[Federal Register Volume 89, Number 26 (Wednesday, February 7, 2024)]
[Notices]
[Pages 8473-8478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99459; File No. SR-CboeEDGX-2024-007]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Amend Rule 11.6(n)(4) and Rule 
11.10(a)(4)(D) To Permit the Use of the Post Only Order Instruction at 
Prices Below $1.00

February 1, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 19, 2024, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend Rule 11.6(n)(4) and Rule 11.10(a)(4)(D) to permit the use of the 
Post Only order instruction at prices below $1.00. 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/options/regulation/rule_filings/edgx/), 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
    Trading in sub-dollar securities both on- and off-exchange has 
grown significantly since early 2019. An analysis of SIP \3\ data by 
the Exchange found that sub-dollar average daily volume has increased 
over 300% as compared to volumes in the first quarter of 2019.\4\ 
During this period, on-exchange average daily volume in sub-dollar 
securities grew from 442 million shares per day to 1.8 billion shares 
per day.\5\ A separate analysis of SIP and FINRA Trade Reporting 
Facility (``TRF'') \6\ data indicated that exchanges represented 
approximately 39.8% market share in sub-dollar securities, with a total 
of 1,638 securities trading below $1.00.\7\ As an exchange group, Cboe 
had approximately 13.3% of market share in sub-dollar securities in the 
first quarter of 2023.\8\ Additionally, an analysis of internal data 
showed that the Exchange has seen retail sub-dollar average daily 
volume grow from approximately $40 million during the first quarter of 
2022 to over $100 million during the third quarter of 2023.
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    \3\ The ``SIP'' refers to the centralized securities information 
processors.
    \4\ See ``How Subdollar Securities are Trading Now'' (March 16, 
2023). Available at https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
    \5\ Id.
    \6\ Trade Reporting Facilities are facilities through which 
FINRA members report off-exchange transactions in NMS stocks, as 
defined in SEC Rule 600(b)(47) of Regulation NMS. See Securities 
Exchange Act Release No. 96494 (December 14, 2022), 87 FR 80266 
(December 29, 2022) (``Tick Size Proposal'') at 80315.
    \7\ Supra note 4.
    \8\ Id.
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    As a result of the growth in sub-dollar trading, the Exchange 
proposes to amend Rule 11.6(n)(4) in order to permit an order 
containing a Post Only instruction to post to the EDGX Book \9\ at 
prices below $1.00. As defined in Rule 11.6(n)(4), a Post Only 
instruction is ``[a]n instruction that may be attached to an order that 
is to be ranked and executed on the Exchange pursuant to Rule 11.9 and 
Rule 11.10(a)(4) or cancelled, as appropriate, without routing away to 
another trading center except that the order will not remove liquidity 
from the EDGX Book . . .''. Accordingly, an order containing a Post 
Only instruction does not remove liquidity, but rather posts to the 
EDGX Book to the extent permissible. Additionally, the Exchange 
proposes to amend Rule 11.10(a)(4)(D) to describe the manner in which 
bids or offers priced below $1.00 per share are executed against orders 
resting on the EDGX Book. The Exchange believes the proposed changes 
will provide Users \10\ with an additional order type to utilize when 
submitting order flow to the Exchange in securities priced below $1.00, 
thereby contributing to a deeper and more liquid market, which benefits 
all market participants and provides greater execution opportunities on 
the Exchange.
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    \9\ See Rule 1.5(d). The EDGX Book means the System's electronic 
file of orders.
    \10\ See Rule 1.5(ee). The term ``User'' shall mean any Member 
or Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.
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    Currently, orders containing a Post Only instruction priced below 
$1.00 are automatically treated as orders that remove liquidity.\11\ In 
order to permit an

