Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3205 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 80683 

(May 16, 2017), 82 FR 23320 (‘‘Notice’’). 

4See Securities Exchange Act Release No. 81072, 

82 FR 31792 (July 10, 2017). 

5See Letters to Brent J. Fields, Secretary, 

Commission, from: (1) Donald K. Ross, Jr., 

Executive Chairman, PDQ Enterprise, LLC, dated 

June 6, 2017 (‘‘PDQ Letter’’); (2) Edward S. Knight, 

Executive Vice President and General Counsel, 

Nasdaq, Inc., dated June 12, 2017 (‘‘Nasdaq Letter 

1’’); (3) Ray Ross, Chief Technology Officer, 

Clearpool Group, dated June 12, 2017 (‘‘Clearpool 

Letter’’); (4) Venu Palaparthi, SVP, Compliance, 

Regulatory and Government Affairs, Virtu 

Financial, dated June 12, 2017 (‘‘Virtu Letter’’); (5) 

Theodore R. Lazo, Managing Director and Associate 

General Counsel, SIFMA, dated June 13, 2017 

(‘‘SIFMA Letter 1’’); (6) Elizabeth K. King, General 

Counsel and Corporate Secretary, New York Stock 

Exchange (‘‘NYSE’’), dated June 13, 2017 (‘‘NYSE 

Letter 1’’); (7) John M. Bowers, Bowers Securities, 

dated June 14, 2017 (‘‘Bowers Letter’’); (8) Jonathan 

D. Corpina, Senior Managing Partner, Meridian 

Equity Partners, dated June 16, 2017 (‘‘Meridian 

Letter’’); (9) Fady Tanios, Chief Executive Officer, 

and Brian Fraioli, Chief Compliance Officer, 

Americas Executions, LLC, dated June 16, 2017 

(‘‘Americas Executions Letter’’); (10) Ari M. 

Rubenstein, Co-Founder and Chief Executive 

Officer, GTS Securities LLC, dated June 22, 2017 

(‘‘GTS Securities Letter 1’’); (11) John Ramsay, Chief 

Market Policy Officer, Investors Exchange LLC, 

dated June 23, 2017 (‘‘IEX Letter’’); (12) Jay S. 

Sidhu, Chairman, Chief Executive Officer, 

Customers Bancorp, Inc., dated June 27, 2017 

(‘‘Customers Bancorp Letter’’); (13) Joanne 

Freiberger, Vice President, Treasurer, Masonite 

International Corporation, dated June 27, 2017 

(‘‘Masonite International Letter’’); (14) David B. 

Griffith, Investor Relations Manager, Orion Group 

Holdings, Inc., dated June 27, 2017 (‘‘Orion Group 

Letter’’); (15) Kieran O’Sullivan, Chairman, 

President and CEO, CTS Corporation, dated June 

28, 2017 (‘‘CTS Corporation Letter’’); (16) Sherri 

Brillon, Executive Vice-President and Chief 

Financial Officer, Encana Corporation, dated June 

29, 2017 (‘‘Encana Letter’’); (17) Steven C. Lilly, 

Chief Financial Officer, Triangle Capital 

Corporation, dated June 29, 2017 (‘‘Triangle Capital 

Letter’’); (18) Robert F. McCadden, Executive Vice 

President and Chief Financial Officer, Pennsylvania 

Real Estate Investment Trust, dated June 29, 2017 

(‘‘Pennsylvania REIT Letter’’); (19) Andrew Stevens, 

General Counsel, IMC Financial Markets, dated 

June 30, 2017 (‘‘IMC Letter’’); (20) Daniel S. Tucker, 

Senior Vice President and Treasurer, Southern 

Company, dated July 5, 2017 (‘‘Southern Company 

Letter’’); (21) Cole Stevens, Investor Relations 

Associate, Nobilis Health, dated July 6, 2017 

(‘‘Nobilis Health Letter’’); (22) Mehmet Kinak, Head 

of Global Equity Market Structure & Electronic 

Trading, et al., T. Rowe Price Associates, Inc., dated 

July 7, 2017 (‘‘T. Rowe Price Letter’’); (23) David L. 

Dragics, Senior Vice President, Investor Relations, 

CACI International Inc., dated July 7, 2017 (‘‘CACI 

Letter’’); (24) Mark A. Stegeman, Senior Vice 

President & CFO, Turning Point Brands, Inc., dated 

July 12, 2017 (‘‘Turning Point Letter’’); (25) Jon R. 

Moeller, Vice Chair and Chief Financial Officer, and 

Deborah J. Majoras, Chief Legal Officer and 

Secretary, The Proctor & Gamble Company, dated 

July 12, 2017 (‘‘P&G Letter’’); (26) Christopher A. 

Iacovella, Chief Executive Officer, Equity Dealers of 

America, dated July 12, 2017 (‘‘EDA Letter’’); (27) 

Rob Bernshteyn, Chief Executive Officer, Chairman 

Board of Directors, Coupa Software, Inc., dated July 

12, 2017 (‘‘Coupa Software Letter’’); (28) Sally J. 

Curley, Senior Vice President, Investor Relations, 

Cardinal Health, Inc., dated July 14, 2017 

(‘‘Cardinal Health Letter’’); (29) Mickey Foster, Vice 

President, Investor Relations, FedEx Corporation, 

dated July 14, 2017 (‘‘FedEx Letter’’); (30) 

Alexander J. Matturri, CEO, S&P Dow Jones Indices, 

dated July 18, 2017 (‘‘SPDJI Letter’’); (31) John L. 

Killea, Chief Legal Officer, Stewart Information 

Services, dated July 19, 2017 (‘‘Stewart Letter’’); 

(32) M. Farooq Kathwari, Chairman, President & 

CEO, Ethan Allen Interiors, Inc., dated July 24, 2017 

(‘‘Ethan Allen Letter’’); (33) Jeff Green, Founder, 

Chief Executive Officer and Chairman of the Board 

of Directors, The Trade Desk Inc., dated July 26, 

2017 (‘‘Trade Desk Letter’’); (34) James J. Angel, 

Associate Professor, McDonough School of 

Business, Georgetown University, dated July 30, 

2017 (‘‘Angel Letter’’); (35) Jon Stonehouse, CEO, 

and Tom Staab, CFO, BioCryst Pharmaceuticals, 

Inc., dated July 31, 2017 (‘‘BioCryst Letter’’); (36) 

Peter Campbell, Chief Financial Officer, Mimecast, 

dated July 31, 2017 (‘‘Mimecast Letter’’); (37) Joanne 

Moffic-Silver, Executive Vice President, General 

Counsel, and Corporate Secretary, Bats Global 

Markets, Inc., dated August 2, 2017 (‘‘BZX Letter 

1’’); (38) David M. Weisberger, Head of Equities, 

ViableMkts, dated August 3, 2017 (‘‘ViableMkts 

Letter’’); (39) Charles Beck, Chief Financial Officer, 

Digimarc Corporation, dated August 3, 2017 

(‘‘Digimarc Letter’’); (40) Elizabeth K. King, General 

Counsel and Corporate Secretary, NYSE, dated 

August 9, 2017 (‘‘NYSE Letter 2’’); (41) 

Representative Sean P. Duffy and Representative 

Gregory W. Meeks, dated August 9, 2017 (‘‘Duffy/ 

Meeks Letter’’); (42) Michael J. Chewens, Senior 

Executive Vice President & Chief Financial Officer, 

NBT Bancorp Inc., dated August 11, 2017 (‘‘NBT 

Bancorp Letter’’); (43) Barry Zwarenstein, Chief 

Financial Officer, Five9, Inc., dated August 11, 2017 

(‘‘Five9 Letter’’); (44) William A. Backus, Chief 

Financial Officer & Treasurer, Balchem Corporation, 

dated August 15, 2017 (‘‘Balchem Letter’’); (45) 

Raiford Garrabrant, Director, Investor Relations, 

Cree, Inc., dated August 15, 2017 (‘‘Cree Letter’’); 

(46) Steven Paladino, Executive Vice President & 

Chief Financial Officer, Henry Schein, Inc., dated 

August 16, 2017 (‘‘Henry Schein Letter’’); (47) 

Theodore Jenkins, Senior Director, Investor 

Relations and Communications, Corbus 

Pharmaceuticals, Inc., dated August 17, 2017 

(‘‘Corbus Letter’’); (48) Ari M. Rubenstein, CoFounder and Chief Executive Officer, GTS 

Securities LLC, dated August 17, 2017 (‘‘GTS 

Securities Letter 2’’); (49) Cameron Bready, Senior 

Executive VP, Chief Financial Officer, Global 

Payments Inc., dated August 17, 2017 (‘‘Global 

Payments Letter’’); (50) Mike Gregoire, CEO, CA 

Technologies, dated August 17, 2017 (‘‘CA 

Technologies Letter’’); (51) Patrick L. Donnelly, 

Executive Vice President & General Counsel, Sirius 

XMHoldings Inc., dated August 17, 2017 (‘‘Sirius 

Letter’’); (52) Theodore R. Lazo, Managing Director 

and Associate General Counsel, SIFMA, dated 

August 18, 2017 (‘‘SIFMA Letter 2’’); (53) Donald 

Bollerman, dated August 18, 2017 (‘‘Bollerman 

Letter’’); and (54) Sarah A. O’Dowd, Senior Vice 

President, Chief Legal Officer and Secretary, Lam 

Research Corporation, dated August 18, 2017 (‘‘Lam 

Letter’’). 

6 15 U.S.C. 78s(b)(2)(B). 

7See Securities Exchange Act Release No. 81437, 

82 FR 40202 (August 24, 2017) (‘‘OIP’’). In the OIP, 

the Commission specifically requested comment on 

eight series of questions. See id. at 40210–11. 

8See Letters to Brent J. Fields, Secretary, 

Commission, from: (1) Gabrielle Rabinovitch, VP, 

Investor Relations, PayPal Holdings, Inc., dated 

September 12, 2017 (‘‘PayPal Letter’’); (2) Edward 

S. Knight, Executive Vice President and General 

Counsel, Nasdaq, Inc., dated September 18, 2017 

(‘‘Nasdaq Letter 2’’); (3) Joanne Moffic-Silver, 

Executive Vice President, General Counsel, and 

Continued 

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 CboeEDGA–2018–001 and 

should be submitted on or before 

February 13, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–01089 Filed 1–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82522; File No. SR– 

BatsBZX–2017–34] 

Self-Regulatory Organizations; Bats 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting 

Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To 

Introduce Cboe Market Close, a 

Closing Match Process for Non-BZX 

Listed Securities Under New Exchange 

Rule 11.28 

January 17, 2018. 

I. Introduction 

On May 5, 2017, Bats BZX Exchange, 

Inc. (now known as Cboe BZX 

Exchange, Inc.) (‘‘BZX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to adopt Bats Market Close, a 

closing match process for non-BZX 

Listed Securities. The proposed rule 

change was published for comment in 

the Federal Register on May 22, 2017.3

On July 3, 2017, the Commission 

designated a longer period within which 

to approve the proposed rule change, 

disapprove the proposed rule change, or 

institute proceedings to determine 

whether the proposed rule change 

should be disapproved.4 The 

Commission received 54 comment 

letters on the proposed rule change, 

including a response from the 

Exchange.5 On August 18, 2017, the 

Commission instituted proceedings 

under Section 19(b)(2)(B) of the Act 6 to 

determine whether to approve or 

disapprove the proposed rule change.7

Thereafter, the Commission received 

nine more comment letters, including 

three responses from the Exchange.8 On 


sradovich on DSK3GMQ082PROD with NOTICES
3206 Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 

Corporate Secretary, Bats Global Markets, Inc., 

dated October 11, 2017 (‘‘BZX Letter 2’’); (4) 

Elizabeth K. King, General Counsel and Corporate 

Secretary, NYSE, dated November 3, 2017 (‘‘NYSE 

Letter 3’’); (5) Theodore R. Lazo, Managing Director 

and Associate General Counsel, SIFMA, dated 

December 8, 2017 (‘‘SIFMA Letter 3’’); (6) Jeffrey S. 

Davis, Deputy General Counsel, Nasdaq, Inc., dated 

December 21, 2017 (‘‘Nasdaq Letter 3’’); (7) Joanne 

Moffic-Silver, Executive Vice President, General 

Counsel, and Corporate Secretary, Cboe Global 

Markets, Inc., dated January 3, 2018 (‘‘BZX Letter 

3’’); (8) Joanne Moffic-Silver, Executive Vice 

President, General Counsel, and Corporate 

Secretary, Cboe Global Markets, Inc., dated January 

12, 2018 (‘‘BZX Letter 4’’); and (9) Elizabeth K. 

King, General Counsel and Corporate Secretary, 

NYSE, dated January 12, 2018 (‘‘NYSE Letter 4’’). 

All comments on the proposed rule change are 

available at: https://www.sec.gov/comments/srbatsbzx-2017-34/batsbzx201734.htm. In addition, 

the Commission’s Division of Economic and Risk 

Analysis (‘‘DERA’’) released in the public comment 

file for this proposal a memorandum setting forth 

its analysis examining the relationship between the 

proportion of MOC orders executed off-exchange 

and closing price discovery and efficiency (‘‘DERA 

Analysis’’). See Memorandum to File from DERA, 

Bats Market Close: Off-Exchange Closing Volume 

and Price Discovery, dated December 1, 2017 

(‘‘DERA Analysis’’), available at: https://

www.sec.gov/files/bats_moc_analysis.pdf; see also 

infra note 129 and accompanying discussion. NYSE 

Letter 4 included an assessment of the DERA 

Analysis conducted by D. Timothy McCormick, 

Ph.D., dated January 11, 2018 (‘‘NYSE Report’’). See 

NYSE Letter 4, at 1 and NYSE Report, cover page 

(stating that the research was funded by NYSE 

Group). For purposes of this order, statements in 

the NYSE Report are attributed to NYSE. 

9 15 U.S.C. 78s(b)(2). 

10See Securities Exchange Act Release No. 82108, 

82 FR 55894 (November 24, 2017). 

11The only change in Amendment No. 1 was to 

rename the proposed closing match process as Cboe 

Market Close. Because Amendment No. 1 is a 

technical amendment and does not materially alter 

the substance of the proposed rule change or raise 

unique or novel regulatory issues, Amendment No. 

1 is not subject to notice and comment. For 

purposes of consistency and readability, all 

references to the proposed closing match process 

made herein will be to ‘‘Cboe Market Close.’’ 

12See Notice, supra, note 3. 

13The term ‘‘System’’ is defined as ‘‘the 

electronic communications and trading facility 

designated by the Board through which securities 

orders of Users are consolidated for ranking, 

execution and, when applicable, routing away.’’ See 

Exchange Rule 1.5(aa). 

14The term ‘‘Market-On-Close’’ or ‘‘MOC’’ means 

a BZX market order that is designated for execution 

only in the Closing Auction. See Exchange Rule 

11.23(a)(15). The Exchange proposed to amend the 

description of Market-On-Close orders to include 

orders designated to execute in the proposed Cboe 

Market Close. 

15The term ‘‘Member’’ is defined as ‘‘any 

registered broker or dealer that has been admitted 

to membership in the Exchange.’’ See Exchange 

Rule 1.5(n). 

16Currently, the NYSE designates the cut-off time 

for the entry of Market At-the-Close Orders as 3:45 

p.m. Eastern Time. See NYSE Rule 123C. Nasdaq, 

in turn, designates the ‘‘end of the order entry 

period’’ as 3:50 p.m. Eastern Time. See Nasdaq Rule 

4754. 

17As set forth in proposed Interpretation and 

Policy .02, the Exchange would cancel all MOC 

orders designated to participate in Cboe Market 

Close in the event the Exchange becomes impaired 

prior to the MOC Cut-Off Time and is unable to 

recover within 5 minutes from the MOC Cut-Off 

Time. The Exchange states that this would provide 

Members time to route their orders to the primary 

listing market’s closing auction. Should the 

Exchange become impaired after the MOC Cut-Off 

Time, proposed Interpretation and Policy .02 states 

that it would retain all matched MOC orders and 

execute those orders at the official closing price 

once it is operational. 

18The Bats Auction Feed disseminates 

information regarding the current status of price 

and size information related to auctions conducted 

by the Exchange and is provided at no charge. See 

Exchange Rule 11.22(i). The Exchange also 

proposed to amend Exchange Rule 11.22(i) to reflect 

that the Bats Auction Feed would also include the 

total size of all buy and sell orders matched via 

Cboe Market Close. 

19The Exchange would report the execution of all 

previously matched buy and sell orders to the 

applicable securities information processor and will 

designate such trades as ‘‘.P’’, Prior Reference Price. 

See Notice, supra note 3, at 23321. 

20See proposed Interpretation and Policy .01. 

21See Notice, supra note 3, at 23321. The 

Exchange intends, should the Commission approve 

the proposed rule change, to file a separate proposal 

to offer executions of MOC orders at the official 

closing price, to the extent matched on the 

Exchange, at a rate less than the fee charged by the 

applicable primary listing market. The Exchange 

also intends for such fee to remain lower than the 

fee charged by the applicable primary listing 

market. See id. 

22See id. 

23 In approving this proposed rule change, the 

Commission has considered the proposed rule 

November 17, 2017, pursuant to Section 

19(b)(2) of the Act,9 the Commission 

designated a longer period for 

Commission action on proceedings to 

determine whether to disapprove the 

proposed rule change.10 On December 1, 

2017, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

renaming ‘‘Bats Market Close’’ as ‘‘Cboe 

Market Close.’’ 11 This order approves 

the proposed rule change. 

II. Summary of the Proposal 

As described in more detail in the 

Notice,12 the Exchange proposes to 

introduce Cboe Market Close, a closing 

match process for non-BZX listed 

securities. For non-BZX listed 

securities, the Exchange’s System 13

would seek to match buy and sell 

Market-On-Close (‘‘MOC’’) 14 orders 

designated for participation in Cboe 

Market Close at the official closing price 

for such security published by the 

primary listing market. 

Members 15 would be able to enter, 

cancel or replace MOC orders 

designated for participation in Cboe 

Market Close beginning at 6:00 a.m. 

Eastern Time up until 3:35 p.m. Eastern 

Time (‘‘MOC Cut-Off Time’’).16

Members would not be able to enter, 

cancel or replace MOC orders 

designated for participation in the 

proposed Cboe Market Close after the 

MOC Cut-Off Time. 

At the MOC Cut-Off Time, the System 

would match for execution all buy and 

sell MOC orders entered into the System 

based on time priority.17 Any remaining 

balance of unmatched shares would be 

cancelled back to the Member(s). The 

System would disseminate, via the Bats 

Auction Feed,18 the total size of all buy 

and sell orders matched per security via 

Cboe Market Close. All matched buy 

and sell MOC orders would remain on 

the System until the publication of the 

official closing price by the primary 

listing market. Upon publication of the 

official closing price by the primary 

listing market, the System would 

execute all previously matched buy and 

sell MOC orders at that official closing 

price.19

The Exchange would utilize the 

official closing price published by the 

exchange designated by the primary 

listing market in the case where the 

primary listing market suffers an 

impairment and is unable to perform its 

closing auction process.20 In addition, 

proposed Interpretation and Policy .03 

specifies that up until the closing of the 

applicable securities information 

processor at 8:00 p.m. Eastern Time, the 

Exchange intends to monitor the initial 

publication of the official closing price, 

and any subsequent changes to the 

published official closing price, and 

adjust the price of such trades 

accordingly. If there is no initial official 

closing price published by 8:00 p.m. 

