 

Improving may encourage Users to 

submit more aggressive bids and offers. 

As a result, this may increase liquidity, 

resulting in more trading opportunities 

and tighter spreads, which benefits all 

investors. The Exchange notes the 

proposed rule change provides Users 

with additional flexibility by permitting 

certain MTP Modifiers to be applied to 

bulk messages to prevent their orders 

and bulk messages from trading against 

each other. The MTP Modifiers not 

available for bulk messages will 

continue to be available for Users on 

orders submitted through bulk ports and 

other ports. Unlike other options 

exchanges that limit the use of quoting 

functionality to market-makers, the 

proposed rule change will permit all 

Users to submit bulk messages. 

Additionally, the proposed rule change 

to permit Users to continue to submit 

orders through bulk ports will 


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49Other options exchanges only permit marketmakers to submit quotes. See, e.g., Cboe Options 

Rules 1.1(ppp) and 8.3(c); Arca Rule 6.37A–O(a)(1). 

50See id. and Box Options Exchange, LLC 

(‘‘BOX’’) Rule 8050, IM–8050–3. 

51See Cboe Options Rule 6.14(b) and (c); see also 

Rule 6.37A–O(a)(3). 

encourage Users that may not have 

quoting systems to provide liquidity to 

the Exchange by submitting single 

orders through bulk ports. This is also 

consistent with current bulk orders, 

which permits Users to submit both 

single and bulk orders through bulk 

order ports. 

The proposed rule change further 

removes impediments to and perfects 

the mechanism of a free and open 

market and a national market system by 

providing appointed Market-Makers 

with the ability to submit Book Only 

bulk messages, because it will align 

functionality available to appointed 

Market-Makers on the Exchange with 

the quoting functionality available to 

market-makers on other options 

exchanges, including Cboe Options, 

which permit quotes to both add and 

remove liquidity.49 Market-Makers are 

critical to providing liquidity and price 

discovery on the Exchange, and are 

subject to various obligations, as 

discussed above. The Exchange notes all 

other Users may continue to use the 

Book Only instruction (or other 

instructions that permit execution 

against resting orders on the Book) on 

orders submitted through bulk ports and 

other ports, as they may do today. The 

Exchange believes providing MarketMakers with flexibility to use the Post 

Only or Book Only instruction with 

respect to bulk messages will provide 

them with additional tools to meet their 

obligations in a manner they deem 

appropriate and is reasonable given the 

critical role Market-Makers plan in the 

options market. The Exchange believes 

this may also encourage liquidity 

providers to register as Market-Makers. 

The proposed rule change provides 

Market-Makers with a combination of 

functionality available to market-makers 

on other exchanges, as some exchanges 

permit market-makers to remove 

liquidity and others only permit marketmakers to post liquidity using quotes.50

As a result, the Exchange believes the 

proposed rule change will provide 

Market-Makers with greater control over 

their interactions with contra-side 

liquidity and would increase 

opportunities for such interaction. The 

Exchange believes this will provide 

Market-Makers with a greater level of 

determinism, in terms of managing their 

exposure, which may encourage them to 

be more aggressive when providing 

liquidity. The Exchange believes this 

may result in more trading 

opportunities and tighter spreads, 

which contributes to price discovery. 

Ultimately, this may improve overall 

market quality and enhance competition 

on the Exchange, which benefits all 

investors. 

The proposed handling of bulk 

messages to prevent the display of a 

locked or crossed market will perfect 

the mechanism of a free and open 

market and national market system, as 

it is consistent with the Linkage Plan 

and the Exchange’s handling of orders 

with similar instructions. This proposed 

handling of bulk messages is also 

consistent with handling of quotes on 

other options exchanges.51 The 

proposed risk controls and price 

protection mechanisms that will apply 

to bulk messages promote just and 

equitable principles of trade and will 

protect investors by mitigating potential 

risks associated with Users submitting 

bulk messages at clearly unintended 

prices and trading at extreme and 

potentially erroneous prices. 