[[Page 8474]]

order containing a Post Only instruction to post to the EDGX Book at 
prices below $1.00, the Exchange proposes to amend Rule 11.6(n)(4) to 
remove language that states that an order containing a Post Only 
instruction will remove contra-side liquidity from the EDGX Book if the 
order is an order to buy or sell a security ``priced below $1.00 . . 
.''. While the Exchange's economic best interest calculation \12\ will 
remain the same as is currently in-place for securities priced at or 
above $1.00, the impact of this proposal will modify the outcome of 
orders containing a Post Only instruction in securities priced below 
$1.00 for Users who choose to utilize this particular order type. Under 
this proposal, orders containing a Post Only instruction priced below 
$1.00 will only remove liquidity if the value of the overall execution 
(taking into account all applicable fees and rebates) make it 
economically beneficial for the order to remove liquidity. The Exchange 
has received User feedback requesting the ability to utilize orders 
with a Post Only instruction in securities priced below $1.00 in order 
to allow Users to operate a single trading strategy for securities at 
all prices even though the execution cost economics for securities 
priced below $1.00 may only provide a slight economic benefit for Users 
who choose to utilize orders with a Post Only instruction in securities 
priced below $1.00.
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    \11\ Orders containing a Post Only instruction in securities 
priced at or above $1.00 remove contra-side liquidity only if the 
value of such execution when removing liquidity equals or exceeds 
the value of such execution if the order instead posted to the EDGX 
Book and subsequently provided liquidity. The Exchange does not 
propose to change the functionality of orders containing a Post Only 
instruction in securities priced at or above $1.00.
    \12\ The Exchange's economic best interest calculation 
determines whether the value of price improvement associated with an 
order containing a Post Only instruction 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 EDGX Book and 
subsequently provided liquidity. The determination of whether an 
order containing a Post Only instruction will be allowed to post to 
the EDGX Book or be eligible to remove liquidity is based on the 
current fee schedule, the execution price, and the amount of price 
improvement received.
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    In addition to the proposed amendment to Rule 11.6(n)(4), the 
Exchange proposes an amendment to its order handling procedures in 
order to permit Non-Displayed Orders \13\ and orders subject to 
display-price sliding (collectively, ``Resting Orders'') which are not 
executable at their most aggressive price due to the presence of a 
contra-side order containing a Post Only instruction to be executed at 
one minimum price variation less aggressive than the order's most 
aggressive price.\14\ Currently, similar order handling behavior 
applies only to securities priced at or above $1.00.\15\ When proposed 
in 2011, the Resting Order Execution Filing stated that the order 
handling functionality was not necessary for securities priced below 
$1.00 as the Exchange did not have the ability to quote in sub-pennies 
and the system limitations that market participants may encounter if 
attempting to execute in increments finer than $0.0001.\16\ Given the 
rise in sub-dollar trading discussed above, the Exchange now proposes 
to expand the order handling functionality introduced by the Resting 
Order Execution Filing to securities priced below $1.00.
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    \13\ See Rule 11.6(e)(2). A User may attach a ``Non-Displayed 
Order'' instruction to an order stating that the order is not to be 
displayed by the System on the EDGX Book.
    \14\ See Securities Exchange Act Release No. 75479 (July 17, 
2015), 80 FR 43810 (July 23, 2015), SR-EDGX-2015-33 (``EDGX Order 
Handling Filing''). See also Securities Exchange Act Release No. 
64475 (May 12, 2011), 76 FR 28830 (May 18, 2011), SR-BATS-2011-015 
(``Resting Order Execution Filing''). The Resting Order Execution 
Filing introduced an order handling change for certain Non-Displayed 
Orders and orders subject to display-price sliding that are not 
executable at prices equal to displayed orders on the opposite side 
of the market (the ``locking price'') on the Exchange's affiliate, 
BZX (BATS) Exchange in 2011 and is incorporated by reference in the 
EDGX Order Handling Filing. The Resting Order Execution Filing 
permits Resting Orders priced at or above $1.00 to be executed at 
one-half minimum price variation less aggressive than the locking 
price (for bids) and one-half minimum price variation more 
aggressive than the locking price (for offers), under certain 
circumstances.
    \15\ See Rule 11.10(a)(4)(D).
    \16\ See Resting Order Execution Filing footnote 8.
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    Rule 11.10(a)(4)(D) states that for securities priced above $1.00, 
incoming orders that are Market Orders \17\ or Limit Orders \18\ priced 
more aggressively than an order displayed on the EDGX Book, the 
Exchange will execute the incoming order at, in the case of an incoming 
sell order, one-half minimum price variation less than the price of the 
displayed order, and, in the case of an incoming buy order, at one-half 
minimum price variation more than the price of the displayed order. The 
Exchange proposes that for securities priced below $1.00, incoming 
orders that are Market Orders or Limit Orders priced more aggressively 
than an order displayed on the EDGX Book, the Exchange will execute the 
incoming order at, in the case of an incoming sell order, one minimum 
price variation less than the price of the displayed order, and, in the 
case of an incoming buy order, at one minimum price variation more than 
the price of the displayed order. The different treatment of securities 
priced below $1.00 from securities priced at or above $1.00 arises from 
limitations within the System,\19\ which cannot process executions out 
to five decimal places.
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    \17\ See Rule 11.8(a). A ``Market Order'' is an order to buy or 
sell a stated amount of a security that is to be executed at the 
NBBO or better when the order reaches the Exchange.
    \18\ See Rule 11.8(b). A ``Limit Order'' is an order to buy or 
sell a stated amount of a security at a specified price or better.
    \19\ See Rule 1.5(cc). The term ``System'' shall mean the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranked, executions and, when applicable, routing away.
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    In order to demonstrate the proposed order handling behavior for 
securities priced below $1.00, the Exchange has included the following 
example:

Example 1

    <bullet> Assume the NBB is $0.50 and the NBO is $0.53. There is no 
resting interest on the EDGX Book.

------------------------------------------------------------------------
                                                Bid              Offer
------------------------------------------------------------------------
National best..............................    $0.50      x       $0.53
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    <bullet> Next, assume the Exchange received an incoming displayed 
offer (Order 1) to sell 100 shares at $0.50. Order 1 is eligible for 
display-price sliding pursuant to Rule 11.6(l).\20\ Pursuant to Rule 
11.6(l)(1)(B)(i), Order 1 is temporarily slid to a displayed price of 
$0.5001 as it locked the NBB upon entry.\21\ Even though Order 1 is now 
temporarily displayed at a price of $0.5001, Order 1's ranked price 
remains $0.50, as $0.50 is the locking price.\22\
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    \20\ See Rule 11.6(l)(1)(B)(i). An order instruction requiring 
that where an order would be a Locking Quotation or Crossing 
Quotation of an external market if displayed by the System on the 
EDGX Book at the time of entry, will be ranked at the Locking Price 
in the EDGX Book and displayed by the System at one Minimum Price 
Variation lower (higher) than the Locking Price for orders to buy 
(sell) (``Display-Price Sliding'').
    \21\ The Exchange notes that the reference to ``temporarily'' is 
meant to convey that for so long as the NBB is locked, Order 1 will 
be displayed at a price of $0.5001 pursuant to Rule 
11.6(l)(1)(B)(i). In the event that the NBB moves so that Order 1 is 
no longer locking the NBB, Order 1 will be displayed at the most 
aggressive permissible price. See also Rule 11.6(l)(1)(B)(ii).
    \22\ Id.
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    <bullet> Next, assume the Exchange received an incoming bid 
containing a Post Only instruction (Order 2) to buy 100 shares at 
$0.50. The Exchange's economic best interest calculation determined 
that it was more beneficial for Order 2 to post to the EDGX Book and 
display at a price of $0.50. Orders containing a Post Only instruction 
are permitted to post and be displayed opposite the ranked price of 
orders subject to Display-Price Sliding.\23\ The result would be 
depicted as follows:
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    \23\ See Rule 11.6(l)(1)(B)(v).

------------------------------------------------------------------------
                                                 Bid             Offer
------------------------------------------------------------------------
National best................................    $0.50     x     $0.5001
EDGA best....................................     0.50     x      0.5001
------------------------------------------------------------------------


[[Page 8475]]