Eastern Time for any security, the 

Exchange would cancel all matched 

MOC orders in such security. 

The Exchange states that it is 

proposing to adopt Cboe Market Close 

in response to requests from market 

participants, particularly buy-side firms, 

for an alternative to the primary listing 

markets’ closing auctions that still 

provides an execution at a security’s 

official closing price.21 Moreover, the 

Exchange contends that the proposal 

would not compromise the price 

discovery function performed by the 

primary listing markets’ closing 

auctions because Cboe Market Close 

would only accept MOC orders, and not 

limit orders, and the Exchange would 

only execute those matched MOC orders 

that naturally pair off and effectively 

cancel each other out.22

III. Discussion and Commission 

Findings 

The Commission has carefully 

reviewed the proposal, including the 

comments received, and finds that 

approval of the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.23 In particular, as 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3207 

change’s impact on efficiency, competition, and 

capital formation. See 15 U.S.C. 78c(f). The 

Commission addresses comments about economic 

effects of the proposed rule change, including 

competitive effects, below. 

24 15 U.S.C. 78f(b)(5). 

25 15 U.S.C. 78f(b)(8). 

26See supra notes 5 and 8. 

27See PDQ Letter; Clearpool Letter, at 3; Virtu 

Letter, at 2; SIFMA Letter, at 2; IEX Letter, at 1–2; 

Angel Letter, at 4; ViableMkts Letter, at 3–4; and 

Bollerman Letter, at 1. See also SIFMA Letter 2, at 

1–2. 

28See Clearpool, at 3; IEX Letter, at 2; Angel 

Letter, at 4; SIFMA Letter 2, at 2; and Bollerman 

Letter, at 3. 

29See Clearpool Letter, at 3; SIFMA Letter 1, at 

2; IEX Letter, at 2; Angel Letter, at 4; ViableMkts 

Letter, at 3; and SIFMA Letter 2, at 1. 

30See Clearpool, at 3–4; and ViableMkts Letter, at 

4–5. One commenter further argued that to the 

extent BZX accrues market share as a result of the 

proposal it will likely result from less MOC pairing 

executed off-exchange. See Angel Letter, at 4. 

31See Nasdaq Letter 1; NYSE Letter 1; Bowers 

Letter; Meridian Letter; Americas Executions Letter; 

GTS Securities Letter 1; Customers Bancorp Letter; 

Masonite International Letter; Orion Group Letter; 

CTS Corporation Letter; Encana Letter; Triangle 

Capital Letter; Pennsylvania REIT Letter; IMC 

Letter; Southern Company Letter; Nobilis Health 

Letter; T. Rowe Price Letter; CACI Letter; Turning 

Point Letter; P&G Letter; EDA Letter; Coupa 

Software Letter; Cardinal Health Letter; FedEx 

Letter; Trade Desk Letter; BioCryst Letter; Mimecast 

Letter; Digimarc Letter; NYSE Letter 2; NBT 

Bancorp Letter; Balchem Letter; Cree Letter; Henry 

Schein Letter; Corbus Letter; GTS Securities Letter 

2; Global Payments Letter; CA Technologies Letter; 

Sirius Letter; Lam Letter; PayPal Letter; Nasdaq 

Letter 2; NYSE Letter 3. See also Duffy/Meeks 

Letter, at 1 (stating that public companies are 

expressing concern that the proposal will further 

fragment the market and cause harm to the pricing 

of their companies’ shares at the close and, as such, 

they are concerned the proposal may disrupt the 

process for determining the closing price on the 

primary listing market, which is viewed as ‘‘an 

incredibly well-functioning part of the capital 

markets’’). In addition, one commenter urged the 

Commission to conduct a close analysis of the 

proposal and stated that if the Bats proposal would 

seriously degrade the quality of the closing price, 

then it should be rejected. See Angel Letter. 

32See Nasdaq Letter 1, at 5 and 8 (stating that, 

for this reason Nasdaq did not believe the proposal 

promotes fair and orderly markets in accordance 

with Sections 6 and 11A of the Exchange Act); and 

Nasdaq Letter 2, at 3–7. 

33See Nasdaq Letter 1, at 11 and Nasdaq Letter 

2, at 5–6. Nasdaq also stated that while BZX does 

not have a responsibility to contribute to price 

discovery in Nasdaq’s closing auction, it also is 

obligated to avoid affirmatively undermining price 

discovery. See Nasdaq Letter 1, at 5. In addition, 

Nasdaq stated that it considered, but chose not to, 

disclose segmented information, such as matched 

MOC or LOC shares, for its closing auction in a 

piece-meal fashion, because Nasdaq believed it 

would lead to unintended consequences and 

undermine price discovery in the closing auction. 

See id., at 4 and Nasdaq Letter 2, at 6. 

34See Nasdaq Letter 1, at 5 and 11. 

35See id. at 11. 

36See OIP, supra note 7, at 40210. Specifically, 

the Commission asked, ‘‘To what extent, if at all, 

would the availability of the Bats Market Close 

impact market participants’ use of limit-on-close 

orders in the closing auction processes on the 

primary listing exchanges, including with respect to 

size and price? Please explain. Would market 

participants use MOC orders in the Bats Market 

Close as a substitute for using limit orders to 

participate in the closing auction processes at the 

primary listing exchanges? Would any such impacts 

be the same for each of the primary listing 

exchanges? Are there differences between the 

closing auction processes at each of the primary 

listing exchanges whereby the proposed Bats 

Market Close would have differing effects on each 

primary listing exchange? If so, please explain. How 

does information available in the closing auction 

process affect market participants’ order 

submissions and/or determination of the closing 

price? Would the proposed rule change affect 

market participants’ trading strategies in closing 

auctions? If so, how? If commenters believe the 

proposal would impact the use of limit-on-close 

orders in closing auctions, to the extent possible 

please provide specific data, analyses, or studies for 

support.’’ 

37See Nasdaq Letter 2, at 5–6. Nasdaq did not 

submit any specific data regarding the impact of the 

proposal on the use of limit on close orders. 

discussed below, the Commission finds 

that the proposal is consistent with: 

Section 6(b)(5) of the Act,24 which 

requires that the rules of a national 

securities exchange, among other things, 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest; and 

Section 6(b)(8) of the Act,25 which 

requires that the rules of a national 

securities exchange not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

The Commission received sixty-three 

comment letters from fifty-two 

commenters on the proposal, including 

four response letters from the 

Exchange.26

Price Discovery and Fragmentation 

The majority of commenters 

addressed the potential impacts of the 

proposal on price discovery in the 

closing auctions on the primary listing 

markets. Eight commenters stated that 

the proposal would not negatively 

impact price discovery in the primary 

listing markets’ closing auctions.27

These commenters asserted that because 

Cboe Market Close would only execute 

paired MOC orders, and not limit-onclose orders, it would not impede the 

price discovery mechanisms of the 

primary listing markets’ closing 

auctions. Five commenters referenced 

the current Nasdaq and NYSE Arca 

closing auction processes for securities 

listed on other exchanges, stating that 

these competing closing auction 

processes, which have been permitted 

by the Commission, may attract limit 

orders from the primary listing market 

and impede price discovery, unlike the 

BZX proposal which is limited to 

market orders.28 In addition, five 

commenters argued that, because BZX 

will publish the size of matched MOC 

orders in advance of the primary 

market’s cut-off time, market 

participants would have available 

information needed to make further 

decisions regarding order execution and 

thus price discovery would not be 

impaired.29 Two commenters also 

asserted that many brokers already 

provide market-on-close pricing to 

customers through products that match 

orders internally, and the proposal may 

provide incentives for brokers to send 

such orders to an exchange, thereby 

increasing transparency, reliability and 

price discovery at the close.30

Thirty-eight commenters stated that 

the proposal would further fragment the 

markets and harm price discovery in the 

closing auctions on the primary listing 

markets.31 For example, Nasdaq argued 

that BZX’s MOC orders would be 

incapable of contributing to price 

discovery, and instead would further 

fragment the market by drawing orders 

and quotations away from primary 

closing auctions and undermine the 

mechanisms used to set closing prices.32

Nasdaq asserted that any attempt to 

divert trading interest from its closing 

auction would be detrimental to 

investors as it would inhibit Nasdaq’s 

closing auction from functioning as 

intended and would negatively affect 

the price discovery process and 

consequently, the quality of the official 

closing price.33

Specifically, Nasdaq expressed 

concern that the availability of Cboe 

Market Close could cause a reduction in 

the number of limit-on-close orders 

submitted to the primary listing 

markets’ closing auctions, which 

Nasdaq asserted would harm price 

discovery at the market close.34 Nasdaq 

asserted that the impact of the proposal 

on the use of limit-on-close orders that 

may be submitted to NYSE and Nasdaq 

should be studied and carefully 

analyzed.35 In the OIP, the Commission 

specifically solicited comments on the 

potential impact of the proposal on the 

use of limit-on-close orders, including 

requesting any available data, analyses 

or studies.36 In response, Nasdaq 

explained that reducing MOC orders 

would impact the behavior of limit 

orders by reducing the ability of 

continuous book limit orders and LOC 

orders to compete with each other and 

to interact with MOC orders, which it 

asserted is essential to its closing 

auction.37 Specifically, Nasdaq 

contended that if BZX were to 

disseminate a paired shares amount at 

3:35pm, but Nasdaq published little or 


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38See id. at 6. 

39See id. 

40See Nasdaq Letter 1, at 12. See also Nasdaq 

Letter 2, at 6 (providing an example of how the 

proposal could cause a stale closing price). Nasdaq 

also stated that a credible independent study of the 

potential risk to price discovery is essential in order 

to consider whether the proposal is consistent with 

the Act. See Nasdaq Letter 1, at 12. 

41See id., at 11. Nasdaq subsequently submitted 

a memorandum providing, among other things, data 

relating to the level of matched MOC volume in 

Nasdaq closing auctions spanning the period of 

January 1, 2017 through September 30, 2017 

(‘‘Nasdaq Data Memo’’). Nasdaq requested 

protection under the Freedom of Information Act 

for its memorandum. 

42See Nasdaq Letter 2, at 3. 

43See id. at 3–5. Specifically, Nasdaq identified 

1,653 closing crosses between January 1, 2016 and 

August 31, 2017 where removal of all MOC orders 

would have changed the closing prices. Nasdaq 

asserts that this would have changed the closing 

valuation of Nasdaq issuers ‘‘by nearly 

$870,000,000 of aggregate impact.’’ 

44See NYSE Letter 1, at 3. While NYSE’s 

arguments focused primarily on the potential for 

MOC orders to migrate to Cboe Market Close as 

described below, NYSE also asserted that, if the fees 

for the Cboe Market Close were set lower than the 

fees charged by the primary listing exchanges, it 

could induce some market participants to use MOC 

orders rather than sending LOC orders to the 

primary listing market. See NYSE Report, at 23. 

45See NYSE Report, at 12. See also NYSE Letter 

1, at 4. NYSE, as well as Nasdaq, also asserted that 

the proposal contradicts the Commission’s approval 

of recent amendments to the National Market 

System Plan to Address Extraordinary Market 

Volatility (the ‘‘LULD Plan’’) which, they argue, 

centralize re-opening auction liquidity at the 

primary listing exchange by prohibiting other 

market centers from re-opening following a trading 

pause until the primary listing exchange conducts 

a re-opening auction. These commenters asserted 

that it would be inconsistent for the Commission to 

find it in the public interest to consolidate trading 

in a re-opening auction, while sanctioning 

fragmentation of trading in a closing auction. See 

Nasdaq Letter 1, at 6; NYSE Letter 1, at 3; and 

Nasdaq Letter 2, at 12. In response, commenters 

asserted the amendment to the LULD Plan cited by 

NYSE and Nasdaq granted the primary listing 

market the ability to set the re-opening price but did 

not mandate the consolidation of orders at the 

primary listing market following a trading halt. BZX 

believes the proposal is consistent with the LULD 

Plan as it seeks to avoid producing a ‘‘bad’’ or 

‘‘outlier’’ closing price and does not affect the 

centralization of price-setting closing auction 

orders. See BZX Letter 1, at 8–9. See also Bollerman 

Letter, at 3. 

46See NYSE Report, at 13 and 23. See also NYSE 

Report, at 12 (arguing that ‘‘[a]nticipation that there 

will be MOC orders in the closing auction is a 

critical component feeding into the decisions of 

liquidity providers and other market participants’’ 

trading in the closing auction). 

47See NYSE Letter 1, at 4. In response to this 

assertion, ViableMkts argues that use of Cboe 

Market Close is voluntary. Accordingly, if a market 

participant wanted a DMM to be aware of their 

closing activity they could still send their orders to 

the NYSE closing auction. See ViableMkts Letter, at 

4. 

48See NYSE Letter 1, at 4. 

49See NYSE Letter 1, at 5. See also NYSE Report, 

at 11–12. NYSE represented that once NYSE 

American transitions to Pillar technology, it will 

conduct a closing auction in an identical manner 

to NYSE Arca. 

50See id. 

51See id. In its third comment letter, NYSE also 

asserts that, in contrast to the data NYSE provided 

in its first letter, BZX failed to provide any data in 

response to the requests for comment in the OIP to 

support the claim that there would be no impact on 

price discovery. See NYSE Letter 3, at 2. But see 

BZX Letter 3, at 2–4, 7–9 and infra notes 99–106 

and accompanying text discussing data and analysis 

provided by BZX. 

no paired or imbalance shares in its 

imbalance publications, it would 

discourage further participation in the 

continuous market leading up to the 

closing auction and the closing cross, 

and thus there would be little ongoing 

price discovery, because market 

participants would know they would 

not have the ability to interact with 

market orders.38 Nasdaq contrasted the 

BZX proposal with its own closing 

auction process, arguing that after it 

disseminates an imbalance notification 

that combines MOC and LOC orders, 

market participants can continue to 

submit orders to interact with existing 

auction interest.39

Moreover, Nasdaq argued that even if 

the proposal only resulted in fewer 

market-on-close orders submitted to 

Nasdaq closing auctions, investors 

would be harmed because the official 

closing price could potentially represent 

a stale or undermined price.40 Nasdaq 

asserted that its closing cross is 

designed to maximize the number of 

shares that can be executed at a single 

price and that the number of market-onclose orders impacts the number of 

shares able to execute in a closing 

cross.41 Further, in its second comment 

letter, Nasdaq elaborated on the impact 

it believed reducing MOC orders could 

have on Nasdaq’s closing auction. In 

particular, Nasdaq argued that the 

proposal would harm price discovery 

because fragmentation of MOC orders 

would directly impact closing auctions 

for which Nasdaq only received MOC 

orders and that, in cases where all MOC 

orders were removed from the Nasdaq 

closing auction, the last sale price 

would become the official closing price, 

as opposed to the price being 

determined through the price discovery 

process of its closing auction.42 Nasdaq 

discussed several hypothetical examples 

where removal of all MOC orders from 

certain of its previously conducted 

closing auctions would have resulted in 

use of the last sale price as the official 

closing price and provided aggregated 

statistics denoting the differential 

between the last sale price and the 

official closing price in such 

situations.43

NYSE similarly argued that even 

though Cboe Market Close would only 

accept MOC orders, it could materially 

impact official closing prices 

determined through a NYSE closing 

auction.44 NYSE emphasized the 

importance of the centralization of 

orders during the closing auction on the 

primary listing exchange, stating that it 

is ‘‘an iterative process’’ that provides 

‘‘periodic information about order 

imbalances, indicative price, matched 

volume, and other metrics’’ to help 

market participants anticipate the likely 

closing price, and that allows for 

investors to find contra-side liquidity 

and assess whether to offset imbalances, 

and for orders to be priced based on the 

true supply and demand in the 

market.45 NYSE asserted that 

information on the lack of matched 

MOC orders in the closing process could 

discourage liquidity providers from 

participating in the closing process 

because their order would be less likely 

to interact with market orders.46 NYSE 

also explained that its designated 

market makers (‘‘DMMs’’), which have 

an obligation to facilitate the close of 

trading in their assigned securities, 

factor in the size of paired-off volume, 

and the composition of the closing 

interest in assessing the appropriate 

closing price.47 NYSE asserted that, 

under the proposal, DMMs would lose 

full visibility into the size and 

composition of MOC interest, and thus 

would likely have to make more riskadverse closing decisions, resulting in 

inferior price formation.48

NYSE also argued that the proposal 

would detrimentally impact price 

discovery on the NYSE Arca and NYSE 

American automated closing auctions. 

NYSE stated that in the last six months 

there were 130 instances where the 

official closing price determined 

through a NYSE Arca closing auction 

was based entirely on paired-off market 

order volume.49 In those instances, 

pursuant to NYSE Arca rules, ‘‘the 

Official Closing Price for that auction is 

the midpoint of the Auction NBBO as of 

the time the auction is conducted.’’ 50

NYSE stated that if all market orders for 

a NYSE Arca listed security were sent 

to BZX, the official closing price would 

instead be the consolidated last sale 

price, which can differ from the 

midpoint of the auction NBBO by as 

much as 3.2%.51

In arguing that additional 

fragmentation of closing auction interest 

would detrimentally impact price 

discovery, both Nasdaq and NYSE 

distinguished the Cboe Market Close 

from competing closing auctions 

currently operated by Nasdaq and NYSE 

Arca for securities listed on other 

markets. Nasdaq stated that the BZX 

proposal is a price-matching order type 

and not a competitive single-priced 


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52See Nasdaq Letter 2, at 8–9. 

53See id. at 9. 

54See id. 

55See NYSE Letter 2, at 3. 

56See Nasdaq Letter 2, at 9–10; see also NYSE 

Letter 3, at 5–6. 

57See Nasdaq Letter 2, at 11. 

58See NYSE Letter 3, at 6. NYSE also stated that 

it does not have a business interest in running 

closing auctions for securities listed on other 

markets. It operates the NYSE Arca closing auction 

for resiliency purposes, which it believes outweighs 

any modest negative impact on fragmentation. See 

id.; see also infra note 239. 

59See Nasdaq Letter 2, at 11. In response to BZX’s 

claim that a large percentage of competing closing 

auctions conducted by Nasdaq and NYSE resulted 

in closing prices different from the official closing 

price, Nasdaq also stated that many of the examples 

cited in BZX Letter 1 are from competing auctions 

in ETFs, which, Nasdaq stated, have a 

fundamentally different price discovery process. 

Nasdaq argued that if ETFs were removed from the 

analysis, less than half of Nasdaq-listed corporate 

issues see a price difference when closing on NYSE 

Arca. See id. 

60See id. at 13; NYSE Letter 3, at 6. See also infra 

note 87 and accompanying text. 

61See Nasdaq Letter 2, at 13. 

62See id. 

63See id. 

64See id. The Nasdaq Data Memo also provided 

data and analysis arguing that a portion of the 

broker-dealer volume executed off-exchange after 

the close at the primary listing market’s closing 

price reflects brokers submitting customers’ interest 

to the closing cross and subsequently reporting an 

over-the-counter trade between the broker and its 

customers. 