Additionally, the proposed rule change 

to cancel a User’s resting bulk message 

when the System rejects a bulk message 

intended to update that resting bulk 

message provides Users with an 

additional safeguard that causes Users 

to reevaluate their bids and offers in the 

series before attempting to update them 

again. Additionally, when a User 

submits a new bulk message, it is 

implicitly instructing the Exchange to 

cancel any resting bulk message. Thus, 

even if the new bulk message is rejected, 

the Market-Maker’s implicit instruction 

to cancel the resting bulk message 

remains valid nonetheless. 

The options markets are quote driven 

markets and thus dependent on 

liquidity providers, which are most 

commonly registered market-makers but 

also other professional traders, for 

liquidity and price discovery. The 

Exchange believes the proposed 

enhanced functionality, including the 

additional flexibility for Market-Makers 

to manage their risk exposure and 

provide additional control over 

interactions with contra-side liquidity, 

for these liquidity providers to more 

efficiently enter and update bids and 

offers. This may encourage the 

provision of more aggressive liquidity, 

which may result in more trading 

opportunities and tighter spreads, 

which contributes to price discovery. 

This may improve overall market 

quality and enhance competition on the 

Exchange, which benefits all investors. 

The proposed rule change is generally 

intended to align system functionality 

currently offered by the Exchange with 

Cboe Options functionality in order to 

provide a consistent technology offering 

for the Cboe Affiliated Exchanges. A 

consistent technology offering, in turn, 

will simplify the technology 

implementation, changes, and 

maintenance by Users of the Exchange 

that are also participants on Cboe 

Affiliated Exchanges. The proposed rule 

change would also provide Users with 

access to functionality that is generally 

available on markets other than the 

Cboe Affiliated Exchanges, which may 

result in the efficient execution of 

quotes and orders and provide Users 

with additional flexibility and increased 

functionality on the Exchange’s System. 

When Cboe Options migrates to the 

same technology as that of the Exchange 

and other Cboe Affiliated Exchanges, 

Users of the Exchange and other Cboe 

Affiliated Exchanges will have access to 

similar functionality on all Cboe 

Affiliated Exchanges. As such, the 

proposed rule change would foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities and would 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system. 

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 

Exchange does not believe 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 the 

proposed bulk messages, like the 

current bulk orders, are optional for all 

Users. While only Market-Makers may 

submit Book Only bulk messages, the 

Exchange believes this is appropriate 

given the various obligations MarketMakers must satisfy under the Rules and 

the unique and critical role MarketMakers play in the options market, as 

discussed above. The Exchange believes 

providing Market-Makers with 

flexibility to use the Post Only or Book 

Only instruction with respect to bulk 

messages will provide Market-Makers 

with additional tools to meet their 

obligations in a manner they deem 

appropriate. The Exchange believes the 

proposed functionality for MarketMakers adds value to market-making on 

the Exchange and provides them with 

greater control over how their quotes 

interact with contra-side liquidity both 

on the Exchange. The Exchange notes 

all other Users may continue to use the 


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67800 Federal Register / Vol. 83, No. 249 / Monday, December 31, 2018 / Notices 

52 15 U.S.C. 78s(b)(3)(A). 

53 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 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. 54 17 CFR 200.30–3(a)(12). 

Book Only instruction on orders 

submitted to the Exchange through bulk 

ports and other types of ports. The Post 

Only instruction for bulk messages will 

be available to all Users, and is 

substantially similar to the bulk orders 

currently available to all Users. 

Additionally, all Users may submit 

single orders with all Times-in-Force 

and Order Types not available for bulk 

messages through bulk ports, which 

may encourage Users that may not have 

quoting systems to provide liquidity to 

the Exchange. 