    <bullet> The Exchange then receives an IOC \24\ order to buy (Order 
3) 100 shares at $0.5001. Order 3 executes against Order 1 in its 
entirety at a price of $0.5001.
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    \24\ See Rule 11.6(q)(1). ``IOC'' is an instruction the User may 
attach to an order stating the order is to be executed in whole or 
in part as soon as such order is received. The portion not executed 
immediately on the Exchange or another trading center is treated as 
cancelled and is not posted to the EDGX Book.
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    Consistent the Exchange's rule regarding priority of orders, Rule 
11.9, a Non-Displayed Order cannot be executed by the Exchange pursuant 
to Rule 11.10 when such order would be executed at the locking price. 
Specifically, if an incoming, marketable order was allowed to execute 
against the resting, non-displayed portion of Order 1 at the locking 
price, such order would receive a priority advantage over Order 2, a 
resting, displayed order at the locking price. The EDGX Order Handling 
Filing granted the Exchange the ability to execute Non-Displayed Orders 
and orders subject to NMS Price Sliding \25\ priced at or above $1.00 
at one-half minimum price variation more (less) than the locking price 
in the event that a bid (offer) submitted to the Exchange opposite such 
Resting Order is a market order or limit order priced more aggressive 
than the locking price.
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    \25\ Orders subject to NMS price sliding (``Display-Price 
Sliding'') that are temporarily slid to one minimum price variation 
above (below) the NBO (NBB) will consist of a non-displayed ranked 
price that is equal to the locking price while simultaneously 
showing a displayed price that is one minimum price variation above 
(below) the NBO (NBB). Given that orders subject to Display-Price 
Sliding contain a non-displayed ranked price in addition to the 
order's displayed price, the particular priority issue identified in 
the Resting Order Execution Filing with regard to Non-Displayed 
Orders is also present when an order subject to Display-Price 
Sliding is resting on the book opposite a displayed order.
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    In the example above, Order 1, ranked at $0.50 upon entry, was slid 
to a displayed price of $0.5001 pursuant to Rule 11.6(l)(1)(B)(i) as it 
locked the NBB. Upon the arrival of Order 2, which is an order 
containing a Post Only instruction that is permitted to post to the 
EDGX Book and display opposite of Order 1,\26\ the Exchange's current 
priority rule prohibits Order 1 from executing at a price of $0.50 in 
the event a subsequent contra-side incoming order is entered at a more 
aggressive price than the locking price. In the example above, Order 3 
was entered at a more aggressive price ($0.5001) than the locking price 
($0.50). Without the proposed changes to Rule 11.10(a)(4)(D), Order 3 
would be cancelled upon entry at is cannot execute at a price of $0.50 
due to Order 2's higher priority status.
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    \26\ Supra note 20.
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    As discussed above, the Exchange is proposing that a Resting Order 
priced below $1.00 be permitted to execute at one minimum price 
variation above the locking price (in the event of a Resting Order 
offer) or one minimum price variation below the locking price (in the 
event of a Resting Order bid) in the event that an order submitted to 
the Exchange on the side opposite such Resting Order is a market or 
limit order priced more aggressively than the locking price.\27\ This 
behavior is substantially similar to the order handling functionality 
described in the EDGX Order Handling Filing, with one difference being 
that securities priced below $1.00 will execute at one full minimum 
price variation above (below) the locking price for offers (bids) 
rather than one-half minimum price variation above (below) the locking 
price for offers (bids) in securities priced at or above $1.00. While 
the example above shows a scenario in which only the Resting Order will 
receive $0.0001 of price improvement, rather than each side of the 
transaction as is the case in the scenarios described in the EDGX Order 