65See NYSE Report, at 10. 

66See NYSE Report, at 10. 

67See NYSE Report, at 10. The NYSE Report 

asserted that this was one of the limitations of 

drawing conclusions from the DERA Analysis 

regarding how the BZX proposal would impact the 

market close. See discussion of DERA Analysis, 

infra notes 133–134 and accompanying text. 

68See NYSE Letter 3, at 3. 

69See id. at 3. NYSE stated that it reviewed 

closing auctions with imbalances of 50% of paired 

shares as of 3:50 p.m. See id. at 4. 

70See id. at 3–4. NYSE provided data that they 

asserted illustrates that the same degradation in the 

quality of the official closing price also occurs in 

closes for securities with 10,000 shares or more 

reported at the official closing price. See id. at 4. 

71See id. at 3–4. 

72See GTS Securities Letter 1, at 2–3. 

auction that offers price discovery.52 In 

contrast, Nasdaq states that its singlepriced auction for non-Nasdaq listed 

stocks was designed to maximize order 

interaction and improve price discovery 

for issuers, not to siphon orders away 

from the primary market without 

seeking to improve price discovery.53

Accordingly, Nasdaq argued that the 

fact that it and NYSE offer competing 

closing auctions is irrelevant because 

those auctions are fundamentally 

different from the BZX proposal.54

Similarly, NYSE argued that it believed 

it was misleading to compare the 

proposal to the competing closing 

auctions because BZX would be offering 

neither a competing closing auction nor 

a facility to establish the official closing 

price should a primary listing exchange 

invoke its closing auction contingency 

plan.55

Nasdaq and NYSE further argued that 

competing closing auctions cause 

minimal fragmentation, as volumes in 

those auctions are ‘‘miniscule.’’ 56 For 

example, Nasdaq stated that volumes in 

all competing auctions in Nasdaq-listed 

corporate securities in the month of 

June 2017 were less than 0.5% of 

Nasdaq’s closing volume.57 Similarly, 

NYSE stated that for the period January 

1, 2017 through October 13, 2017, 

closing auctions in NYSE and Nasdaqlisted securities on NYSE Arca represent 

0.5% of the notional value traded in the 

NYSE and Nasdaq closing auctions.58

Nasdaq further asserted that less than 

half of Nasdaq-listed corporate issues 

experience price dislocations in 

competing closing auctions.59 Moreover, 

Nasdaq and NYSE stated that on 

multiple occasions when they received 

closing interest for securities listed on 

another exchange, they have contacted 

the firms associated with those orders 

and encouraged them to route their 

orders directly to the primary listing 

exchange.60

Nasdaq and NYSE also addressed 

price-matching services in the over-thecounter market. Nasdaq stated that the 

proposal would introduce a new 

category of price-matching venues, 

which would exacerbate the harm 

caused by fragmentation.61 Both Nasdaq 

and NYSE stated that over-the-counter 

price-matching services should not be 

considered a precedent for the Cboe 

Market Close proposal. Nasdaq stated 

that, as a neutral trading platform, an 

exchange is capable of attracting and 

aggregating more liquidity than a 

broker-dealer.62 Moreover, according to 

Nasdaq, trades resulting from brokerdealer price-matching services are often 

also involved in the closing auction on 

the primary listing exchange, thus 

contributing to price discovery despite 

operating a price-matching service.63

Nasdaq explained that a broker may 

accept a MOC order and trade as either 

agent or principal against that order by 

entering limit orders into either the 

closing auction on the primary listing 

exchange or the continuous market 

leading up to the closing auction. After 

receiving an execution in the primary 

market closing auction, the broker 

would then trade with the customer offexchange at a price determined by the 

primary market closing auction.64

Similarly, NYSE argued that it should 

not be assumed that the current level of 

MOC orders executed away from the 

primary market is a reasonable proxy for 

the impact of the BZX proposal.65

Specifically, NYSE asserted that market 

makers that cross orders on behalf of 

clients at the closing price could be 

risking capital on such transactions, 

which would likely be a constraining 

force on the magnitude of orders crossed 

away from primary markets, while BZX 

would have no such obligation to 

commit capital in Cboe Market Close.66

As such, NYSE argued that the BZX 

proposal, if successful, could result in a 

much higher percentage of MOC orders 

diverted away from the primary market 

than what occurs today.67

In addition, NYSE stated that existing 

off-exchange matching services have a 

negative impact on the validity and 

integrity of price discovery in the 

closing auctions.68 NYSE stated that 

data it analyzed from certain closing 

auctions with large imbalances 69 shows 

that, for securities with 1,000 shares or 

less reported at the official closing price 

(on and off-exchange), volatility in the 

last 10 minutes of trading leading into 

the close is 52% higher when more than 

75% of a security’s closing share 

volume is reported to a trade reporting 

facility (‘‘TRF’’) (i.e., paired offexchange), compared to when less than 

25% of a security’s closing share 

volume is reported to a TRF. In 

addition, NYSE asserted that its data 

showed that the official closing price 

generated in auctions for securities with 

1,000 shares or less reported at the 

official closing price (on and offexchange) where more than 75% of a 

security’s share volume is reported to a 

TRF was more than twice as far away 

from the last consolidated sale price and 

nearly twice as far away from the market 

volume weighted average price 

(‘‘VWAP’’) of the last two minutes of 

trading leading into the close.70

Accordingly, NYSE concluded that 

existing fragmentation degrades the 

quality of the closing price.71

Several other commenters also 

discussed how the proposal may impact 

the integrity of official closing prices. In 

particular, GTS, a DMM on NYSE, 

argued that market-on-close orders are a 

vital component of closing prices and, 

should those orders be diverted away 

from the primary listing markets as a 

result of the proposal, it could 

undermine the official closing prices.72

GTS stated that, in pricing a closing 

auction on NYSE, it considers a variety 

of inputs and stated that it considers 

‘‘the size of . . . matched shares and the 

time those matched shares are 

consumed by each individual book [to 

be] essential data points for 


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73See GTS Securities Letter 2, at 3. GTS also 

stated that the types of orders submitted to the 

closing auction, such as limit or market, also impact 

its pricing determinations. See id. 

74See id. at 4. 

75See NYSE Letter 1, at 4; GTS Securities Letter 

1, at 2–3; Customers Bancorp Letter; Masonite 

International Letter; Orion Group Letter; CTS 

Corporation Letter; Encana Letter; Triangle Capital 

Letter; Pennsylvania REIT Letter; IMC Letter, at 1– 

2; Southern Company Letter; Nobilis Health Letter; 

CACI Letter; Turning Point Letter; P&G Letter; 

Cardinal Health Letter; FedEx Letter; Stewart Letter; 

Global Payments Letter. See also supra notes 45– 

48 and accompanying text. Four commenters also 

asserted that the proposal would have potentially 

detrimental impacts on NYSE floor brokers. See 

Bowers Letter; Meridian Letter; Americas 

Executions Letter; and GTS Securities Letter 2, at 

4. 

76See GTS Securities Letter 1, at 2–3; Masonite 

International Letter; Encana Letter; Triangle Capital 

Letter; Pennsylvania REIT Letter; Nobilis Health 

Letter; CACI Letter; Turning Point Letter; P&G 

Letter; Cardinal Health Letter; FedEx Letter; and 

Stewart Letter. 

77See Bowers Letter; Americas Executions Letter; 

and FedEx Letter. See also Coupa Software Letter; 

Trade Desk Letter; Mimecast Letter (arguing that 

gathering liquidity in a single venue ensures that 

the market reaches an accurate and reliable closing 

price for their stocks); Global Payments Letter. 

78See e.g., Bowers Letter; Americas Executions 

Letter; Customers Bancorp Letter; Orion Group 

Letter; and Southern Company Letter. 

79See BZX Letter 1, at 3–4 and BZX Letter 2, at 

2 and 10. In addition, BZX offered to disseminate 

more information with regard to Cboe Market Close 

and to disseminate such information via the 

applicable securities information processor, in 

addition to the Bats Auction Feed. See BZX Letter 

1, at 4 and 12–13, and BZX Letter 2, at 2. BZX 

further asserted that it believed modern software 

can easily and simply add this data to data 

disseminated by the primary listing markets. See 

BZX Letter 1, at 4 and BZX Letter 2, at 3. 

80See BZX Letter 2, at 3. 

81See BZX Letter 1, at 4–5 (stating that neither 

NYSE nor Nasdaq prohibits their members from 

withholding MOC orders from their closing 

auctions) and BZX Letter 2, at 2–3. In response, 

NYSE stated that it believed such broker-dealer 

services degrade the public price and size discovery 

of the primary listing exchanges’ closing auctions, 

but that such activities are not held to the same 

standards under the Act as national securities 

exchanges and against which the BZX proposal 

must be evaluated. See NYSE Letter 2, at 4. GTS 

further stated in response that it believes such 

broker-dealer services deprive the DMM of content 

that is critical to pricing a closing auction and the 

Commission should study the impact of this 

activity on closing auctions. See GTS Securities 

Letter 2, at 4. See infra note 129 and accompanying 

text discussing the DERA analysis of the 

relationship between the proportion of MOC orders 

currently executed off-exchange and closing price 

discovery and efficiency. 

82See BZX Letter 1, at 4 and BZX Letter 2, at 2. 

83See BZX Letter 1, at 5; BZX Letter 2, at 2; and 

BZX Letter 3, at 4. BZX provided evidence of 14 

instances in June 2017 where a Nasdaq-listed 

security had no volume in Nasdaq’s closing auction 

but did have volume in NYSE Arca’s closing 

auction. See BZX Letter 1, at 5. 

84See id. at 6. 

85See id. BZX also stated that, despite their 

potential utility as a back-up in case of a market 

impairment, Nasdaq and NYSE Arca run these 

competing auctions on a daily basis, regardless of 

whether there is an impairment at a primary listing 

exchange. See id. BZX further questioned why these 

exchanges do not utilize test symbols and test data 

in order to confirm the operational integrity of the 

auction processes without potentially harming the 

price discovery process by the primary’s closing 

auction. See BZX Letter 3, at 5. 

86See BZX Letter 1, at 4 and BZX Letter 2, at 2. 

BZX asserted that 86% of closing auctions 

conducted by Nasdaq for NYSE-listed securities in 

June 2017 resulted in closing prices different from 

the official closing price and 84% of competing 

closing auctions conducted by NYSE Arca for 

Nasdaq-listed securities in June 2017 resulted in 

closing prices different from the official closing 

price. BZX Letter 1, at 4. 

87BZX Letter 3, at 4. 

88BZX Letter 2, at 3. 

89 Id., at 3. 

consideration.’’ 73 If this information is 

fragmented across multiple venues, 

according to GTS, the closing price will 

change and will become less reliable.74

Eighteen commenters asserted that the 

proposal would make it more difficult 

for Designated Market Makers to 

facilitate an orderly close of NYSE listed 

securities as they would lose the ability 

to continually assess the composition of 

market-on-close interest.75 Many of 

these commenters are issuers listed on 

NYSE and asserted that one of the 

reasons they chose to list on NYSE was 

the ability to have access to a DMM that 

is responsible for facilitating an orderly 

closing auction.76

Multiple commenters stated that one 

of the benefits of a centralized closing 

auction conducted by the primary 

listing market is that it allows market 

participants to fairly assess supply and 

demand such that the closing prices 

reflect both market sentiment and total 

market participation.77 Because they 

believed that the proposal may cause 

orders to be diverted away from the 

primary listing exchanges, these 

commenters argued that it would 

negatively affect the reliability and 

value of closing auction prices. Several 

commenters further argued that 

centralized closing auctions provide 

better opportunities to fill large orders 

with relatively little price impact.78

In response to concerns regarding the 

impact of the proposal on the price 

discovery process, BZX argued that, 

because the proposal would only match 

MOC orders and would require the 

Exchange to publish the number of 

matched shares in advance of the 

primary listing markets’ cut-off times, 

BZX believes it would avoid any impact 

on price discovery.79 BZX also stated 

that it does not believe the proposal 

would impact the use of LOC orders on 

the primary listing markets as LOC 

orders provide price protection and the 

lower fees charged to MOC orders that 

participate in Cboe Market Close would 

not outweigh the risk of receiving an 

execution at an unfavorable price.80

BZX further challenged commenters’ 

concerns that Cboe Market Close could 

pull all MOC orders away from the 

primary listing markets and alter the 

calculation of the closing price, stating 

that such a scenario could occur today 

as a result of competing closing auctions 

and broker-dealers that offer internal 

MOC order matching solutions.81

Accordingly, BZX contends that the 

proposal would not impose 

fragmentation on the market at the close 

that does not already exist today.82

In particular, with regard to 

competing closing auctions, BZX argued 

that such competing auctions could not 

only pull all MOC interest away from 

the primary listing markets but could 

also divert all price-setting limit-onclose interest from those markets as 

well.83 Further, BZX argued that Nasdaq 

and NYSE’s assertions that they 

currently attract low trading volumes in 

their competing closing auctions are 

irrelevant to an analysis of their 

potential impact on fragmentation.84

Should these auctions see an increase in 

order flow, BZX argued they would 

increase existing market 

fragmentation.85 BZX also asserted that 

such competing closing auctions often 

may produce bad auction prices on the 

non-primary market, as compared to the 

proposed Cboe Market Close which 

would ensure that market participants 

receive the official closing price.86 In 

addition, in response to NYSE’s 

assertion that it contacted firms that 

submitted orders to NYSE Arca’s 

competing closing auction and 

encouraged them to instead submit 

orders to the primary listing market, 

BZX provided data that it stated 

evidences that NYSE has not, in fact, 

discouraged order flow to their 

competing auctions and that NYSE 

Arca’s competing auction ‘‘continues to 

maintain not insignificant monthly 

volume’’ in at least two securities.87

With regard to off-exchange matching 

processes, BZX stated that several offexchange venues currently offer 

executions at the official closing price 

and therefore provide a forum to which 

participants may choose to send MOC 

orders in lieu of sending MOC or LOC 

orders to the primary listing market.88

BZX stated, however, that it was not 

aware of any concerns raised by NYSE, 

Nasdaq, or the Commission regarding 

the impact of such venues on the use of 

LOC orders in the closing auctions of 

the primary listing exchanges.89

BZX also provided certain data 

regarding current trading volume at the 

close on venues other than primary 

listing exchanges to show that the 

proposal would ‘‘not introduce a new 


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90See id. at 4–5. 

91See BZX Letter 2, at 4. BZX further asserted 

that, over the course of 2017, the amount of offexchange closing volume has been increasing. See 

id. at 5. 

92See id. at 5–6. 

93See id. at 11. 

94See BZX Letter 3, at 2. 

95See id. at 2–3. 

96See id. at 3. 

97See id. 

98See id. 

99See id. 

100See id. 

101See id. 

102See id. 

103See id. 

104See id. at 3–4. 

105See id. at 3. 

106See id. at 4. 

107See BZX Letter 1, at 10. 

108 Id. See also supra note 47–48 and 

accompanying text. 

109 Id. In response, NYSE argued that BZX’s 

claims regarding the role of the DMM were not 

germane to whether the proposal is consistent with 

the Act and stated that it believed the scale of its 

closing auction and the low levels of volatility 

observed in the auction demonstrate its 

effectiveness. See NYSE Letter 2, at 4. 

110See OIP, supra note 7, at 40210. 

111See id. (citing to Securities Exchange Act 

Release No. 73639 (November 19, 2014), 79 FR 

72255, 72278 (December 5, 2014)). 

112Accordingly, for the reasons discussed 

throughout, the Commission believes the proposal 

is consistent with the maintenance of fair and 

orderly markets. See Sections 6 and 11A of the Act; 

see supra note 32. 

type of fragmentation at the close.’’ 90

Specifically, BZX argued that offexchange venues ‘‘siphon significant 

order flow at the close from the primary 

listing markets,’’ as over the first nine 

months of 2017, off-exchange volume at 

the official closing price represented 

approximately 30% of Nasdaq closing 

volume for Nasdaq-listed securities and 

23% of NYSE closing volume for NYSElisted securities.91 Moreover, BZX 

argued that the proposal ‘‘could increase 

transparency by incentivizing market 

participants to re-direct their MOC 

orders from off-exchange venues to a 

public exchange,’’ whose processes are 

subject to the requirements of the Act, 

would be included in BZX’s rules, and 

would be subject to the proposed rule 

change requirements of Section 19(b) of 

the Act before any changes could be 

made to the operation of Cboe Market 

Close.92 In addition, BZX argued that 

attracting order flow away from offexchange venues would have the 

additional benefit of increasing the 

amount of volume at the close executed 

on systems subject to Regulation SCI’s 

resiliency requirements.93

In response to NYSE’s data regarding 

the impact of off-exchange activity at 

the close on closing auction price 

formation, BZX presented several 

critiques of the analysis. First, BZX 

asserted that NYSE provided selective 

data that supported their conclusion 

that existing fragmentation at the close 

has a negative impact on price discovery 

in closing auctions. In particular, BZX 

stated that NYSE did not indicate the 

number of closing auctions included in 

its data set.94 BZX also stated that 

NYSE’s data set was limited to auctions 

with less than 1,000 shares, imbalances 

of 50% or more of the paired shares as 

of 3:50 p.m., and securities for which 

more than 75% of the volume was 

reported to the TRF. Based on its own 

analysis, discussed below, BZX 

estimated that the number of auctions 

included in NYSE’s data set for auctions 

with 1,000 shares or less to be less than 

100th of 1% of all auctions.95 Therefore, 

BZX argued that NYSE’s findings are ‘‘of 

no statistical significance.’’ 96

BZX further argued that it is possible 

that such low volume securities with 

severe imbalances would be subject to 

price variations between the last sale 

and the official closing price, regardless 

of the amount of off-exchange closing 

activity.97 In addition, BZX stated that 

the data that NYSE provided for 

auctions with more than 10,000 shares 

shows that the ‘‘impact on closing 

prices is dampened in more actively 

traded securities,’’ which it believes 

undercuts NYSE’s conclusions and 

‘‘further highlights the selective and 

limited nature of NYSE’s data set.’’ 98

Furthermore, BZX stated that it 

conducted its own analysis of data from 

all primary auctions in NYSE-listed 

securities for which there was a closing 

auction and a last sale regular way 

trade, regardless of size, from January 2, 

2017 through September 29, 2017.99

BZX stated that it reviewed auctions 

with imbalances of 50% or more of 

paired shares at 3:55 p.m. BZX also 

stated that it compared auctions where 

less than 25%, 25% to 50%, 50% to 

75%, and more than 75%, of the closing 

volume was reported to the TRF.100 BZX 

also grouped its data amongst auctions 

with 1,000,000 shares or more, 100,000 

shares to 1,000,000 shares, 10,000 to 

100,000 shares, 1,000 to 10,000 shares, 

and less than 1,000 shares.101 BZX 

stated that its analysis shows that ‘‘the 

average price gap between the last sale 

and the official closing price was 9.09 

basis points across all groups.’’ 102 BZX 

stated that it also found that ‘‘price gaps 

are greater amongst auctions with less 

than 25% of closing volume reported to 

the TRF.’’ 103 BZX concluded that its 

analysis contradicts NYSE’s 

conclusions, asserting that it shows that 

‘‘the amount of TRF closing volume has 

little to no relationship to the primary 

listing market’s closing auction 

process.’’ 104

In addition, BZX stated that it also 

found similar patterns ‘‘when it 

analyzed securities based on their ADV 

instead of auction size.’’ 105 BZX 

acknowledged that, while securities 

with less than 10,000 shares appear to 

have the most volatility, these securities 

account for a small percentage of overall 

auction volume, and argued that such 

volatility ‘‘is more likely indicative of 

the applicable security’s trading 

characteristics.’’ 106

In response to NYSE’s arguments 

regarding the impact on a DMM’s ability 

to price the close, BZX argued that this 

point highlights what it believes to be 

an additional benefit of allowing it to 

compete with NYSE’s closing 

auction.107 Specifically, BZX argued 

that NYSE’s assertion that DMMs 

consider the composition of closing 

interest in making pricing decisions 

‘‘suggests that the NYSE closing auction 

is not a true auction and can be an 

immediate detriment to users sending 

MOC orders of meaningful size to the 

NYSE.’’ 108 Accordingly, BZX stated that 

it believed this ‘‘highlights an additional 

benefit’’ of Cboe Market Close as it 

‘‘would provide an alternative pool of 

liquidity and a mechanism for large 

order senders to avoid the subjective 

decision making of the DMMs who are 

free to make closing price decisions to 

their profit benefit at the client’s 

expense.’’ 109

As the Commission stated in the OIP, 

it has consistently recognized the 

importance of the closing auctions of 

the primary listing markets.110 In 

particular, the Commission has 

previously stated that ‘‘reliable . . . 

closings on the primary listing markets 

are key to the establishment of fair and 

orderly markets.’’ 111 Accordingly, the 

Commission has carefully analyzed and 

considered the proposal’s potential 

impact, if any, on the primary listing 

markets’ closing auctions, including 

their important price discovery 

functions, and the reliability and 

integrity of closing prices. After careful 

consideration of the proposal and all of 

the comments received and for the 

reasons discussed throughout, the 

Commission believes that Cboe Market 

Close is reasonably designed not to 

disrupt the price discovery process in 

the closing auctions of the primary 

listing exchanges and is consistent with 

the Act and the rules and regulations 

thereunder.112

Importantly, Cboe Market Close will 

only accept MOC orders and not LOC 

orders. Contrary to some commenters’ 

assertions that MOC orders contribute to 

the closing price, the Commission 


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113See supra notes 40–48 (discussing Nasdaq’s 

and NYSE’s arguments of how MOCs can contribute 

to the closing price). 