The proposed price protection 

mechanisms and risk controls 

applicable to bulk messages will apply 

in the same manner to all bulk messages 

submitted by market participants. The 

Exchange believes this protection for 

bulk messages provides liquidity 

providers with additional protection 

from anomalous or erroneous 

executions. Generally, once bulk 

messages are resting on the Book, the 

System will handle them no differently 

than resting orders—this includes how 

the System prioritizes orders and quotes 

when executing them against incoming 

orders or quotes. Bulk messages that are 

available to all Users will work in the 

same manner for all Users, and the 

additional bulk message functionality 

available to appointed Market-Makers 

will work in the same manner for all 

such Market-Makers. The Exchange 

believes it is reasonable to provide 

additional functionality to MarketMakers given their unique and critical 

role in the options market and the 

various obligations that Market-Makers 

must satisfy. 

The Exchange does not believe the 

propose rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act, 

because it will provide Market-Makers 

with bulk message functionality that is 

similar to that quoting available to 

market-makers on other options 

exchanges. The Exchange believes the 

proposed functionality will permit the 

Exchange to operate on an even playing 

field relative to other exchanges that 

have similar functionality. As discussed 

above, the options markets are quote 

driven markets and thus dependent on 

liquidity providers, which are most 

commonly registered market-makers but 

also other professional traders, for 

liquidity and price discovery. The 

Exchange believes the proposed 

enhanced functionality, including the 

additional flexibility for Market-Makers 

to manage their risk exposure and 

provide additional control over 

interactions with contra-side liquidity, 

for these liquidity providers to more 

efficiently enter and update bids and 

offers. This may encourage the 

provision of more aggressive liquidity, 

which may result in more trading 

opportunities and tighter spreads, 

which contributes to price discovery. 

This may improve overall market 

quality and enhance competition on the 

Exchange, which benefits all investors. 

The Exchange reiterates that the 

proposed rule change is being proposed 

in the context of the technology 

integration of the Cboe Affiliated 

Exchanges. Thus, the Exchange believes 

this proposed rule change permits fair 

competition among national securities 

exchanges. In addition, the Exchange 

believes the proposed rule change will 

benefit Exchange participants in that it 

will provide a consistent technology 

offering for Users by the Cboe Affiliated 

Exchanges. 

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 after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 52 and Rule 19b–4(f)(6) 53

thereunder. 

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 shall institute proceedings 

to determine whether the proposed rule 

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 rule-comments@

sec.gov. Please include File Number SR– 

CboeBZX–2018–092 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–2018–092.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–2018–092 and 

should be submitted on or before 

January 22, 2019. 


khammond on DSK30JT082PROD with NOTICES
Federal Register / Vol. 83, No. 249 / Monday, December 31, 2018 / Notices 67801 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3On December 13, 2018, FICC filed this proposed 

rule change as an advance notice (SR–FICC–2018– 

802) with the Commission pursuant to Section 

806(e)(1) of Title VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act entitled the 

Payment, Clearing, and Settlement Supervision Act 

of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b– 

4(n)(1)(i) under the Act, 17 CFR 240.19b–4(n)(1)(i). 

A copy of the advance notice is available at http:// 

www.dtcc.com/legal/sec-rule-filings.aspx. 

4Capitalized terms not defined herein are defined 

in the Rules, available at http://www.dtcc.com/∼/ 

media/Files/Downloads/legal/rules/ficc_gov_

rules.pdf. 

5 12 U.S.C. 1831o(a). 

6 17 CFR 230.144A. 

7 15 U.S.C. 77a et seq. 

8Rule 1, definition of ‘‘Sponsored Member 

Trade,’’ supra note 4. 

9Rule 1, definition of ‘‘Sponsoring Member 

Omnibus Account,’’ supra note 4. 

10Rule 3A, Sections 5, 6, 7, 8, and 9, supra note 4. 

11FICC Board of Directors means the Board of 

Directors of Fixed Income Clearing Corporation or 

a committee thereof acting under delegated 

authority. Rule 1, supra note 4. 