Handling Filing, the Exchange notes that if Order 3 in the example 
above was entered at any price more aggressive than $0.5001, Order 3 
would continue to execute against Order 1 at a price of $0.5001 and 
Order 3 would receive price improvement equal to the difference between 
its limit price and $0.5001.\28\
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    \27\ See 17 CFR 242.612 (``Minimum pricing increment''). Given 
that the minimum pricing increment for securities priced below $1.00 
is $0.0001, the Exchange believes that allowing orders to execute at 
one minimum price variation above (for offers) or below (for bids) 
the locking price is appropriate, as requiring executions to occur 
at one-half minimum price variation above (for offers) or below (for 
bids) the locking price, which is the current behavior for 
securities priced at or above $1.00, would result in trades 
execution out to five decimal places, which is not supported by the 
System.
    \28\ For example, if all facts from Example 1 remain the same 
except that Order 3 is an IOC buy order entered with a limit price 
of $0.5005, then Order 3 will execute against Order 1 at a price of 
$0.5001 and receive $0.0004 of price improvement.
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    The EDGX Order Handling Filing specifically introduced order 
handling behavior that would permit Resting Orders to be executed at 
one-half minimum price variation above (below) the locking price when 
an incoming, marketable offer (bid) would otherwise be prevented from 
executing due to the presence of an order containing a Post Only 
instruction in order to optimize available liquidity for incoming 
orders and to provide price improvement for market participants.\29\ 
This change to order handling behavior was required because, if 
incoming orders were allowed to execute against Resting Orders at the 
locking price, such incoming order would receive a priority advantage 
over the resting, displayed order at the locking price, contrary to the 
Exchange's priority rule, Rule 11.9.\30\ The Exchange recognizes that 
the order handling behavior for securities priced at or above $1.00 
described in the EDGX Order Handling Filing results in price 
improvement for both sides of an affected transaction and the 
Exchange's proposed order handling change will result in $0.0001 of 
price improvement only for the Resting Order, however this situation is 
limited to instances where the incoming order is entered at a price 
equal to the displayed price of the Resting Order. While only the 
Resting Order will receive $0.0001 of price improvement when an 
incoming order is entered at the Resting Order's displayed price, the 
Exchange believes the incoming order is receiving the benefit of 
immediate execution rather than cancelling back or posting to the EDGX 
Book (depending on User instruction), which will result in higher 
overall market quality and likelihood of execution on EDGX for Users. 
In situations where the incoming order is entered at a more aggressive 
price than the displayed price of the Resting Order, however, each side 
of the transaction will be receiving at least $0.0001 of price 
improvement.
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    \29\ See Resting Order Execution Filing at 28831.
    \30\ Id.
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    Without the proposed order handling change for securities priced 
below $1.00, a Resting Order may be priced at the very inside of the 
market at a price below $1.00 but temporarily unable to execute at its 
full limit price due to the Exchange's priority rule and current order 
handling procedures. The Exchange notes that by permitting a User's 
Resting Order to rest at a locking price opposite a displayed order and 
receive an execution against an incoming order that is priced equal to 
or more aggressively than the displayed price, the Exchange is 
incentivizing Users to post aggressively priced liquidity on both sides 
of the market, rather than discouraging such liquidity by leaving 
orders unexecuted. In addition, if the EDGX Book changes so that such 
orders are no longer resting or ranked opposite a displayed order, then 
such orders will again be executable at their full limit price, and in 
the case of price slid orders, will be displayed at that limit price.