114See supra notes 45–48, 72–75 and 77 and 

accompanying text. 

115The proposal would not alter the information 

DMMs would have relating to off-exchange MOC 

interest. In addition, one commenter that is 

supportive of the proposal is a DMM on NYSE and 

stated that the proposal ensures that the price 

discovery process remains intact because BZX 

would only match buy and sell MOC orders and not 

limit orders, which it stated, ultimately lead to 

price formation. See Virtu Letter, at 2. 

116See Securities Exchange Act Release No. 

79845 (January 19, 2017), 82 FR 8551, 8552 (January 

26, 2017). See also BZX Letter 1, at 8–9 and 

Bollerman Letter at 3. 

117See Nasdaq Letter 2, at 3; NYSE Letter 1, at 

5. See also, e.g., NYSE Rule 123C(1)(e); NYSE Arca 

Rule 1.1(ll)1. 

118See NYSE Report, at 22. 

119 Id. 

120See generally, Nasdaq Letter 1, at 3–4 

(asserting that the Nasdaq closing cross has been 

successful due to its integrity, stability, reliability, 

and regulation). Furthermore, in assessing whether 

to utilize Cboe Market Close, market participants 

may evaluate other attributes of the functionality, 

such as the need to monitor whether they were 

matched on BZX and potentially having to send 

believes that MOC orders, which do not 

specify a target price and seek to be 

executed at the closing price at the end 

of the trading day are, by their nature, 

the recipients of price formation 

information and generally do not 

directly contribute to setting the official 

closing price of securities on the 

primary listing markets.113 In particular, 

the Commission believes that paired-off 

MOC interest, such as that would be 

matched and executed in the Cboe 

Market Close, does not fundamentally 

affect the determination of the closing 

price. As many commenters stated, the 

price determined in a closing auction is 

designed to be a reflection of market 

supply and demand, and key 

considerations in setting the closing 

price are maximizing the number of 

shares executed and minimizing the 

amount of the imbalance between buy 

and sell interest. The Commission 

believes that matching paired-off MOC 

orders in the manner BZX proposes 

would not affect the net imbalance of 

closing eligible trading interest in the 

market. As such, the orders that actively 

participate in, and contribute to, the 

price formation process in a closing 

auction—including limit orders and 

unpaired MOC orders—would not be 

executed in the Cboe Market Close and 

could continue to be submitted to the 

primary listing exchange. Accordingly, 

the Commission believes that the 

proposal is reasonably designed to not 

disrupt the price discovery process and 

closing auction price formation. 

The Commission recognizes that 

several commenters made assertions 

that matched MOC order flow provides 

informational content regarding the 

depth of the market that indicates true 

supply and demand and contributes to 

market participants’ decisions regarding 

order submission and ultimately price 

formation.114 As such, these 

commenters argued that removing 

matched MOC orders from the primary 

listing market would impact price 

formation. However, the Commission 

believes that, while the proposal may 

result in the execution of some MOC 

orders on a venue other than the 

primary listing exchange, BZX’s 

proposal, because it would require the 

size of matched MOC orders to be 

published well in advance of the order 

entry cut-off times for the primary 

listing exchanges’ closing auctions, is 

reasonably designed to allow market 

participants to, in conjunction with the 

information disseminated by the 

primary listing exchanges, ascertain 

closing auction liquidity demand. 

Accordingly, the Commission believes 

that the information disseminated by 

BZX could be used by market 

participants in conjunction with the 

information disseminated by the 

primary listing exchange to make order 

submission decisions. Although some 

commenters also asserted that DMMs 

would no longer have full visibility into 

the size and composition of MOC 

interest, DMMs will have access to the 

amount of paired-off MOC volume on 

BZX well in advance of NYSE’s order 

entry cut-off time and the start of the 

NYSE closing auction. An NYSE DMM 

could, for example, use such 

information to determine the total 

amount of MOC interest for a given 

security in Cboe Market Close and 

NYSE’s closing auction, in establishing 

the relevant context for any imbalances 

in NYSE closing auctions and 

calculating appropriate closing 

prices.115 Further, the Commission 

believes that, as BZX stated, the Cboe 

Market Close could benefit market 

participants that do not wish to disclose 

information regarding their orders to 

certain other market participants such 

as DMMs by providing another venue to 

which they may send their orders for 

execution at the closing price. In 

addition, the Commission does not 

agree with those commenters that 

argued that the proposal contradicts the 

Commission’s approval of Amendment 

12 to the LULD Plan, as the LULD Plan 

does not mandate that market 

participants consolidate their orders at 

the primary listing exchanges, but rather 

requires that a trading pause continue 

until the primary listing exchange has 

reopened trading.116 While pursuant to 

the LULD Plan trading may not begin 

until the reopening on the primary 

listing exchange, market participants 

continue to have the choice as to where 

to submit their orders. 

As discussed above, NYSE and 

Nasdaq argued that if the proposed rule 

change resulted in the removal of all 

MOC orders from the primary listing 

exchanges’ closing auctions, that result 

would impact closing prices in 

instances where no auction could be 

held in accordance with their rules. In 

such scenarios, NYSE and Nasdaq assert 

that, pursuant to the primary listing 

exchanges’ rules, the resulting closing 

price would be the consolidated last 

sale price.117 NYSE and Nasdaq both 

sought to quantify the extent to which 

last consolidated sale prices would have 

differed from closing prices determined 

through closing auctions. The data and 

counterfactual examples provided in 

this regard assume that the BZX 

proposal would result in no market 

participants choosing to send any MOC 

orders to the primary listing markets’ 

closing auctions. However, the 

commenters did not assert how likely it 

was for such a scenario to occur or 

provide data in support thereof, nor did 

they provide any other data regarding 

what the impact would be should fewer 

than all MOC orders be diverted from 

the primary listing markets. While 

NYSE further asserted that one 

‘‘plausible outcome’’ of the BZX 

proposal is that the majority of MOC 

orders would migrate to Cboe Market 

Close, it acknowledged that it was ‘‘hard 

to predict what would happen if the 

[BZX] proposal were to be 

approved.’’ 118 Further, NYSE explained 

that this outcome would likely be the 

case if the fees set by BZX for Cboe 

Market Close were lower than the 

primary listing markets and there was 

no competitive response by the primary 

listing exchanges.119 The Commission 

believes it may be possible that there 

would be instances in which no MOC 

orders participate in a primary listing 

market’s closing auction following 

implementation of the Cboe Market 

Close. However, such instances can 

occur today, and the Commission 

believes that the more likely scenario is 

that, if Cboe Market Close were to be 

approved and implemented, it would 

draw some, though not all, MOC orders 

from the primary listing markets, 

because many market participants likely 

base decisions regarding where to send 

closing orders not solely on fees, but 

rather on many other factors, including 

the reliability, stability, technology and 

surveillance associated with such 

auctions,120 and because currently there 


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their MOC orders to more than one venue if not 

matched, as well as having to commit to transact 

at the closing price at an earlier time than they 

otherwise would have had they chosen to send their 

MOC orders to the primary listing exchanges. 

121See DERA Analysis, supra note 8 (finding that, 

on average, approximately 9.3 percent of closing 

volume is matched off-exchange at the primary 

listing exchange’s closing price); NYSE Report, at 

22 (stating that closing auctions on the listing 

exchanges currently process the vast majority of the 

MOC and LOC orders in the market); and Nasdaq 

Data Memo, supra note 41 (providing data relating 

to the level of matched MOC volume in Nasdaq 

closing auctions). 

122See e.g., Joel Hasbrouck, ‘‘Measuring the 

Information Content of Stock Trades,’’ Journal of 

Finance 46, 179–207 (1991), available at 

www.jstor.org/stable/2328693. 

123For example, one study examined 

fragmentation in the U.S. equities markets and 

showed that small cap stocks are more fragmented 

than large cap stocks for Nasdaq-listed issues. It 

also found that fragmentation is correlated with 

higher short-term volatility, but increased market 

efficiency. See Maureen O’Hara and Mao Ye, ‘‘Is 

Market Fragmentation Harming Market Quality?,’’ 

Journal of Financial Economics 100, 459–474 

(2011), available at http://www.sciencedirect.com/ 

science/article/pii/S0304405X11000390. 

124See also notes 94–106 and accompanying text 

(discussing BZX’s comments with respect to 

NYSE’s analysis and BZX’s own analysis of such 

data). 

125See supra note 43. 

126See id. See also NYSE Report, at 12 (‘‘The 

difference between the last sale price in the 

continuous market and the closing auction price, 

particularly for less active securities where the last 

sale price may be stale, can be significant.’’). 

127For example, like all market participants, the 

primary listing exchanges could determine if and 

how to utilize the information BZX disseminates 

regarding paired MOC interest in the Cboe Market 

Close for determining the official closing price 

should they choose to do so. 

128See supra notes 37–38 and 46 and 

accompanying text. 

exist competitive alternatives to execute 

MOC orders off-exchange, yet the 

majority of MOC orders continue to be 

executed in the closing auctions on the 

primary listing exchanges.121 While the 

Commission acknowledges that, as some 

commenters argued, current levels of 

off-exchange MOC activity are not a 

perfect measure of the potential 

resulting impact of the proposal, the 

Commission believes that they do 

provide some limited insight, as 

discussed further below. Further, the 

Commission believes that, should 

market participants choose to send a 

substantial portion of MOC orders to the 

Cboe Market Close, the primary listing 

exchanges have various other options 

available to them to try to compete for 

such orders, and it is unlikely that such 

exchanges would choose to accept the 

complete loss of MOC order market 

share and make no attempt at a 

competitive response. 

Further, while the commenters’ 

analyses examined price differentials in 

various contexts, differences in prices 

alone are not dispositive with respect to 

price discovery or efficiency. First, a 

large difference between a reference 

price (e.g., the last sale price) and the 

closing price may reflect genuine 

information if the price change persists, 

or may reflect a temporary price 

pressure if the price change 

subsequently reverses.122 Because the 

data and analyses that commenters 

provided did not analyze subsequent 

price changes, it is unclear whether the 

pre-close price differentials indicate 

better or worse price discovery or 

efficiency. Second, when comparing 

price differences across securities, the 

analyses did not distinguish whether 

the observed differences were due to the 

removal of MOC orders from the 

primary listing exchange or due to 

liquidity differences. As described 

above, NYSE provided an analysis 

comparing price differences between 

securities in which 75% of the total 

closing volume was reported to a TRF, 

to securities in which 25% of the total 

closing volume was reported to a TRF, 

and argued that securities with more offexchange MOC activity have more 

closing price volatility. However, the 

Commission believes that closing price 

volatility and off-exchange activity may 

be correlated with unobserved liquidity 

factors. For example, small stocks tend 

to have high trading costs (e.g., wider 

spreads, thinner order books) and more 

volatility on average.123 Therefore, it is 

possible that the price differences 

observed by the commenter could be 

due to differences in liquidity or other 

factors not controlled for in the analysis, 

rather than the levels of off-exchange 

MOC activity.124 Nasdaq’s analysis 

involved 1,653 closing crosses that 

occurred between January 1, 2016 and 

August 31, 2017, which the Commission 

estimates accounts for approximately 

0.44% of all Nasdaq auctions over that 

time period. As such, the Nasdaq 

analysis may not be a representative 

sample.125 Moreover, Nasdaq did not 

address whether the securities analyzed 

are highly illiquid. If they are highly 

illiquid, price differences between the 

last sale price and the closing auction 

price may be large for reasons unrelated 

to the specifics of the auction 

mechanism.126 Given these limitations, 

including that Nasdaq’s estimate may 

overstate the impact, the data and 

analysis provided in these comments do 

not persuade the Commission that the 

proposal is inconsistent with the Act. 

Further, while NYSE and Nasdaq 

implied that use of the consolidated last 

sale price as the official closing price is 

inferior to the price discovery process of 

the closing auction, the use of the 

consolidated last sale price as the 

official closing price when a primary 

listing exchange does not conduct a 

closing auction is not mandated by the 

Act or rules thereunder, but rather is 

established by the rules of that 

exchange. Therefore, if a primary listing 

exchange believes that such prices no 

longer reflect an appropriate closing 

price in certain scenarios, it is within 

the exchange’s discretion to reevaluate 

whether reliance on the last 

consolidated sale price is the 

appropriate means for determining the 

official closing price in such scenarios, 

and may file proposed rule changes to 

amend its rules to establish alternative 

methods of determining the official 

closing price should no auction be held 

that it believes to be more 

appropriate.127

Some commenters also argued that 

the proposal would impact the 

submission of LOC orders to the 

primary listing markets. As BZX stated 

in its response letter, LOC orders 

provide price protection, whereas MOC 

orders are submitted by market 

participants who may be less price 

sensitive and who may prioritize other 

aspects of a closing execution over 

price. As such, the Commission does 

not believe that it is likely that market 

participants would be more inclined to 

assume the risk of submitting MOC 

orders to the Cboe Market Close in 

circumstances where they otherwise 

would have submitted price-protected 

LOC orders into the primary markets’ 

closing auctions, solely to pay lower 

fees. As discussed above, Nasdaq and 

NYSE also asserted that the Cboe Market 

Close could discourage submission of 

orders in the continuous market and 

closing cross if there were a large 

amount of paired MOC orders in Cboe 

Market Close and a subsequent lack of 

imbalance information disseminated on 

the primary listing markets.128 However, 

the Commission believes this risk is not 

unique to the availability of the Cboe 

Market Close and, indeed, exists today. 

Specifically, the Commission believes 

that the submission of orders would 

similarly be discouraged today if such 

large amount of MOC orders in a listed 

security had been paired on the primary 

listing exchange and accordingly, there 

was little or no resulting imbalance 

disseminated by such exchange. 

Irrespective of the exchange upon which 

the MOC orders are paired, the net 

imbalance published by the primary 

listing exchange would be expected to 

be the same. In addition, because Cboe 

Market Close would publish the volume 

of MOC orders paired prior to the start 

of the closing auctions on the primary 


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129See DERA Analysis, supra, note 8. 

130Though the DERA Analysis’ findings suggest 

‘‘that existing levels of fragmentation do not, on 

average, correlate with price discover or price 

efficiency,’’ the DERA Analysis makes clear that 

‘‘the data we have does not allow us to predict how 

[Cboe Market Close] would affect price discovery in 

the closing auction process, and market 

participants’ use of limit-on-close orders in the 

closing auction processes.’’ In addition, the DERA 

Analysis states that it does not attempt to establish 

a causal link between off-exchange activity and 

closing price discovery and efficiency. See DERA 

Analysis, supra, note 8, at 1–2. 

131See NYSE Report, at 1 and 9. 

132See id. at 9. To provide context for these 

assertions, the NYSE Report included background 

information summarizing the existing closing 

auction processes, including both the procedures 

for the primary listing exchanges’ closing auctions 

as well as the competing closing auctions operated 

by Nasdaq and NYSE Arca. NYSE also summarized 

BZX’s proposal and the DERA Analysis. See id. at 

3–9. 

133See id. at 10; see also supra notes 65–66 and 

accompanying text. 

134See id. at 10–11. 

135See id. at 13. 

136See id. at 14. The author of the NYSE Report 

also stated that a study he conducted providing 

evidence that higher levels of off-market trading 

under certain market structures can harm market 

quality may be relevant to the analysis of the 

potential impacts of BZX’s proposal. See id. at 11. 

However, as the study the author cited analyzes 

continuous trading in Nasdaq stocks prior to the 

implementation of Regulation NMS (adopted in 

2005 and which implemented significant changes to 

the regulatory framework of the equity markets), the 

Commission does not believe in this instance that 

it can be relied upon to make inferences regarding 

current market structure. See generally 70 FR 27496 

(June 29, 2005). 

137See id. 

138See id. at 17. NYSE also argued that while the 

DERA Analysis cited to two published papers by 

Barclay and Hendershott to support using a 

regression-based approach to study the information 

content of closing prices, the DERA Analysis does 

not use the Barclay and Hendershott methodology. 

139See id. at 14–15. NYSE suggested that an 

alternative approach to examine price continuity 

measures could provide some pertinent information 

regarding price discovery at the close. NYSE also 

stated that controlling for the size of the auction 

and the auction’s initial imbalance may be 

important because price deviations that are the 

result of large imbalances or large demand are more 

likely to be indicative of informationally-driven 

price moves, which would be an indication of good 

price discovery, rather than liquidity-driven price 

moves, which would be an indication of bad price 

discovery. See id. at 15–16. 