12Rule 3A, Section 2, supra note 4. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.54

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28396 Filed 12–28–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84951; File No. SR–FICC– 

2018–013] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Expand Sponsoring Member Eligibility 

in the Government Securities Division 

Rulebook and Make Other Changes 

December 21, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934, as 

amended, (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on December 13, 2018, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II and III below, which Items 

have been prepared by the clearing 

agency.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change would 

amend the FICC Government Securities 

Division (‘‘GSD’’) Rulebook (‘‘Rules’’) 4

in order to (i) allow a broader group of 

Netting Members to participate in FICC 

as Sponsoring Members, (ii) allow a 

Sponsoring Member to establish a 

Sponsoring Member Omnibus Account 

that may contain transactions between a 

Sponsored Member and a Netting 

Member other than the Sponsoring 

Member, which Sponsoring Member 

Omnibus Account could be in addition 

to or in lieu of a Sponsoring Member 

Omnibus Account in which only 

transactions between a Sponsored 

Member and its Sponsoring Member 

would be permitted, and (iii) make 

certain conforming and technical 

changes in Rules 1 and 3A. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency 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 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’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 (i) allow a broader group of 

Netting Members to participate in FICC 

as Sponsoring Members, (ii) allow a 

Sponsoring Member to establish a 

Sponsoring Member Omnibus Account 

that may contain transactions between a 

Sponsored Member and a Netting 

Member other than the Sponsoring 

Member, which Sponsoring Member 

Omnibus Account could be in addition 

to or in lieu of a Sponsoring Member 

Omnibus Account in which only 

transactions between a Sponsored 

Member and its Sponsoring Member 

would be permitted, and (iii) make 

certain conforming and technical 

changes in Rules 1 and 3A. 

(i) Background 

Under Rule 3A (Sponsoring Members 

and Sponsored Members), Bank Netting 

Members that are ‘‘well-capitalized’’ (as 

defined by the Federal Deposit 

Insurance Corporation’s applicable 

regulations) 5 and have at least $5 

billion in equity capital are permitted to 

sponsor, as ‘‘Sponsoring Members,’’ 

qualified institutional buyers as defined 

by Rule 144A 6 under the Securities Act 

of 1933, as amended (‘‘Securities Act’’),7

and certain legal entities that, although 

not organized as entities specifically 

listed in paragraph (a)(1)(i) of Rule 144A 

under the Securities Act, satisfy the 

financial requirements necessary to be 

qualified institutional buyers as 

specified in that paragraph (i.e., 

Sponsored Members) into GSD 

membership. 

Under Rule 3A, a Sponsoring Member 

is permitted to submit to FICC for 

comparison, novation, and netting 

certain types of eligible securities 

transactions between itself and its 

Sponsored Members (Sponsored 

Member Trades).8 The Sponsoring 

Member is required to establish an 

omnibus account at FICC for all its 

Sponsored Members’ FICC-cleared 

securities transactions (Sponsoring 

Member Omnibus Account),9 which is 

separate from the Sponsoring Member’s 

regular netting accounts. For operational 

and administrative purposes, FICC 

interacts solely with the Sponsoring 

Member as agent for purposes of the 

day-to-day satisfaction of its Sponsored 

Members’ obligations to FICC, including 

their securities and funds-only 

settlement obligations.10

Governance and Risk Management of 

Sponsoring Members 

All Sponsoring Members are subject 

to the following governance, market risk 

management, and credit risk 

management processes specifically 

related to their status as Sponsoring 

Members under the current Rules, 

which would continue to apply equally 

to all Sponsoring Members 

notwithstanding the proposed rule 

changes described in this filing. 

The governance process applicable to 

the approval of every applicant to 

become a Sponsoring Member is set 

forth in Rule 3A. In order to become a 

Sponsoring Member, an applicant is 

required to go through an application 

process, which includes a risk 

management review of the applicant by 

FICC specifically related to the activity 

it proposes to submit to FICC as a 

Sponsoring Member, and an approval of 

such applicant by the FICC Board of 

Directors 11 as a new Sponsoring 

Member.12 This application process is 

separate from the applicant’s original 

Netting Member application process. If 

the FICC Board of Directors denies the 

application of a Sponsoring Member 

applicant, FICC is required to handle 

such denial in the same way as set forth 

in Section 6 of Rule 2A with respect to 


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