[[Page 8476]]

    The Exchange is proposing a solution to address specific conditions 
that are present on the EDGX Book when an order with a Post Only 
instruction is displayed opposite the ranked price of orders subject to 
display-price sliding. The Exchange believes that such specific 
circumstances, without modification of Rule 11.10(a)(4), would be 
present upon the expansion of Post Only instruction functionality to 
securities priced below $1.00 and would result in Users receiving fewer 
executions than the Exchange could otherwise facilitate. The Exchange 
believes the proposed change to Rule 11.10(a)(4)(D) is substantially 
similar to the order handling modification proposed and ultimately 
approved by the EDGX Order Handling Filing and does not introduce any 
novel order handling behavior that has not previously been proposed. 
While the Exchange is proposing to use a full minimum price variation 
rather than the one-half minimum price variation currently used for 
securities priced at or above $1.00 as detailed in the EDGX Order 
Handling Filing, the minimum price variation proposed for securities 
priced below $1.00 is commensurate with the standard minimum pricing 
increment for securities priced below $1.00.
    The Exchange believes the absence of price improvement for the 
incoming order is diminished by the incoming order's ability to receive 
an execution on the Exchange against the Resting Order, rather than 
receive a cancellation or be posted to the EDGX Book (depending on User 
instruction). Further, the Exchange believes that Users who received 
increased execution rates on EDGX will be more likely to submit 
additional order flow to the Exchange. Additional increased order flow 
benefits all market participants by contributing to a deeper, more 
liquid market and provides even more execution opportunities for active 
market participants. Additionally, this difference is necessary due to 
System limitations that do not support executions out to five decimal 
places ($0.00001) in securities priced below $1.00, which would occur 
should the Exchange utilize the same minimum price variation described 
in the EDGX Order Handling Filing. The proposal to amend Rule 
11.10(a)(4)(D) is limited to certain circumstances that occur as a 
result of the presence of an order containing a Post Only instruction 
resting opposite a Non-Displayed Order or order subject to Display-
Price Sliding and is designed to optimize available liquidity for 
incoming orders.
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.\31\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \32\ 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) \33\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ Id.
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    As discussed above, the Exchange is proposing to expand the use of 
its Post Only instruction to securities priced below $1.00. In 
conjunction with expanding the ability to utilize a Post Only 
instruction at prices below $1.00, the Exchange also proposes that a 
Resting Order priced below $1.00 be permitted to execute at one minimum 
price variation above the locking price (in the event of a Resting 
Order offer) or one minimum price variation below the locking price (in 
the event of a Resting Order bid) in the event that an order submitted 
to the Exchange on the side opposite such Resting Order is a market or 
limit order priced more aggressively than the locking price. This 
change in order handling behavior is necessary in order to address 
specific conditions that are present on the EDGX Book when an order 
containing a Post Only instruction is displayed opposite the ranked 
price of orders subject to display-price sliding. As discussed below, 
the Exchange believes its proposal is consistent with Section 6(b)(5) 
of the Act.
    In particular, the proposal to amend Rule 11.6(n)(4) to permit 
orders priced below $1.00 to utilize a Post Only instruction promotes 
just and equitable principles of trade and removes impediments to, and 
perfects the mechanism of a free and open market and a national market 
system because it will allow Users to enter orders with a Post Only 
instruction at any price, rather than being limited to securities 
priced above $1.00. The growth in trading of sub-dollar securities has 
expanded significantly since 2019 and as such, the Exchange believes 
that orders at all prices, not only securities priced above $1.00, 
should be permitted to utilize a Post Only instruction, which will 
permit orders to post on the Exchange without removing liquidity or 
routing to away to another trading center. A Post Only instruction 
allows Users to post aggressively priced liquidity, and such Users have 
certainty as to the fee or rebate they will receive from the Exchange 
if their order is executed. Without such ability, the Exchange believes 
that certain Users would simply post less aggressively priced 
liquidity, and prices available for market participants, including 
retail investors, would deteriorate. Accordingly, the Exchange believes 
that orders containing a Post Only instruction enhance the liquidity 
available to all market participants by allowing market makers and 
other liquidity providers to add liquidity to the Exchange at or near 
the inside of the market. Indeed, such market participants have asked 
the Exchange to implement such functionality in order to permit them to 
utilize a single trading strategy across securities at all prices. 
Allowing an order containing a Post Only instruction to be utilized at 
prices below $1.00 will deepen the Exchange's pool of available 
liquidity in sub-dollar securities, which is a growing area of trading, 
particularly for retail investors. A deeper and more liquid market 
supports the quality of price discovery, promotes market transparency, 
and improves market quality for all investors. The Exchange does not 
believe that the proposed amendment to Rule 11.6(n)(4) is unfairly 
discriminatory as it will permit the Post Only instruction to be used 
by all Users at any price and the order instruction will no longer be 
limited to securities priced at or above $1.00.
    Similarly, the proposal to amend Rule 11.10(a)(4)(D) to allow, 
under limited circumstances, a Resting Order priced below $1.00 that 
would otherwise be non-executable due to the presence of an order 
containing a Post Only instruction to execute at one minimum price 
variation above (below) the locking price upon the receipt of an 
incoming, marketable offer (bid) that would otherwise be prohibited 
from executing due to the presence of an order containing a Post Only 
instruction

[[Page 8477]]