140See id. at 16. NYSE provided several examples 

that it stated illustrated the imprecision of the Price 

Reversal metric. See id. at 16–17. 

listing exchanges, market participants 

should have sufficient time to 

incorporate such information relating to 

the levels of MOC interest in the Cboe 

Market Close in a given security into 

their decisions about order submissions 

into the closing auctions. 

In addition, as discussed above, many 

commenters addressed the existence of 

fragmentation at the close today due to 

off-exchange matching processes and 

competing closing auctions. With regard 

to broker-dealer matching services, the 

Commission’s consideration and 

analysis of whether BZX’s proposal is 

consistent with the Act as an exchange 

is subject to differing requirements and 

standards than those that apply to 

broker-dealers under the Act. At the 

same time, how such existing offexchange services impact closing 

auctions on the primary listing markets 

may provide some limited insight into 

the potential impact of the proposal on 

the price discovery function of the 

primary closing markets, particularly to 

the extent the proposed Cboe Market 

Close is similar to such off-exchange 

services. 

The staff from the Commission’s 

Division of Economic and Risk Analysis 

analyzed the relationship between the 

proportion of MOC orders executed offexchange and closing price discovery 

and efficiency.129 The DERA Analysis 

made several findings that the 

Commission believes, while not 

dispositive, are relevant to commenters’ 

claims regarding Cboe Market Close’s 

potential impact on price discovery and 

other data and assertions presented 

regarding current off-exchange matching 

services. In particular, the DERA 

Analysis found that, on average, closing 

auction volume accounts for 

approximately 5.2 percent of daily 

volume, and on average, approximately 

9.3 percent of closing volume is 

executed off-exchange at the primary 

listing exchange’s closing price. The 

DERA Analysis also found that, in a 

sample spanning the first quarter of 

2017, variation in off-exchange MOC 

share is not significantly correlated with 

closing price discovery or efficiency, 

controlling for primary auction activity, 

off-exchange trading activity during 

regular trading hours, average market 

capitalization, average daily trading 

volume, average daily stock return 

volatility, and closing price volatility.130

In further sample splits (e.g., by listing 

venue, security type, and index 

inclusion), the DERA Analysis finds 

some mixed evidence of statistically 

significant correlations, but no 

consistent or conclusive evidence that 

contradicts the full-sample analysis. 

NYSE provided several critiques of 

the DERA Analysis’ methodology and 

argued that the DERA Analysis’ findings 

should not be interpreted as providing 

evidence that BZX’s proposal would 

have no negative impact on price 

discovery or the efficiency of closing 

prices.131 NYSE also asserted that the 

DERA Analysis does not adequately 

address the concerns raised by 

commenters that the BZX proposal 

might undermine price discovery, have 

a negative effect on the quality of 

official closing prices, and introduce 

new concerns related to market 

manipulation and ‘‘gaming.’’ 132

As discussed above, NYSE stated that 

because the bulk of the volume 

accounted for in the DERA Analysis is 

market maker volume crossed on behalf 

of clients, it may not be a good proxy 

for evaluating the potential impact of 

the proposal.133 In addition, NYSE 

stated that if BZX’s proposal is 

successful, it could divert a higher 

percentage of MOC orders away from 

the primary listing markets than is 

currently observed in an analysis of 

existing off-exchange MOC activity. 

Accordingly, NYSE argued that the 

DERA Analysis does not have sufficient 

data to measure the effects when offexchange MOC volume is high, which is 

likely to yield greater power to find an 

effect.134 NYSE also claimed that the 

DERA Analysis failed to account for 

instances when there is no closing 

auction, which could result in not 

considering instances where, according 

to NYSE, price discovery in the closing 

auction would be most impacted by 

diverting MOC orders away from the 

primary listing market.135

In criticizing the methodology of the 

DERA Analysis, NYSE further asserted 

that ‘‘widely accepted’’ alternative 

approaches for analyzing potential 

behavior and incentives under 

alternative market structures could be 

useful in considering the impact of 

BZX’s proposal on closing price 

discovery and efficiency.136 In addition, 

NYSE stated that it may be possible to 

use a simulation approach to investigate 

the degree to which routing MOC orders 

away from the primary listing exchanges 

impacts price discovery.137

Concluding that the methodology 

used by the DERA Analysis does not 

provide meaningful evidence of the 

extent to which off-exchange MOC 

trading currently impacts the 

informational efficiency of the official 

closing price, NYSE discussed the 

metrics used in the DERA Analysis.138

With respect to the Price Contribution 

metric, NYSE argued that the metric is 

not suitable for evaluating the quality of 

the closing auction because it is a 

‘‘simplistic measure’’ of the degree of 

price discovery that would classify 

‘‘large arbitrary swings’’ in prices as 

good price discovery.139 Concerning the 

Price Reversal metric, NYSE stated that 

as a measure of the efficiency of official 

closing prices, it is a ‘‘noisy and 

imprecise’’ metric that makes it unlikely 

that one would find a significant result, 

even if one exists, and that it also has 

no clear interpretation.140 NYSE further 


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141See id. at 17. 

142See id. 

143See DERA Analysis, supra note 8, at 1. See 

also supra note 130. 

144See infra notes 204–211 and 213–226 and 

accompanying text (discussing in more detail 

NYSE’s arguments relating to manipulation and the 

Commission’s response). 

145See id. at 11 and 16. See also supra notes 117– 

121 (discussing the Commission’s response to 

NYSE and other commenters arguments relating to 

the potential scenario of all MOC orders being 

diverted to Cboe Market Close and the primary 

listing markets conducting no auction). 

146See NYSE Report, at 15. See also supra note 

138. 

147See DERA Analysis, supra note 8, at 6, note 

20. 148See DERA Analysis, supra note 8, at 6, note 

20 and accompanying text. 149Footnote 22 of the DERA Analysis describes a 

robustness check using stock and day fixed effects. 

See DERA Analysis, supra note 8, at 8. Controlling 

for unobserved heterogeneity at the stock level 

using stock fixed effects would not be possible 

using pure cross-sectional regressions. 

150See NYSE Report, at 14–15. 

151Statistical power is the ability for statistical 

tests to identify differences across samples when 

those differences are indeed significant. 

152 In fact, Table 2 of the DERA Analysis finds 

strong statistically significant correlations between 

Price Reversals and contemporaneous closing price 

volatility. See DERA Analysis, supra note 8, at 15. 

153The DERA Analysis included this metric to 

account for price continuations, which would also 

indicate a lack of price efficiency. See DERA 

Analysis, supra note 8, at 6–7. 

154See NYSE Report at 14 and 15–16. 

155See OIP, supra note 7, at 40210–40211. 

156See supra note 154. See also infra note 209 

(stating that NYSE did not provide any data, 

studies, or analyses supporting its arguments 

regarding the potential impacts of BZX’s proposal 

on manipulative activity in response to the 

Commission’s specific solicitation in this regard). 

157See supra notes 61–66 and accompanying text 

(stating that Nasdaq asserted that broker-dealers 

may accept MOC orders and trade against them as 

principal and that NYSE asserted that market 

makers crossing orders on behalf of clients may be 

risking capital on such transactions). 

asserted the Price Reaction metric is 

likewise ‘‘imprecise and problematic’’ 

because it is ‘‘just an indicator-variable 

version’’ of price reversal and thus 

‘‘imprecisely measures the imprecise 

Price Reversal metric.’’ 141 NYSE 

asserted that the DERA Analysis’ lack of 

a finding of statistically significant 

results ‘‘is not surprising’’ because the 

power of the Price Reaction test to find 

significant results is severely 

hampered.142

The Commission has considered the 

criticisms of NYSE with respect to the 

DERA Analysis. Importantly, the DERA 

Analysis was explicit regarding the 

limited scope of its analysis and does 

not assert that BZX’s proposal would 

have no negative impact on price 

discovery of official closing prices. The 

DERA Analysis sought to explore the 

correlation of closing price discovery 

and efficiency with existing offexchange MOC activity. It did not make 

any findings with respect to establishing 

a causal link between off-exchange MOC 

activity and closing price discovery and 

efficiency.143 In addition, it was not 

designed to, nor does it purport to, 

opine on or address other aspects of 

BZX’s proposal, including the potential 

impact on manipulation.144 While 

NYSE also criticized the scope of the 

DERA Analysis for not considering 

instances where there was no closing 

auction, the sample in Table 4 of the 

DERA Analysis did, in fact, include all 

symbol-day observations, including 

those days where there was no closing 

auction, and this sample showed results 

consistent with DERA’s overall 

findings.145

NYSE noted that the DERA Analysis 

‘‘cites to two published papers by 

Barclay and Hendershott as support for 

using a regression-based approach to 

study the information content of the 

closing price. However, the DERA 

Analysis does not actually use the 

Barclay-Hendershott methodology.’’ 146

The DERA Analysis explains that, in 

order to maintain a consistent sample 

size across the different regression 

specifications, rather than take timeseries weighted averages and running 

pure cross-sectional regressions, the 

DERA Analysis uses weighted panel 

regressions to perform the same 

estimation.147 The DERA Analysis 

explains that the weighted panel 

regression approach produces the same 

Price Contribution estimates as the timeseries weighted averages.148

Furthermore, the panel regression 

approach allows for the analysis of 

within-stock—day-to-day—variation in 

Price Contributions, off-exchange MOC 

activity, as well as the controls.149

Finally, the NYSE, in its critique of the 

DERA Analysis, does not explain how 

any differences in regression 

specifications would affect coefficient 

estimates or change the interpretation of 

these estimates. 

With respect to NYSE’s critique of the 

Price Contribution metric, the DERA 

Analysis controlled for 

contemporaneous absolute price 

volatility to account for the precise 

concerns identified by NYSE. 

Accordingly, the regression utilized in 

the DERA Analysis sought to isolate 

variations in Price Contributions that 

were not merely ‘‘large arbitrary price 

swings’’ that happened to be correlated 

with off-exchange MOC activity.150

While NYSE also argues that the 

imprecision of the Price Reversal and 

Price Reaction metrics render it unlikely 

to yield statistically significant results, 

the Commission believes that the DERA 

Analysis included a sufficient sample 

size and variables to achieve statistical 

power.151 Regarding the Price Reversal 

metric, the DERA Analysis used the 

same definition as Barclay and 

Hendershott, which found statistical 

relations using this measure, and the 

DERA Analysis used all stock-days over 

a quarter so as to not limit the analysis 

to a small sample.152 Concerning the 

Price Reaction measurements, the 

Commission acknowledges that they 

may be imprecise, but many of the 

variables included in the regression, 

including auction share and market 

capitalization, are statistically correlated 

with price reactions, which suggests 

that, in this case, the definition of the 

dependent variable does not, on its own, 

create a lack of statistical power.153

Moreover, NYSE suggested that there 

are alternative approaches that would be 

useful in considering how market 

participants are likely to behave under 

alternative market structures and for 

analyzing how potential structures 

create incentives for market 

manipulation, as well as alternative 

measures that could provide pertinent 

information regarding price discovery at 

the close.154 However, NYSE did not, in 

fact, provide any data or studies 

employing any of these methods. In the 

OIP, the Commission requested data, 

analyses or studies on a variety of 

relevant issues including arguments that 

BZX’s proposal would harm price 

discovery in the primary listing 

exchanges’ closing auctions, that BZX’s 

proposal would affect the integrity or 

reliability of the official closing auction 

and the resulting closing price, and that 

BZX’s proposal would increase the 

potential for manipulative activity.155

However, despite asserting that it 

believed there are other relevant 

approaches for studying and analyzing 

matters relevant to these points that it 

could have used to respond to the 

Commission’s solicitation of comments, 

NYSE did not do so.156

As discussed above, Nasdaq and 

NYSE concluded that existing over-thecounter price matching should not be 

considered a precedent for the proposal 

and described how they believed some 

over-the-counter MOC trades differed 

from those that would occur through 

Cboe Market Close.157 While the utility 

of any consideration of the impact of 

off-exchange MOC execution services on 

price discovery on the primary listing 

exchanges may be more limited to the 

extent that such existing activity and 

services are not identical to the 

proposed Cboe Market Close, the 

Commission nonetheless believes that 

the DERA Analysis, while not 

conclusive, provides some insights in 


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158See OIP, supra note 7, at 40210–40211. 

159See supra notes 52–55 and accompanying text. 

160Competing auctions could also potentially 

reduce the centralization of orders at the primary 

listing market’s closing auction, which NYSE and 

Nasdaq argued was a critical element of the primary 

listing markets’ closing auctions. 

161See Nasdaq Letter 1, at 6–7; Nasdaq Letter 2, 

at 1–2 (asserting that as a result of fragmentation, 

small- and mid-cap companies are more susceptible 

to abrupt and disruptive price swings and therefore, 

centralizing liquidity at the close is important for 

these issuers and their investors); NYSE Letter 1, at 

3; GTS Securities Letter 1, at 2–5; Customers 

Bancorp Letter; Orion Group Letter; CTS 

Corporation Letter; IMC Financial Letter, at 1–2; 

Southern Company Letter; Nobilis Health Letter; 

EDA Letter, at 1–2; Coupa Software Letter; Trade 

Desk Letter; Duffy/Meeks Letter, at 1; and Henry 

Schein Letter. 

162See NYSE Letter 1, at 3 (arguing that the 

proposal is indifferent to the potential risks to 

public companies and that the closing is the most 

important data point for shareholders); IMC 

Financial Letter, at 1–2; Nobilis Health Letter; EDA 

Letter, at 1–2; Coupa Software Letter; Ethan Allen 

Letter; Trade Desk Letter; BioCryst Letter; Digimarc 

Letter; Duffy/Meeks Letter, at 1–2 (stating that 

public companies are concerned the proposal will 

have an unforeseen effect on the pricing of their 

companies’ shares at the close, ultimately harming 

a critical measure of the company’s value and 

harming its shareholders and asking the 

Commission to carefully consider the impacts of the 

proposal and whether such impacts would be 

necessary and helpful to public companies); NBT 

Bancorp Letter; Five9 Letter; Balchem Letter; Cree 

Letter; Henry Schein Letter; Corbus Letter; Global 

Payments Letter; CA Technologies Letter; Sirius 

Letter; Lam Letter; and PayPal Letter. Several 

issuers also asserted that decentralizing closing 

auctions will increase volatility, reduce visibility, 

and negatively impact liquidity for equity 

securities. See e.g., Customers Bancorp Letter; 

Orion Group Letter; Nobilis Health Letter; Cardinal 

Health Letter; and Stewart Letter. 

163See Customers Bancorp Letter; Orion Group 

Letter; CTS Corporation Letter; Southern Company 

Letter; Duffy/Meeks Letter, at 1–2 (stating that the 

proposal could cause a disruption to the closing 

auction process, which could lead to discouraging 

investors from participating in and having 

confidence in our markets); and Five9 Letter. In 

contrast, one commenter argued that the proposal 

would improve aggregate liquidity at the official 

closing price because the lower aggregate cost of 

trading would likely spur incremental increases in 

trading volumes. In addition, this commenter stated 

that the ability to enter MOC orders into Cboe 

Market Close with little risk of information leakage 

may attract an additional source of liquidity. See 

ViableMkts Letter, at 2. 

164See SPDJI Letter, at 1–2 (stating that it relies 

solely on primary market auction prices to calculate 

the official closing index values, and that these 

closing index values play an important role in the 

markets, including use by portfolio managers to 

measure their funds’ value and for use in 

calculating settlement prices for certain products); 

see also Coupa Software Letter; Trade Desk Letter; 

and Henry Schein Letter (stating that the official 

closing price is used to value their stocks for 

purposes of various indexes and mutual funds). 

165See SPDJI Letter, at 2; see also NYSE Report, 

at 23–24. In contrast, one commenter acknowledged 

that while impacting the quality of the closing price 

is an objection that deserves close analysis, as the 

closing price is ‘‘the most important price of the 

day,’’ and would warrant rejection of the proposal, 

the commenter does not believe the proposal would 

harm the quality of the closing price. See Angel 

Letter, at 4. 

166See NYSE Letter 1, at 3 and 9 (stating that no 

single data point is more important than the closing 

price to the company or its shareholders); GTS 

Securities Letter 1, at 3–5; EDA Letter, at 1; Duffy/ 

Meeks Letter, at 1 (stating that the closing price is 

a critical measure of a company’s value and that 

public companies view the closing auction on the 

primary listing exchange as a critical aspect of 

listing); and GTS Securities Letter 2, at 1–2. In 

addition, one commenter stated that further 

fragmenting the market would limit the quality and 

quantity of information on trading dynamics that 

the primary listing markets provide to their listed 

issuers. See CA Technologies Letter. 

167See BZX Letter 1, at 2 and 4 and BZX Letter 

2, at 10. 

considering whether there would likely 

be potential negative impacts on the 

price discovery process in the closing 

auctions of the primary listing 

exchanges that would occur from 

executing MOC orders on a venue other 

than the primary listing market. 

Accordingly, the Commission believes 

that the DERA Analysis lends support 

for the argument that there is no strong 

evidence to suggest that existing levels 

of fragmentation of closing auctions 

through off-exchange MOC activity 

negatively impacts the price discovery 

process on the primary listing 

exchanges. In addition, as a general 

matter, commenters failed to provide 

data, studies or analyses, as requested in 

the OIP,158 that persuasively supported 

their assertions regarding the proposal’s 

negative impact on price discovery on 

the closing auctions of the primary 

listing markets. 

With regard to competing closing 

auctions, BZX’s proposed Cboe Market 

Close is not a closing auction and the 

Commission believes, as do some 

commenters, that there are certain 

fundamental differences between BZX’s 

proposed Cboe Market Close and 

existing competing closing auctions, 

such as those identified by NYSE and 

Nasdaq regarding the price discovery 

mechanisms of their competing, singlepriced closing auctions, which produce 

closing prices independent from those 

determined through the primary listing 

exchanges’ closing auctions.159

Nevertheless, the Commission believes 

that considering such competing closing 

auctions, which already exist today, is 

useful to an analysis of the current 

proposal. Importantly, in such 

competing closing auctions, market 

participants may choose not only to 

submit MOC orders, but also pricesetting LOC orders. As pointed out by 

BZX, this could affect the closing price 

on the primary listing market by 

potentially diverting LOC orders that 

contribute to price discovery away from 

the primary listing market’s closing 

auction.160 In contrast, BZX’s proposal 

would not accept LOC orders, but rather 

only matches MOC orders, and thus is 

reasonably designed to not impact the 

closing price formation process. 