promotes just and equitable principles of trade and removes impediments 
to, and perfects the mechanism of a free and open market and a national 
market system because it extends functionality currently available to 
orders priced at or above $1.00 to orders priced below $1.00, with a 
slight difference in the minimum price variation to account for the 
System's inability to display orders out to five decimal places 
($0.00001). The proposed amendment to Rule 11.10(a)(4)(D) is 
substantially similar to the order handling behavior change that was 
proposed (and later approved) by the Resting Order Execution Filing on 
the Exchange's affiliate, BZX Exchange, and subsequently by the EDGX 
Order Handling Filing, and will only serve to improve execution quality 
for participants sending orders to the Exchange.
    The Exchange does not believe that the treatment of sub-dollar 
securities is unfairly discriminatory as the Exchange will be using the 
standard minimum pricing increment for sub-dollar securities in order 
to determine the price at which the Resting Order is eligible to 
execute.\34\ While the Exchange recognizes that under its proposal for 
securities priced below $1.00 results in a limited situation in which 
only the Resting Order will receive $0.0001 of price improvement (i.e., 
when an incoming order is entered at the same price as the displayed 
price of the Resting Order), the Exchange believes the incoming, 
contra-side order is receiving the benefit of immediate execution 
rather than cancelling or posting to the EDGX Book (depending on User 
instruction), which will result in higher overall market quality and 
likelihood of execution on EDGX for Users. In situations where the 
incoming order is entered at a more aggressive price than the displayed 
price of the Resting Order, however, each side of the transaction will 
be receiving at least $0.0001 of price improvement, which is 
substantially similar to how the order handling functionality works for 
securities priced at or above $1.00. The Exchange believes the proposed 
change to execute marketable orders that are currently not executed 
under specific scenarios will help provide price improvement to Resting 
Orders that, in these limited circumstances, otherwise would not 
receive an execution even though their order is priced at the inside of 
the market and would also provide increased execution opportunities to 
aggressively priced incoming orders rather than requiring these orders 
to be cancelled or post to the EDGX Book. Thus, the Exchange believes 
that its proposed order handling process in the limited scenario where 
a Resting Order is ineligible to execute due to the presence of a 
contra-side order containing a Post Only instruction will benefit 
market participants and their customers by allowing them greater 
flexibility in their efforts to fill orders and minimize trading costs.
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    \34\ Supra note 27.
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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 intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
change to Rule 11.6(n)(4) will apply equally to all Users in that all 
Users will be eligible to utilize the Post Only instruction for 
securities priced below $1.00. Similarly, the proposed change to Rule 
11.10(a)(4)(D) applies equally to all Users in that all Resting Orders 
will benefit from the proposed order handling behavior change that will 
execute Resting Orders at one minimum price variation above (below) the 
locking price upon the receipt of a marketable offer (bid) should a 
Resting Order be ineligible to execute due to the presence of a contra-
side order containing a Post Only instruction. The proposed changes are 
designed to expand an existing Exchange order instruction and existing 
order handling behavior to securities priced below $1.00 due to the 
growth in sub-dollar trading that has been seen since 2019. Further, 
the Exchange does not believe that Users submitting incoming, contra-
side orders are burdened by virtue of not receiving price improvement 
in limited situations as they instead receive the benefit of an 
immediate execution as opposed to being cancelled back to the User or 
posting on the EDGX Book which results in increased overall market 
quality and a higher likelihood of execution on EDGX.
    The Exchange similarly does not believe that the proposed rule 
change will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. In 
fact, the Exchange notes that other exchanges already offer the ability 
to submit an order that is not eligible for routing to away markets and 
posts to the relevant exchange book at prices below $1.00.\35\ The 
Exchange believes its proposal to expand the use of the Post Only 
instruction to securities priced below $1.00 will promote competition 
between the Exchange and other exchanges for volume in sub-dollar 
securities. Furthermore, the Exchange believes its proposal will 
promote competition between the Exchange and off-exchange trading 
venues, where a significant amount of sub-dollar trading occurs 
today.\36\ The Exchange similarly believes that its proposal to amend 
its order handling behavior in limited circumstances where a Resting 
Order cannot execute due to the presence of a contra-side order 
containing a Post Only instruction does not impose a burden on 
intermarket competition as the change is not designed to address any 
competitive issue, but rather to address order handling behavior in a 
substantially similar manner to how the Exchange treats Resting Orders 
priced at or above $1.00 in the limited scenario where a Resting Order 
is ineligible to execute against an incoming, marketable order due to 
the presence of a contra-side order containing a Post Only instruction.
---------------------------------------------------------------------------

    \35\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order''). 
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
    \36\ See ``Off-Exchange Trends: Beyond Sub-dollar Trading'' (May 
17, 2023). Available at https://www.cboe.com/insights/posts/off-exchange-trends-beyond-sub-dollar-trading/.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 8478]]

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="5123243d347c323e3c3c343f2522112234327f363e27">[email protected]</span></a>. Please include 
file number SR-CboeEDGX-2024-007 on the subject line.

Paper Comments

    <bullet> 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-CboeEDGX-2024-007. 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-CboeEDGX-2024-007 and should 
be submitted on or before February 28, 2024.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02421 Filed 2-6-24; 8:45 am]
BILLING CODE 8011-01-P


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