Several commenters stated that the 

proposal could harm issuers, 

particularly small and mid-cap 

companies.161 Many of these 

commenters argued that because of their 

view that the proposal undermines the 

reliability of the closing process and/or 

the official closing price it also poses a 

risk to listed companies and its 

shareholders.162 Many of these 

commenters, some of which are issuers, 

stated that the current centralized 

closing auctions on the primary listing 

markets contribute meaningful liquidity 

to a company’s stock, facilitates 

investment in the company, and helps 

to lower the cost of capital. Accordingly, 

these commenters expressed concern 

that the potential additional 

fragmentation caused by the proposal 

could negatively impact liquidity during 

the closing auction, causing detrimental 

effects to listed issuers.163

In addition, one commenter, SPDJI, 

argued that the proposal may also 

impact confidence in the pricing of 

benchmark indices as confidence in 

closing prices is a prerequisite for 

market participants to maintain 

confidence in the pricing of benchmark 

indices.164 Accordingly, SPDJI asserted 

that because the closing price is a 

critical data point for investors, great 

caution should be taken in any changes 

to the closing auction.165

Moreover, some commenters argued 

that the centralization of liquidity at the 

open and close of trading, and how 

primary listing markets perform during 

the opening and closing, are important 

factors for issuers in determining where 

to list their securities, and the 

additional risk posed to listed 

companies from an unreliable or 

unrepresentative closing price and/or 

process could impact an issuer’s 

decision where to list and/or cause 

companies to forgo going public.166

With regard to concerns about the 

impact of the proposal on issuers and 

their shareholders, BZX stated that the 

proposal ‘‘would not adversely impact 

the trading environment for issuers and 

their securities’’ because it ‘‘specifically 

designed the [p]roposal so that it would 

not impact the very important price 

discovery function performed by the 

primary listing markets’ closing 

auction’’ by only matching paired MOC 

orders and not LOC orders and ensuring 

executions at the closing price.167 BZX 

further stated that unlike the competing 

closing auctions run by NYSE Arca and 

Nasdaq, the proposal would not create 


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Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3217 

168See BZX Letter 2, at 10. 

169See supra notes 161–166 and accompanying 

text. 

170See supra notes 110–160 and accompanying 

text. 

171See SIFMA Letter 1, at 2 and ViableMkts 

Letter, at 3 (further stating that once BZX is able to 

process MOC orders, they would be in a position 

to develop the capability to offer a full backup 

closing auction process). 

172See Clearpool Letter, at 4. 

173See NYSE Letter 1, at 7 and IMC Letter, at 1. 

See also NYSE Letter 3, at 3 (stating that market 

participants that may not subscribe to multiple 

proprietary data feeds would be at a disadvantage 

and that the complexity would be further 

compounded when other exchanges adopt 

functionality similar to Cboe Market Close). 

174See IMC Letter, at 1 and NYSE Letter 1, at 7. 

See also Ethan Allen Letter (arguing the proposal 

would add a layer of complexity). 

175See GTS Securities Letter 1, at 6. 

176See GTS Securities Letter 1, at 6. Furthermore, 

NYSE argued that in certain situations, investors 

may not be able to participate in a closing auction 

on NYSE American or NYSE Arca if they wait until 

after their order was cancelled by BZX to send in 

a market-on-close order to closing auctions on 

NYSE Arca and NYSE American. NYSE explained 

that in situations where there is an order imbalance 

priced outside the Auction Collars, orders on the 

side of the imbalance are not guaranteed to 

participate in the closing auctions on those two 

exchanges. Earlier submitted market-on-close orders 

have priority. See NYSE Letter 1, at 8. 

177See GTS Securities Letter 1, at 6. 178See T. Rowe Price Letter, at 1–2. See also 

Nasdaq Letter 1, at 8 (stating that other exchanges 

may propose similar offerings but choose different 

pairing cut-off times which could further 

complicate investors’ decisions and programming 

requirements). 179See BZX Letter 1, at 12 and BZX Letter 2, at 

10–11. 180See BZX Letter 1, at 12 and BZX Letter 2, at 

10–11. 181See BZX Letter 1, at 12. 182See id. In contrast, Nasdaq argued that Cboe 

Market Close could not serve as a back-up for a 

primary listing market suffering an impairment 

because it is not a price-discovering auction and 

would not operate in the absence of the auction it 

would be backing-up. See Nasdaq Letter 2, at 12. 

183See BZX Letter 1, at 4 and BZX Letter 2, at 

3. 

184See BZX Letter 2, at 8. 

185See id. at 8–9. In contrast, NYSE argued that 

it is irrelevant whether it is optional to send market 

Continued 

a price that deviates from the official 

closing price, and therefore, the 

proposal ‘‘would not impact listed 

issuers or the market for their 

securities.’’ 168

The Commission believes that, 

because the proposal is reasonably 

designed to minimize any impact on the 

price discovery process, as described 

above, commenters’ concerns regarding 

the effects on listed issuers, including 

small and mid-cap companies, are 

similarly mitigated. Commenters stated 

that the proposal would undermine the 

value and reliability of closing prices for 

securities and, as a result, the pricing of 

benchmark indices, and that 

decentralization of the closing auction 

would harm liquidity in their stock.169

However, for the reasons discussed 

above,170 the Commission believes that, 

because the proposal is reasonably 

designed to not impact price formation 

in closing auctions on the primary 

listing markets, the proposal is likewise 

reasonably designed to avoid the 

detrimental impacts that commenters 

have raised regarding the reliability of 

official closing prices, confidence in 

closing prices and pricing of benchmark 

indices, increased volatility, liquidity 

conditions for particular stocks, and the 

cost of raising capital. Further, as 

described above, because BZX will 

disseminate the amount of BZX 

matched shares well before the cut-off 

time for the primary markets’ closing 

auctions, the Commission does not 

believe that the proposal would 

negatively impact visibility and 

transparency into the closing auction 

process on the primary listing 

exchanges. 

Impact on Market Complexity and 

Operational Risk 

Several commenters addressed the 

potential impact of the proposal on 

market complexity and operational risk 

that could occur if the proposal resulted 

in increased market fragmentation. 

Some of these commenters believed that 

the proposal would not introduce 

significant additional complexity or 

operational risk. For example, two 

commenters argued that the proposal 

could enhance the resiliency of the 

closing auction process by providing 

market participants an additional 

mechanism through which to execute 

orders at the official closing price in the 

event of a disruption at a primary listing 

market.171 Another commenter argued 

that exchanges already have many 

market data feeds that firms must 

purchase to ensure that they have all of 

the information necessary to make 

informed execution decisions and that 

adding another data feed will not add 

complexity given the small amount of 

information that goes into the closing 

data feed and the current capabilities of 

market participants to re-aggregate 

multiple data feeds.172

In contrast, other commenters argued 

that the proposal would add 

unnecessary market complexity and 

operational risk. In particular, two 

commenters stated that the proposal 

would require market participants to 

monitor an additional data feed, the 

Bats Auction Feed, with one also stating 

that if additional exchanges adopted 

similar functionality to Cboe Market 

Close, it would require monitoring of 

even more data feeds.173 These 

commenters argued that monitoring an 

additional data feed could increase 

operational risk by creating another 

point of failure at a critical time of the 

trading day.174 One commenter also 

stated its view of the increased 

complexity involved in sending order 

flow to more than one exchange in short 

periods of time near the close of the 

trading day.175 This commenter argued 

that the proposal increases operational 

risk and complexity at a critical point of 

the trading day by forcing market 

participants whose orders did not match 

in Cboe Market Close to quickly send 

MOC orders from one exchange to 

another before the cut-off time at the 

primary market closing auction.176 This 

added complexity, GTS argued, puts 

additional stress on the systems of 

exchanges and increases the potential 

for disruptions.177 Lastly, two 

commenters argued that the proposal 

could encourage other exchanges, 

broker-dealers, and alternative trading 

systems to offer similar processes, 

which would introduce undesirable 

fragmentation to the market and lead to 

operational challenges for investors and 

traders.178

In response, BZX argued that the 

proposal would not increase market 

complexity or operational risks.179

Rather, BZX asserted that it would 

provide a way to address the single 

point of failure risk that exists for 

closing auctions conducted on the 

primary listing markets.180 BZX argued 

that, despite the current system of 

designated auction backups, market 

participants can be confused about 

whether an exchange is in fact able to 

conduct a closing auction.181 BZX 

believes, in the event there is an 

impairment at a primary listing market, 

Cboe Market Close could provide an 

alternative option for market 

participants to route MOC orders and 

still receive the official closing price.182

In addition, BZX added that modern 

software can easily and simply add 

volume data disseminated by the 

primary listing markets regarding the 

closing auction and data regarding 

matched MOC orders from the Cboe 

Market Close.183 Moreover, BZX stated 

that it believed the 3:35 p.m. cut-off 

time would provide market participants 

with adequate time to receive any 

necessary information and to route any 

unmatched orders to the primary listing 

exchange.184 Lastly, BZX stated that 

market participants would not be 

obligated to use Cboe Market Close and 

accordingly, may weigh the value of 

seeking an execution in Cboe Market 

Close against any perceived risks.185


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orders to the Cboe Market Close, as the analysis 

should turn on whether the mere existence of the 

Cboe Market Close would increase complexity and 

operational risk in the market. See NYSE Letter 3, 

at 2. 

186 In addition, in response to comments 

regarding the potential for other exchanges to adopt 

similar functionality that would require monitoring 

of even more data feeds, the Commission believes 

that those participants that would likely choose to 

monitor such data feeds likely already have the 

capability to monitor and aggregate information 

from multiple data feeds. Furthermore, the current 

BZX filing under consideration is a proposal from 

one exchange to disseminate information on one 

data feed and, as such, the Commission’s analysis 

considers whether the instant proposal is consistent 

with the Act, rather than similar functionality that 

other exchanges may or may not propose in the 

future. 

187See supra note 120. 

188See Angel Letter, at 5. 

189See Nasdaq Letter 1, at 8 and Nasdaq Letter 

2, at 14. 

190See Nasdaq Letter 1, at 8 and Nasdaq Letter 

2, at 13–14 (arguing that market participants may 

use information gained regarding an imbalance in 

Cboe Market Close to detect the direction of the 

Nasdaq closing auction imbalance and trade against 

that information in either the closing auction or the 

continuous market). 

191See Nasdaq Letter 2, at 14. Nasdaq argued that 

this would weaken the price discovery process, 

create a cycle of closing price deterioration, and 

increase volatility. See id. But see supra notes 110– 

160 and accompanying text discussing why the 

proposal is reasonably designed to not impact the 

price discovery process of the primary listing 

markets’ closing auctions. 

192See id. 

193See NYSE Letter 1, at 6. However, ViableMkts 

argued that because these market participants 

would not know the full magnitude of the 

imbalance, it does not believe the proposal creates 

an incremental risk of manipulation. See 

ViableMkts Letter, at 5. 

194See T. Rowe Price Letter, at 2–3. 

195See id. 

196See id. 

197See BZX Letter 1, at 11–12 and BZX Letter 2, 

at 9. 

198See BZX Letter 1, at 12 and BZX Letter 2, at 

9. BZX also requested that the Commission review 

the appropriateness of NYSE’s use of the d-Quote 

and its potential for price manipulation of NYSE’s 

closing prices. See BZX Letter 1, at 9. 

The Cboe Market Close will offer 

market participants an additional venue 

to which they may send orders for 

execution at the official closing price 

and an additional data feed that some 

market participants may choose to 

monitor. However, as several 

commenters stated, many market 

participants already monitor multiple 

data feeds and the Commission believes 

that those market participants that 

would plan to monitor information 

disseminated by BZX relating to Cboe 

Market Close would likely already 

maintain systems and software that are 

able to aggregate such feeds.186

Accordingly, the Commission does not 

believe that monitoring the Cboe Market 

Close feed or having an additional 

venue to submit MOC interest would 

significantly increase complexity or 

impose substantial burdens on market 

participants in such a manner as to 

render the proposal inconsistent with 

the Act. In addition, the Commission 

believes, as stated by BZX, that because 

BZX will disseminate the amount of 

paired shares well in advance of the 

order entry cut-off times for the primary 

listing markets’ closing auctions, the 

proposal is reasonably designed to give 

market participants adequate time to 

review the necessary data, make 

informed decisions about closing order 

submission, and route orders to the 

primary listing exchange when desired. 

Further, the Commission believes, as 

BZX argued, that market participants 

have the ability to evaluate any 

potential risks that they believe may be 

associated with using the proposed 

functionality in any determination as to 

whether to send their orders to Cboe 

Market Close, such as the need to 

monitor additional data feeds, whether 

their orders were matched on BZX, or 

potentially having to send their MOC 

orders to more than one venue if they 

are not matched in Cboe Market 

Close.187

Manipulation 

Several commenters addressed the 

issue of whether the proposal would 

facilitate manipulation of both the 

closing auctions on the primary listing 

markets, as well as continuous trading 

during the final minutes of the trading 

day. Some commenters did not believe 

it would do so. For example, one 

commenter stated that incentives to 

manipulate the closing price already 

exist and it is unlikely the proposal 

would result in increased manipulation 

of the market close.188

In contrast, several commenters 

asserted that the proposal raises a risk 

of manipulation, in part due to the 

asymmetry of information that would be 

disseminated, which would allow 

market participants to utilize 

informational advantages to their own 

benefit. For example, Nasdaq argued 

that information concerning the amount 

of orders matched through Cboe Market 

Close, would represent tradable 

information that market participants 

could use to ‘‘game’’ the closing crosses 

on the primary listing markets and 

undermine fair and orderly markets.189

In particular, Nasdaq argued that its 

closing auction was designed to 

carefully balance the amount and timing 

of data released so as to reduce the risk 

of gaming, but that this new information 

regarding paired MOC orders could be 

used to gauge the depth of the market, 

the direction of existing imbalances, and 

the likely depth remaining at Nasdaq, 

creating gaming opportunities.190 While 

Nasdaq acknowledged that information 

asymmetries exist today as a result of 

broker-dealer MOC order matching 

services, it argued that BZX, ‘‘as a 

neutral platform, is more likely to gather 

orders from multiple brokers and enable 

a small number of participants to gain 

actionable asymmetric information,’’ 

which could potentially change the 

Nasdaq closing price.191 In response to 

claims from BZX that Nasdaq’s closing 

auction is subject to the same 

information asymmetries and risks, 

Nasdaq argued that by having its data 

dissemination and cut-off time occur 

simultaneously, all market participants 

learn the imbalance at the same time, 

avoiding such risks.192

NYSE further asserted that the 

proposal could potentially provide some 

market participants, such as 

professional traders, with useful 

information that other market 

participants do not have, such as the 

direction of an imbalance, which could 

be used to influence the official closing 

price.193

Although not citing concerns 

regarding manipulation specifically, T. 

Rowe Price similarly argued that the 

proposal would lead to information 

asymmetries that could result in 

changes in continuous trading behavior 

leading into the market close as some 

market participants could be trading on 

information gathered from Cboe Market 

Close pairing results.194 T. Rowe Price 

asserted that a market participant that is 

aware of the composition of volume 

paired through Cboe Market Close at 

3:35 p.m. would be in a position to use 

that information to influence its trading 

behavior over the next ten to fifteen 

minutes leading in to the closing 

auction cut-off times on NYSE and 

Nasdaq respectively.195 T. Rowe Price 

argued that, as a result, the proposal 

could not only impact price discovery 

in closing auctions on the primary 

listing markets it could also impact 

continuous trading behavior.196

In contrast, BZX argued that 

information asymmetries are inherent in 

trading, including the primary listing 

markets closing auctions.197 For 

example, BZX argued that the current 

operation of d-Quotes on NYSE carries 

a risk of manipulation as it provides an 

informational advantage to NYSE DMMs 

and floor brokers, and allows d-Quotes 

to be entered, modified or cancelled up 

until 3:59:50 p.m. while other market 

participants are prohibited from 

entering, modifying or cancelling onclose orders after 3:45 p.m.198 Lastly, 

BZX argued that the information 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3219 

199See id. 200See NYSE Rule 123C(6)(b). 201See Securities Exchange Act Release No. 

62923 (September 15, 2010), 75 FR 57541, 57542 

(September 21, 2010) (SR–NYSE–2010–20; SR– 

NYSEAmex–2010–25). 

202See id. 

203See supra notes 194–196 and accompanying 

text. While one commenter expressed concern that 

market participants that are aware of the 

composition of volume paired through Cboe Market 

Close would be in a position to use that information 

to influence their trading behavior leading up to the 

close, under BZX’s proposal, BZX would only 

publish the size, and not the composition, of paired 

MOC shares, and that such disseminated 

information would be available to all market 

participants. 

204See NYSE Letter 1, at 6 and NYSE Report, at 

19–22. See also Americas Executions Letter (stating 

that the proposal creates new opportunities to 

possibly manipulate the close). 

205See NYSE Letter 1, at 6. 

206See NYSE Letter 1, at 6 and NYSE Report, at 

19. 

207See NYSE Report, at 19–20. 

208NYSE also asserted that arbitrageurs will look 

for opportunities presented by Cboe Market Close 

to ‘‘gam[e] the system.’’ However, NYSE also 

acknowledged that, ‘‘[i]t is hard to predict all of the 

ways in which, and the degree to which, this might 

occur because it will depend on a wide range of 

variables, including the degree of usage of the Bats 

close, the changes to order flow and liquidity 

provision in the primary market’s closing 

mechanism, the profits realized from manipulation, 

and the vitality of market oversight.’’ See NYSE 

Report, at 19–22. 

209 In the OIP, the Commission specifically 

solicited comments on the whether the proposal 

would increase the potential for manipulation and 

requested that commenters provide specific data, 

analyses, or studies for support to the extent 

possible. See OIP, supra note 7, at 40211. Although 

the NYSE Report criticized the DERA Analysis for 

not addressing concerns regarding manipulation, 

the potential impact of the proposal on 

manipulation was outside the intended scope of 

such analysis, see supra note 144, and NYSE did 

not, in response to the OIP request, provide any of 

its own specific data or purport to provide findings 

of any study or analyses in this area. See NYSE 

Report, at 19–22. 

210See Carole Comerton-Forde and Talis J. 

Putnins, ‘‘Measuring Closing Price Manipulation,’’ 

Continued 

disseminated through the Bats Auction 

Feed would not provide any indication 

of whether the cancelling of a particular 

side of an order that has not been 

matched back to a market participant ‘‘is 

meaningful or just happenstance,’’ 

which limits this information’s ability to 

create or increase manipulative 

activity.199

The Commission believes that the 

proposed rule change is consistent with 

the requirement of Section 6(b)(5) of the 

Act that the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices. The Commission believes 

information asymmetries as those 

described by commenters exist today 

and are inherent in trading, including 

with respect to closing auctions. For 

example, any party to a trade gains 

valuable insight regarding the depth of 

the market when an order is executed or 

partially executed. Further, on NYSE, 

not only DMMs, but NYSE floor brokers 

have access to closing auction 

imbalance information that is not 

simultaneously available to other 

market participants, far in advance of 

the NYSE order entry cut-off time. 

Specifically, pursuant to NYSE rules, 

floor brokers receive the amount of, and 

any imbalance between, MOC and 

marketable LOC interest every fifteen 

seconds beginning at 2:00 p.m. until 

3:45 p.m.200 Floor brokers are permitted 

to provide their customers with specific 

data points from this imbalance feed. In 

arguing for the Commission to approve 

its proposal to disseminate such 

information to floor brokers, NYSE 

stated that the imbalance information 

does not represent overall supply or 

demand for a security, but rather is a 

small subset of buying and selling 

interest that is subject to change before 

the close, nor is it actionable prior to 15 

minutes before the close.201 NYSE 

further asserted that it believed the 

information it disseminates to all 

participants at 3:45 p.m. is more 

material to investors, as it is more 

accurate, complete, and timely 

information.202

The Commission believes that the 

same arguments apply with respect to 

BZX’s proposal. In particular, even if a 

market participant becomes aware of the 

direction of the imbalance for a security 

in Cboe Market Close as a result of 

receiving a cancellation of part or all of 

that participant’s order, such 

information does not represent overall 

supply or demand for the security, is 

subject to change before the close, and 

is only one piece of information and 

likely less useful than other information 

regarding the close that would be 

available to market participants, such as 

the total matched amount of MOC 

shares that would be disseminated by 

BZX at 3:35 p.m. and available to all 

market participants on equal terms, as 

well as any imbalance information 

disseminated by the primary listing 

markets. While commenters argue that 

those who participate in Cboe Market 

Close would be able to discern the 

direction of an imbalance and use such 

information to manipulate the closing 

price, the Commission believes the 

utility of such gleaned information is 

limited. In particular, a market 

participant would only be able to 

determine the direction of the 

imbalance, and would have difficulty 

determining the magnitude of any 

imbalance, as it would only know the 

unexecuted size of its own order. In 

addition, the information would only be 

with regard to the pool of liquidity on 

BZX and would provide no insight into 

imbalances on the primary listing 

market, competing auctions, or offexchange matching services which, as 

described above, can represent a 

significant portion of trading volume at 

the close. Likewise, while a market 

participant would be able to determine 

whether its own order made up a large 

or small percentage of the paired shares 

for a security in Cboe Market Close, it 

would not be able to determine the 

composition of same-side or contra-side 

MOC orders submitted to Cboe Market 

Close, nor would such information 

enable it to determine the composition 

of orders submitted to the primary 

listing market, competing auctions, or 

off-exchange matching services.203

Therefore, the Commission believes the 

utility of this information is also 

limited. Accordingly, the Commission 

believes the proposal’s potential for 

increased manipulation due to 

information asymmetries is negligible. 

NYSE also argued that the proposal 

would increase potential manipulation 

for several reasons.204 First, NYSE 

asserted that the potential for 

manipulative activity at the close would 

increase because primary listing 

exchange auctions would decrease in 

size and thus be easier to manipulate.205

NYSE also argued that the proposal 

facilitates manipulative activity by 

providing an incentive for market 

participants to influence the closing 

price when they know they have been 

successfully matched on BZX to the 

benefit of the price of its already 

matched order.206 Further, NYSE argued 

that market participants could 

manipulate information leading up to 

the close by entering orders into Cboe 

Market Close in an attempt to send a 

false signal regarding demand and 

subsequently reverse such positions 

after hours.207

The Commission recognizes that, with 

or without Cboe Market Close, the 

potential exists that there may be market 

participants who may seek to engage in 

manipulative or illegal trading activity, 

including with respect to closing 

prices.208 Although no commenters 

provided specific data, analyses, or 

studies regarding manipulation 

generally or to support the assertion that 

the proposal could increase the 

potential for manipulative activity,209

scholarly articles have suggested that 

closing auction manipulations are often 

characterized by large, 

unrepresentatively priced orders 

submitted in the final seconds of the 

auction.210 Accordingly, the 


sradovich on DSK3GMQ082PROD with NOTICES
3220 Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 

Journal of Financial Intermediation 20, 135–158 

(2011), available at: https://www.sciencedirect.com/ 

science/article/pii/S104295731000015X; and Talis 

J. Putnins, ‘‘Market Manipulation: A Survey,’’ 

Journal of Economic Surveys, 26, 952–967 (2012), 

available at: http://onlinelibrary.wiley.com/doi/ 

10.1111/j.1467-6419.2011.00692.x/full. 

211See infra for discussion of the obligations 

under the Act of national securities exchanges, as 

self-regulatory organizations, to surveil for 

manipulative activity on their markets. 

212See Nasdaq Letter 2, at 14. 

213See NYSE Report, at 20–21 and NYSE Letter 

1, at 6. 

214See NYSE Report, at 19. 

215See GTS Securities Letter 1, at 6; GTS 

Securities Letter 2, at 5. 

216See IEX Letter, at 2. 

217See id., at 2–3 and Bollerman Letter, at 2. 

218See BZX Letter 1, at 11–12 and BZX Letter 2, 

at 9. 

219See BZX Letter 1, at 11 and BZX Letter 2, at 

9. 

220See BZX Letter 4, at 1. 

221 Id. In particular, BZX stated that the 

surveillance would include, among other things, 

monitoring for possible non bona fide order 

activity, such as the submission of orders for the 

purpose of gaining an informational advantage, the 

entry of large size orders on one side of the market, 

or other trading activity that would indicate a 

pattern or practice aimed at manipulating the 

closing auction. Id. Further, BZX committed to 

providing the Commission staff its surveillance 

plan and stated that it would implement that plan 

on the date that Cboe Market Close becomes 

available to market participants. See id. at 2. 

222See id. Under regulatory services agreements, 

national securities exchanges, such as BZX, may 

enter into contracts with other regulatory entities, 

such as FINRA, to provide regulatory services on 

the exchange’s behalf. Notwithstanding the 

existence of a regulatory services agreement, the 

exchange retains legal responsibility for the 

regulation of its members and its market and the 

performance of its regulatory services provider. 

223 Id. 

224 Id. 

225 Id. 

226See supra note 213 and accompanying text. 

Commission believes that, while it is 

possible that the potential for 

manipulation could increase if the 

closing auctions on the primary listing 

exchanges decreased significantly in 

size, existing surveillance systems, 

should be able to continue to detect 

such activity.211 With respect to NYSE’s 

comment that the proposal would 

provide an incentive for market 

participants to influence the closing 

price when they know they have been 

successfully matched on BZX, market 

participants can attempt this today with 

respect to existing off-exchange MOC 

matching services (which are surveilled 

by FINRA) and any attempts to use Cboe 

Market Close to do this would result in 

such activity occurring on BZX, a 

national securities exchange with 

obligations under the Act to regulate 

and surveil its market. Similarly, 

entering non bona fide orders in an 

attempt to give the appearance of high 

demand is not a new form of potential 

manipulation unique to the proposal; 

rather, similar forms of market 

manipulation exist today and the 

Commission believes that current 

surveillance systems are designed to 

detect such activity. 

Lastly, Nasdaq stated that it and other 

exchanges would need to develop new 

cross-market surveillance systems in 

order to address these risks.212 NYSE 

also stated that there are no safeguards 

built-in to the proposal to prevent 

manipulation, and identifying 

manipulative activity would also 

become more difficult under the 

proposal due to the time difference 

between the Cboe Market Close and 

primary market closing auctions and the 

cross-market nature of the 

manipulation.213 Further, NYSE argued 

that market participants may have 

legitimate reasons to want to reverse 

their trades that have been matched in 

Cboe Market Close by trading in the 

primary market auction, and thus, it 

would be difficult to distinguish 

between manipulative trading activity 

and legitimate ‘positioning.’ 214 GTS 

similarly argued that the proposal 

would make surveillance of the market 

close more difficult and expensive due 

to fragmentation of order flow across 

multiple markets.215 In contrast, IEX 

argued that participation in the Cboe 

Market Close, followed by activity 

intended to affect the closing price on 

the primary market, would make 

manipulation of closing crosses as or 

more conspicuous than other trading 

patterns for which exchanges already 

conduct surveillance.216 Two 

commenters also stated that the 

Consolidated Audit Trail would provide 

a new tool for detecting any such 

manipulation.217

In response, BZX made several 

arguments as to why it does not believe 

that the proposal creates a potential for 

increased manipulation.218 BZX stated 

that, should the Commission approve 

the proposal, both it and FINRA, as well 

as other exchanges, would continue to 

surveil for manipulative activity and 

‘‘seek to punish those that engage in 

such behavior.’’ 219 In its final response 

letter, BZX reiterated that while it does 

not believe that the proposal would 

increase the potential for manipulation, 

it is ‘‘committed to enhancing its 

current surveillance procedures and 

working with other [SROs], including 

FINRA, the NYSE, and Nasdaq, to 

ensure that any potential inappropriate 

trading activity is detected and 

prevented.’’ 220 Specifically, BZX stated 

that, consistent with its obligations as 

an SRO, it currently surveils all trading 

activity on its system including trading 

activity at the close, and intends to 

implement and enhance in-house 

surveillance processes designed to 

detect potential manipulative activity 

related to the Cboe Market Close.221

BZX also highlighted the cross-market 

surveillance that FINRA conducts on its 

behalf.222 In particular, BZX stated that 

FINRA’s comprehensive cross-market 

surveillance program can monitor for 

nefarious activity by a market 

participant across two or more markets 

and includes surveillance designed to 

detect activity geared towards 

manipulating a security’s closing 

price.223 Stating that it currently 

provides FINRA the necessary trade 

data to conduct such surveillance, BZX 

represented that it is also committed to 

work with FINRA on enhancements to 

the current cross market surveillance 

program to account for any potential 

manipulative activity by participants in 

Cboe Market Close and the primary 

listing markets’ closing auctions.224 BZX 

also stated that, as a member of the 

Intermarket Surveillance Group (‘‘ISG’’), 

it would share the necessary 

information concerning Cboe Market 

Close with NYSE and Nasdaq, as part of 

their participation in ISG, to allow them 

to properly surveil for potentially 

manipulative activity within their 

closing auctions.225

With respect to manipulative or 

illegal trading activity more broadly, 

self-regulatory organizations such as 

BZX and the primary listing markets 

have an obligation under the Act to 

surveil for manipulative activity on 

their markets. The Commission 

generally believes that existing selfregulatory organization surveillance and 

enforcement activity, and the measures 

that the Exchange has represented that 

it would take to surveil for and detect 

manipulative activity related to the 

proposal, would help to deter market 

participants who might otherwise seek 

to try and abuse Cboe Market Close or 

a closing auction on a primary listing 

exchange. The Commission expects that 

BZX will closely monitor Cboe Market 

Close and implement new or enhanced 

surveillance measures, as necessary, 

designed to identify potential 

manipulative behavior. Further, the 

Commission expects that potential 

violative conduct identified by BZX, 

FINRA, or any other national securities 

exchange would be investigated. With 

respect to NYSE’s comment on the 

potential challenges posed that time 

differences or cross-market activity may 

pose in identifying manipulative 

activity,226 these issues also exist today 

with respect to existing off-exchange 

MOC matching services. To the extent 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3221 

227See PDQ Letter; Clearpool Letter, at 2; Virtu 

Letter, at 2; SIFMA Letter 1, at 2; IEX Letter, at 1; 

ViableMkts Letter, at 1–2; and Bollerman Letter, at 

2. 

228See PDQ Letter; Clearpool Letter, at 2; Virtu 

Letter, at 2; SIFMA Letter 1, at 2; IEX Letter, at 1; 

ViableMkts Letter, at 1; SIFMA Letter 2, at 2; and 

Bollerman Letter, at 2. 

229See IEX Letter, at 3; Clearpool Letter, at 2; and 

ViableMkts Letter, at 1–2. However, one commenter 

also stated that it believes the fees charged by NYSE 

and Nasdaq for participating in their closing 

auctions are not excessive and there is no need for 

additional fee competition for executing orders at 

the official closing price. See GTS Securities Letter 

1, at 5. 

230See IEX Letter, at 3. 

231See ViableMkts Letter, at 5. 

232See id. ViableMkts also argued that the effect 

of this competition will most likely be increased 

volumes at the closing price because of lower 

marginal costs and the potential to attract new types 

of investors to transact at the closing price. See id. 

233See NYSE Letter 1, at 9–10; NYSE Letter 3, at 

1, 4–6 Nasdaq Letter 1, at 5–6 & 9; Nasdaq Letter 

2, at 7–8 (reiterating its assertion that BZX is ‘‘freeriding’’ on the primary listing markets’ investments 

in issuer relationships, real-time regulation, and 

closing cross technology); BioCryst Letter, at 2; 

Digimarc Letter, at 1–2; NBT Bancorp Letter, at 2; 

Balchem Letter, at 2; Cree Letter, at 2; Sirius Letter, 

at 2; Lam Letter, at 2; and PayPal Letter, at 1. See 

also Angel Letter, at 3 (calling for a rationalization 

of intellectual property protection in order to foster 

productive innovation). 

234See NYSE Letter 1, at 9, NYSE Letter 2, at 1– 

3 (adding that the proposal is anti-competitive 

because it is proposing to sell at a lower price the 

closing prices produced through resources 

expended by NYSE), and NYSE Letter 3, at 5; and 

NYSE Letter 4, at 1. In contrast, one commenter 

argued that BZX would not be ‘‘free-riding’’ on the 

primary listing exchanges’ price discovery process 

because it is ‘‘a regular and accepted practice’’ to 

match orders at reference prices. See SIFMA Letter 

2, at 2. 

235See NYSE Letter 1, at 9 and NYSE Letter 3, 

at 5 (stating that NYSE does not segregate the costs 

associated with building, testing, monitoring or 

maintaining its closing auction process and that the 

costs do not vary based on the volume of orders 

sent to the closing auction). NYSE also argued that 

the proposal impacts competition for listings, as 

issuers choose where to list their securities based 

on how primary listing exchanges are able to 

centralize liquidity and perform closing auctions. 

See NYSE Letter 1, at 9. 

236See NYSE Letter 2, at 2. Moreover, NYSE 

stated that it dedicates resources to providing 

systems to DMMs necessary to facilitate the closing 

of trading as well as to floor brokers to enter and 

manage their customers’ closing interest. See id. 

237See NYSE Letter 3, at 5. 

238See id. NYSE stated that the majority of costs 

associated with operating a closing auction are 

fixed costs. If NYSE were to reduce the fees charged 

for participating in its closing auction, NYSE stated 

that there likely would be other impacts on the 

exchange’s overall fee structure. See id. 

239See NYSE Letter 1, at 6; NYSE Letter 2, at 3– 

4; and NYSE Letter 3, at 5. In response, one 

commenter stated that these competing auctions 

were not originally proposed to only serve as a 

back-up to a primary listing markets’ closing 

auction. See SIFMA Letter 2, at 2. In addition, one 

commenter stated that such competing auctions are 

not expressly limited to operating only when 

another primary listing exchange is experiencing a 

failure. See Bollerman Letter, at 3. 

240See Nasdaq Letter 1, at 9. 

241See Nasdaq Letter 1, at 10 and Nasdaq Letter 

2, at 7–8. See also supra notes 27–109 and 

accompanying text (discussing comments on the 

proposal’s impact on price discovery). 

242See id., at 13. See also supra notes 52–54 

(discussing comments on the proposal’s impact on 

price discovery and competing auctions and overthe-counter matching services). 

243See Nasdaq Letter 2, at 8. 

that such attempted manipulative 

activity instead occurs on BZX, it would 

simply shift surveillance from FINRA to 

BZX, a national securities exchange 

with obligations under the Act to 

regulate and surveil its market. Further, 

with regard to the challenge of 

differentiating between legitimate 

trading and manipulative activity, this 

too exists today with regard to many 

different trading scenarios. 

Impact on Competition 

A number of commenters addressed 

the proposal’s impact on competition. 

Seven commenters supporting the 

proposal stated that it would increase 

competition among exchanges for 

executions of orders at the close.227

These commenters asserted that 

increased competition could result in 

reduced fees for market participants.228

Three commenters characterized the 

primary listing markets as maintaining a 

‘‘monopoly’’ on orders seeking a closing 

price with no market competition, 

which they argued has, and would 

continue to, result in a continual 

increase in fees for such orders if the 

proposal were not approved.229 In 

addition, IEX argued that the proposal 

does not unduly burden competition as 

exchanges often attempt to compete by 

adopting functionality or fee schedules 

developed by competitors.230

ViableMkts also asserted that the 

proposal is not fully competitive with 

closing auctions, as it does not accept 

priced orders or disseminate imbalance 

information.231 Rather, it believed that 

the proposal competes with other unpriced orders in closing auctions which, 

in its view, is not ‘‘destructive to the 

mission of the closing auction.’’ 232

In contrast, other commenters argued 

that the proposal would impose a 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act, including by ‘‘freeriding’’ on the investments the primary 

listing markets have made in their 

closing auctions.233 Specifically, NYSE 

asserted that the proposal is an 

unnecessary and inappropriate burden 

on competition as it would allow BZX 

to use the closing prices established 

through the auction of a primary listing 

market, without bearing any of the costs 

or risks associated with conducting a 

closing auction.234 NYSE added that the 

existing exchange fees for closing 

auctions reflect the value created by the 

primary listing exchange’s complex 

procedures and technology to determine 

the official closing price of a security.235

NYSE emphasized that it has invested 

significantly in intellectual property and 

software to implement systems that 

facilitate orderly price discovery in the 

closing auction, as well as surveillance 

tools necessary to monitor activity 

leading up to, and in, the closing 

process.236 Specifically, NYSE stated 

that operating an auction is the most 

technologically complicated function of 

an exchange that requires significant 

resources.237 According to NYSE, BZX 

would be able to sell the official closing 

price established by a NYSE closing 

auction at a price point with which it 

could not realistically compete.238

NYSE also stated that the proposal 

differs from the Nasdaq and NYSE Arca 

competing auctions in securities not 

listed on their exchanges in that such 

auctions compete on a level playing 

field because they are independent 

price-discovery auction events that do 

not rely on prices established by the 

primary listing exchange and they serve 

as an alternative method of establishing 

an official closing price if a primary 

listing exchange is unable to conduct a 

closing auction due to a technology 

issue.239

Nasdaq also argued that the proposal 

would impose a burden on competition 

not necessary or appropriate in 

furtherance of the purposes of the Act. 

Specifically, Nasdaq believed that the 

proposal undermines intra-market 

competition, by removing orders from 

Nasdaq’s auction book and prohibiting 

those orders from competing on Nasdaq, 

which Nasdaq argued is necessary for 

the exchange to arrive at the most 

accurate closing price.240 Nasdaq also 

stated that, by diverting orders away 

from NYSE and Nasdaq, the proposal 

would detract from robust price 

competition and discovery that closing 

auctions ensure.241 Nasdaq further 

argued that in order for BZX to 

meaningfully enhance competition, it 

would have to generate its own closing 

price, as opposed to merely utilizing the 

closing price generated by a primary 

listing market.242 In addition, Nasdaq 

argued that price competition between 

exchanges is not as important a form of 

competition as innovation because price 

competition elevates fragmentation, 

sacrifices quote and order interaction, 

and, in the case of Cboe Market Close, 

undermines innovation.243 Further, 

Nasdaq stated that BZX’s comparisons 

to pegged orders, where the price is 

based upon reference data that does not 

originate on that exchange, was 

misplaced because all exchanges 


sradovich on DSK3GMQ082PROD with NOTICES
3222 Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 

244See id., at 13. 

245See id. 

246See BZX Letter 1, at 10–11 and BZX Letter 2, 

at 6–7. 

247See id. BZX further argued that Nasdaq’s 

assertion that the proposal would undermine 

competition amongst orders is misplaced because 

BZX believes that paired MOC orders, which are 

beneficiaries of price discovery and not pricesetting orders do not impact interactions that take 

place on another exchange because orders compete 

with each other for executions within each 

individual exchange based on the parameters a 

market participant places on its orders. See id., at 

11. 

248See BZX Letter 2, at 7. 

249See BZX Letter 1, at 5 and BZX Letter 2, at 

7. 

250See BZX Letter 1, at 5. 

251See BZX Letter 1, at 6 and BZX Letter 2, at 

7 (describing NYSE’s after hours crossing sessions 

which executes orders at the NYSE official closing 

price and the ISE Stock Exchange functionality that 

only executed orders at the midpoint of the NBBO 

and did not display orders). 

252See BZX Letter 2, at 8. 

253See id. 254See BZX Letter 1, at 6. See also supra notes 

81–93 and accompanying text (discussing BZX’s 

comments on competing closing auctions with 

regard to price discovery). In addition, in response 

to Nasdaq’s contention that it is aware of no 

regulator in any jurisdiction that has sanctioned a 

diversion of orders from the primary market close, 

BZX stated the Ontario Securities Commission’s 

approval of a similar proposal by Chi-X Canada 

ATS, which it said is currently owned by Nasdaq, 

to match MOC orders at the closing price 

established by the Toronto Stock Exchange. See 

Nasdaq Letter 1, at 10; BZX Letter 1, at 7; and BZX 

Letter 2, at 2 (stating that the Ontario Securities 

Commission stated that the proposal would not 

threaten the integrity of the price formation process 

and would pressure the Toronto Stock Exchange to 

competitively price executions during their closing 

auction). 

255To the extent that the primary listing markets 

believe the proposal infringes on their intellectual 

property and innovations they have developed with 

regard to closing auctions, they have the ability to 

seek protection under applicable laws, as 

appropriate. 

256See NYSE Letter 1, at 8. 

257See id. 

contribute to the prices to which such 

orders are pegged.244 Nasdaq asserted 

that Cboe Market Close is not an 

analogous offering because BZX does 

not contribute to the closing price on a 

primary listing exchange.245

In response to commenters’ 

contentions about competition, BZX 

asserted that the proposal would 

enhance rather than burden 

competition.246 In this regard, BZX 

argued that its proposal would promote 

competition in the use of MOC orders at 

the official closing price.247 Specifically, 

BZX stated that the proposal would 

have a positive impact on competition 

as it offers a price-competitive 

alternative that will not impact the price 

discovery process.248

BZX also challenged the assertion that 

it was ‘‘free-riding’’ on the primary 

listing exchanges’ closing auctions.249 In 

this regard, BZX argued that instead it 

was, on balance, providing a ‘‘a 

materially better value to the 

marketplace’’ in two ways: By not 

diverting price-forming limit orders 

away from the primary listing market; 

and by providing users with the official 

closing price because any other price 

would be undesirable to market 

participants and potentially harmful to 

price formation.250 BZX further argued 

that there is precedent for an exchange 

to execute orders solely at reference 

prices while not also displaying priced 

orders for that security.251 In addition, 

BZX stated that no rule or regulation 

provides the primary listing market with 

control over how other market 

participants use the official closing 

price in their matching engines or with 

regard to the pricing of their own 

products, such as mutual funds, ETFs, 

and indices.252 BZX also stated that 

improving and mimicking functionality 

enhances the competitive dynamic 

amongst exchanges.253

Further, BZX asserted that the 

Commission has approved the operation 

of competing closing auctions, noting in 

particular the closing auctions on 

Nasdaq, NYSE Arca, and the American 

Stock Exchange.254

The Commission believes that the 

proposal does not impose any burden 

on competition not necessary or 

appropriate in furtherance of the Act; 

rather, it provides an alternative venue 

to which market participants may 

submit closing interest and receive the 

official closing price. The Commission 

believes that while BZX would not be 

conducting the closing auction that 

would determine the execution price for 

orders executed in Cboe Market Close, 

the availability of Cboe Market Close 

will inject competition into the closing 

process to the ultimate benefit of market 

participants generally, which could 

include price and execution quality 

competition. The Commission further 

believes that implementation of Cboe 

Market Close could incent other venues, 

including the primary listing exchanges 

as well as off-exchange matching 

venues, to continue to innovate and 

compete to attract MOC orders to their 

closing auctions, which may include 

lowering transaction fees, to the benefit 

of market participants generally. The 

proposal would also provide an 

opportunity for market participants to 

assess and compare their experience in 

seeking to execute MOC orders on 

different national securities exchanges, 

which would foster competition and 

that may enhance the quality and 

efficiency of MOC order executions. 

Ultimately, the Commission believes 

that the success of the Cboe Market 

Close in competing with the primary 

listing exchanges and off-exchange 

matching venues for MOC orders will 

depend on a variety of factors, including 

the quality of the MOC order execution 

services, the attendant risks, and the 

costs associated with such executions. 

While the primary listing markets and 

other commenters argue that BZX is 

‘‘free riding’’ on investments of the 

primary listing markets in the 

development and maintenance of the 

closing auction process and thus 

impeding competition in a manner 

inconsistent with the Act, the 

Commission believes that this form of 

burden on competition must be 

evaluated against the potentially 

enhanced competition that the proposal 

also provides, as discussed above.255

Further, while NYSE and Nasdaq argue 

that their fees for closing executions 

reflect their costs of developing and 

operating the closing auctions, other 

commenters assert that the primary 

listing markets have taken advantage of 

the ‘‘monopoly’’ they have on orders 

seeking a closing price to impose high 

fees. In this regard, the Commission 

expects that the proposal, by 

introducing further competition, should 

result in a reduction of fees for such 

orders. This may result in benefits to 

investors generally. In addition, in the 

highly competitive environment of the 

current national market system with 

numerous exchanges competing for 

order flow, it is commonplace for 

exchanges to attempt to mimic or build 

upon various functionality of their 

competitors. Doing so does not result in 

the proposal imposing a competitive 

burden not necessary or appropriate in 

furtherance of the purposes of the Act. 

In addition, both NYSE and Nasdaq 

referenced the Commission’s 

disapproval of Nasdaq’s proposal to 

create a Benchmark Order as support 

that BZX has not sufficiently satisfied 

its obligation to justify that the proposal 

is consistent with the Act and not an 

inappropriate burden on competition. 

NYSE argued that BZX essentially 

proposes to compete with broker-dealer 

agency order matching services.256

NYSE asserted that the Commission 

disapproved Nasdaq’s Benchmark Order 

in part because it would provide an 

exchange with an unfair advantage over 

competing broker-dealers, which was 

not consistent with Section 6(b)(8) of 

the Act.257 Nasdaq further argued that 

the disapproval of its Benchmark Order 

proposal supports the assertion that an 

exchange must articulate how a 

proposed service is consistent with the 


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Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 3223 

258See Nasdaq Letter 1, at 5. 

259See SIFMA Letter 3, at 2–4. 

260See id. at 1. 

261See id. at 2–3. 

262See id. at 3. 

263See BZX Rule 11.16. 

264See SIFMA Letter 3, at 4. 

265See id. 

266See id. 

267See BZX Letter 1, at 10. 

268See id., at 11. 

269See id. 

270See BZX Letter 3, at 5. 

271See BZX Letter 2, at 11. 

272The Commission also notes that MOC orders 

submitted to other exchanges’ closing auctions 

would be subject to those exchanges’ rules 

governing limitations on liability. 

273Brief of the Securities and Exchange 

Commission, Amicus Curiae, No. 15–3057, City of 

Providence v. Bats Global Markets, Inc. (2d Cir.) 

(‘‘City of Providence Amicus Br.’’), at 22. 

274City of Providence v. Bats Global Markets, Inc., 

878 F.3d 36 (2d Cir. 2017) (‘‘When an exchange 

engages in conduct to operate its own market that 

is distinct from its oversight role, it is acting as a 

regulated entity—not a regulator. Although the 

latter warrants immunity, the former does not.’’). 

275City of Providence Amicus Br. at 21 (quoting 

In re NYSE Specialists Secs. Litig., 503 F.3d 89, 96 

(2d Cir. 2007)). 

policy goals of the Act with respect to 

national securities exchanges.258

Likewise, SIFMA also referenced the 

Commission’s disapproval of Nasdaq’s 

proposal to create a Benchmark Order as 

support for its assertion that BZX is 

proposing to offer a function identical to 

that currently offered by broker-dealers, 

yet would benefit from regulatory 

immunity as well as the limits on 

liability contained in BZX Rule 

11.16.259 Specifically, SIFMA stated 

that, while it supports the proposal, it 

believes that as a condition of approval, 

BZX and the Commission should clarify 

in writing that Cboe Market Close would 

not be entitled to any application of 

regulatory immunity and that the 

Exchange should amend its Rule 11.16 

to provide that Cboe Market Close 

would not be subject to the monetary 

limits on the Exchange’s liability.260

With respect to regulatory immunity, 

SIFMA asserted that both courts and the 

Commission have stated that regulatory 

immunity applies only in situations 

where an exchange is exercising its 

regulatory authority over its member, 

pursuant to the Act.261 SIFMA stated 

that because Cboe Market Close would 

not be a self-regulatory function 

whereby the exchange would be 

regulating its members, BZX should not 

be entitled to apply regulatory 

immunity for any losses arising from the 

functionality.262 In addition, SIFMA 

stated that BZX Rule 11.16 currently 

limits the liability exposure of the 

exchange to its members.263 SIFMA 

asserted that BZX’s limits on liability set 

forth in Rule 11.16 ‘‘bear no relation to 

the actual amount of financial loss that 

could result from an exchange 

malfunction.’’ 264 SIFMA argued that the 

‘‘disparity is particularly acute’’ with 

respect to the proposal because brokerdealers currently perform services akin 

to Cboe Market Close without a 

limitation on their liability.265

Accordingly, SIFMA stated that, as a 

condition of operating Cboe Market 

Close, BZX should carve it out from the 

liability limits of Rule 11.16.266

BZX argued that, rather than looking 

to compete with broker-dealer services, 

it is seeking to compete on price with 

the primary listing markets’ closing 

auctions.267 In addition, BZX argued 

that, contrary to the assertions by NYSE 

and Nasdaq, its proposal does not 

implicate the same issues as Nasdaq’s 

Benchmark Order proposal because the 

Commission’s disapproval of that 

proposal rested primarily on its finding 

that it raised issues under the Market 

Access Rule.268 BZX responded to 

SIFMA’s comments on regulatory 

immunity and its limitation on liability 

rule by stating that the concerns raised 

were ‘‘not germane to whether the 

[p]roposal is consistent with the Act,’’ 

and further stated that it believed it 

would be inappropriate in the context of 

a filing on one proposed rule change to 

set a new standard on an issue that has 

broad application to all exchange 

services as well as National Market 

System Plans.269 BZX also asserted that 

SIFMA did not provide any evidence to 

support its claim that its members have 

been disadvantaged by the exchange’s 

limitation of liability rule as compared 

to limitation on liability provisions in a 

broker-dealer’s contracts with its clients, 

which often disclaim all liability.270

The Commission believes, as 

acknowledged by BZX, that it is 

possible that BZX’s proposal could 

divert some MOC orders from offexchange matching services operated by 

broker-dealers onto a regulated 

exchange.271 Broker-dealers and 

national securities exchanges currently 

compete with respect to a variety of 

functions and services that they offer to 

market participants within the current 

national market system. As such, the 

fact that a national securities exchange 

proposes to offer functionality that is 

similar to a service offered by a brokerdealer does not, in and of itself, render 

such functionality an inappropriate 

burden on competition. Rather, the 

proposal must be considered in the 

broader context of the existing 

competitive landscape and different 

regulatory structures applicable to 

broker-dealers and exchanges under the 

Act, respectively. With respect to BZX’s 

proposal, the Commission believes that, 

on balance, in light of the differing 

requirements under the Act and the 

rules and regulations thereunder 

applicable to national securities 

exchanges and broker-dealers, the 

proposal does not pose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

Further, the Commission believes that 

the issues raised by commenters 

regarding the judicial doctrine of 

regulatory immunity and rule-based 

limitations on liability are part of a 

broader policy issue regarding the 

different regulatory structures for 

exchanges and broker-dealers, and do 

not materially impact the Commission’s 

analysis or finding regarding whether 

this proposal poses an unnecessary or 

inappropriate burden on 

competition.272

The Commission has taken the 

position that immunity from suit ‘‘is 

properly afforded to the exchanges 

when engaged in their traditional selfregulatory functions—where the 

exchanges act as regulators of their 

members,’’ including ‘‘the core 

adjudicatory and prosecutorial 

functions that have traditionally been 

accorded absolute immunity, as well as 

other functions that materially relate to 

the exchanges’ regulation of their 

members,’’ but should not ‘‘extend to 

functions performed by an exchange 

itself in the operation of its own market, 

or to the sale of products and services 

arising out of those functions.’’ 273 The 

Court of Appeals for the Second Circuit 

recently reached a similar 

conclusion.274 The Commission has also 

recognized that an exchange’s 

invocation of immunity from suit 

should be examined on a ‘‘‘case-by-case 

basis,’ with ‘the party asserting 

immunity bear[ing] the burden of 

demonstrating [an] entitlement to 

it.’ ’’ 275 Whether and to what extent a 

court would consider BZX’s additional 

functionality under the proposed rule to 

fall within an exchange’s traditional 

regulatory functions depends on an 

assessment of the facts and 

circumstances of the particular 

allegations before it and is beyond the 

scope of the Commission’s 

consideration of the proposed rule 

change pursuant to the Act. 

IV. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to a national 

securities exchange. 


sradovich on DSK3GMQ082PROD with NOTICES
3224 Federal Register / Vol. 83, No. 15 / Tuesday, January 23, 2018 / Notices 

276 15 U.S.C. 78s(b)(2). 

277 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3OCC has filed a proposed rule change with the 

Commission in connection with the proposed 

change. See SR–OCC–2017–021. 

4OCC’s By-Laws and Rules can be found on 

OCC’s public website: http://optionsclearing.com/ 

about/publications/bylaws.jsp. 

5 17 CFR 240.17Ad–22. 

6 17 CFR 240.17Ab2–2. 

7 15 U.S.C. 78q–1. 

8 12 U.S.C. 5461 et. seq. 

9 17 CFR 240.17Ad–22(a)(5). 

10 17 CFR 240.17Ad–22(e)(3)(ii). 

11 Id. 

12OCC maintains a recovery and orderly winddown plan that was prepared in response to 

evolving international standards for CCPs. The 

existing version of OCC’s recovery and orderly 

wind-down plan was prepared in advance of the 

adoption of the CCA rules. 

13As defined by Rule 17Ad–22(e)(3)(ii), those 

scenarios are: ‘‘credit losses, liquidity shortfalls, 

losses from general business risks and other losses.’’ 

17 CFR 240.17Ad–22(e)(3)(ii). 

14See Standards for Covered Clearing Agencies, 

81 FR 70786, 70810 (Oct. 13, 2016). 

15 Id. 

16See 81 FR at 70808. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 276 that the 

proposed rule change (SR–BatsBZX– 

2017–34), as modified by Amendment 

No. 1, be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.277

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–01093 Filed 1–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82514; File No. SR–OCC– 

2017–810] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Advance Notice 

Concerning Updates to and 

Formalization of OCC’s Recovery and 

Orderly Wind-Down Plan 

January 17, 2018. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled Payment, Clearing and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Act’’),2 notice is 

hereby given that on December 8, 2017, 

The Options Clearing Corporation 

(‘‘OCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

an advance notice as described in Items 

I, II and III below, which Items have 

been prepared by OCC. The Commission 

is publishing this notice to solicit 

comments on the advance notice from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice is filed in 

connection with a proposed change to 

formalize and update OCC’s Recovery 

and Orderly Wind-Down Plan (‘‘RWD 

Plan’’ or ‘‘Plan’’), consistent with the 

requirement applicable to OCC in Rule 

17Ad–22(e)(3)(ii). 

The RWD Plan was included as 

confidential Exhibit 5 of the filing.3 The 

proposed change is described in detail 

in Item II below. All terms with initial 

capitalization not defined herein have 

the same meaning as set forth in OCC’s 

By-Laws and Rules.4

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the advance 

notice and discussed any comments it 

received on the advance notice. The text 

of these statements may be examined at 

the places specified in Item IV below. 

OCC has prepared summaries, set forth 

in sections A and B below, of the most 

significant aspects of these statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants or 

Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed rule change and none 

have been received. OCC will notify the 

Commission of any written comments 

received by OCC. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing, 

and Settlement Supervision Act 

Description of the Proposed Change 

Background 

On September 28, 2016 the 

Commission adopted amendments to 

Rule 17Ad–22 5 and added new Rule 

17Ab2–2 6 pursuant to Section 17A of 

the Securities Exchange Act of 1934 7

and the Payment, Clearing, and 

Settlement Supervision Act of 2010 

(‘‘Payment, Clearing and Settlement 

Supervision Act’’) 8 to establish 

enhanced standards for the operation 

and governance of those clearing 

agencies registered with the 

Commission that meet the definition of 

a ‘‘covered clearing agency,’’ as defined 

by Rule 17Ad–22(a)(5) 9 (collectively, 

the new and amended rules are herein 

referred to as ‘‘CCA’’ rules). The CCA 

rules require that covered clearing 

agencies, among other things: 

[E]stablish, implement, maintain and enforce 

written policies and procedures reasonably 

designed to . . . [m]aintain a sound risk 

management framework for comprehensively 

managing legal, credit, liquidity, operational, 

general business, investment, custody, and 

other risks that arise in or are borne by the 

[CCA], which . . . [i]ncludes plans for the 

recovery and orderly wind-down of the 

[CCA] necessitated by credit losses, liquidity 

shortfalls, losses from general business risk, 

or any other losses.10

OCC is defined as a covered clearing 

agency under the CCA rules, and 

therefore is subject to the requirements 

of the CCA rules, including Rule 17Ad– 

22(e)(3).11

Proposed RWD Plan 

OCC is proposing to update, formalize 

and adopt its RWD Plan.12 Consistent 

with the Commission’s guidance 

concerning the requirements of Rule 

17Ad–22(e)(3)(ii), the purpose of the 

proposed RWD Plan is to (i) 

demonstrate that OCC has considered 

the scenarios which may potentially 

prevent it from being able to provide its 

‘‘Critical Services’’ (defined below) as a 

going-concern,13 (ii) provide 

appropriate plans for OCC’s recovery or 

orderly wind-down based on the results 

of such consideration; 14 and (iii) impart 

to relevant authorities the information 

reasonably anticipated to be necessary 

for purposes of recovery and orderly 

wind-down planning.15

As discussed in greater detail below, 

in preparing the proposed Plan, OCC 

was informed by relevant guidance from 

not only from OCC’s regulators, but also 

from certain international organizations. 

Within the framework of this guidance, 

OCC has drafted the proposed Plan to 

reflect OCC’s specific characteristics, 

including its ownership, organizational, 

and operational structures, as well as 

OCC’s size and systemic importance 

relative to the products that its clears.16

The proposed RWD Plan consists of 

eight chapters. A description of each of 

the first seven chapters of the proposed 

Plan is provided below (Chapter 8 of the 

proposed plan consists of a series of 

appendices containing supporting 

material). 

Chapter 1: Executive Summary 

Chapter 1 of the RWD Plan would 

provide an executive summary and 

overview of the proposed Plan. Chapter 

1 would begin by acknowledging OCC’s 


sradovich on DSK3GMQ082PROD with NOTICES