Document ID: SEC-2020-1864-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-11-19T05:00Z

[Federal Register Volume 85, Number 224 (Thursday, November 19, 2020)]
[Notices]
[Pages 73832-73835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25496]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90420; File No. SR-CboeBZX-2020-083]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Automate the Exchange's Process for 
Initiating the Re-Opening of a Security Listed on the New York Stock 
Exchange LLC Following the Resumption of Trading After a Halt, 
Suspension, or Pause During the Early Trading Session, Pre-Opening 
Session, or After Hours Trading Session

November 13, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 5, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to automate the Exchange's current process for 
initiating the re-opening of a security listed on the New York Stock 
Exchange LLC following the resumption of trading after a halt, 
suspension, or pause during the Early Trading Session, Pre-Opening 
Session, or After Hours Trading Session. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

[[Page 73833]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to automate the 
Exchange's current process for initiating the re-opening of securities 
listed on the New York Stock Exchange LLC (``NYSE'') following the 
resumption of trading after a halt, suspension, or pause during the 
Early Trading Session,\3\ Pre-Opening Session,\4\ or After Hours 
Trading Session.\5\ BZX Rule 11.24 describes the Exchange's opening 
process for securities listed on other national securities exchanges, 
including the process for re-opening such securities following the 
resumption of trading after a halt, suspension, or pause. Although the 
Exchange generally employs an automated process for re-opening 
securities listed on other exchanges, there are situations where manual 
intervention is currently needed to initiate the Exchange's re-opening 
process. Specifically, manual intervention is currently needed for the 
Exchange to initiate its re-opening process in NYSE-listed securities 
that resume trading after a halt, suspension, or pause when such 
resumption of trading occurs outside of regular trading hours at times 
when the Exchange is open for either pre- or post-market trading but 
NYSE does not trade its listed securities. The proposed rule change 
would implement an automated process for initiating the re-opening of 
trading on the Exchange in these circumstances.
---------------------------------------------------------------------------

    \3\ The term ``Early Trading Session'' means the time between 
7:00 a.m. and 8:00 a.m. Eastern Time. See BZX Rule 1.5(ee).
    \4\ The term ``Pre-Opening Session'' means the time between 8:00 
a.m. and 9:30 a.m. Eastern Time. See BZX Rule 1.5(r).
    \5\ The term ``After Hours Trading Session'' means the time 
between 4:00 p.m. and 8:00 p.m. Eastern Time. See BZX Rule 1.5(c).
---------------------------------------------------------------------------

    Generally, the Exchange's re-opening process is designed to provide 
an execution at the midpoint of the national best bid and offer 
(``NBBO'') following the initiation of trading on the applicable 
listing exchange. Specifically, as described in BZX Rule 11.24(e)(1), 
the Exchange's re-opening process occurs at the midpoint of the: (i) 
First NBBO subsequent to the first reported trade and first two-sided 
quotation on the listing exchange following the resumption of trading 
after a halt, suspension, or pause; or (ii) NBBO when the first two-
sided quotation is published by the listing exchange following the 
resumption of trading after a halt, suspension, or pause if no first 
trade is reported by the listing exchange within one second of 
publication of the first two-sided quotation by the listing exchange. 
In either case, the Exchange must wait for the listing exchange to 
commence trading before initiating its re-opening procedures.
    NYSE operates two trading sessions each day: (1) The ``core trading 
session'' between 9:30 a.m. ET to 4:00 p.m. ET, during which all 
securities are available for trading; \6\ and (2) the ``early trading 
session'' between 7:00 a.m. ET and the commencement of the core trading 
session, during which only securities that trade via unlisted trading 
privileges are available for trading.\7\ NYSE does not trade its listed 
securities during its early trading session, i.e., prior to the 
beginning of regular trading hours, nor does it trade any securities 
after the end of regular trading hours. As a result, since the 
Exchange's normal process for re-opening securities listed on other 
exchanges after a halt, suspension, or pause requires trading to 
commence on the listing exchange, the Exchange cannot use this process 
for NYSE-listed securities that resume trading during the Early Trading 
Session, Pre-Opening Session, or After Hours Trading Session.
---------------------------------------------------------------------------

    \6\ See NYSE Rule 7.34(a)(2). NYSE's core trading session for 
its listed securities begins with its opening auction and ends with 
its closing auction if one is conducted. Id.
    \7\ See NYSE Rule 7.34(a)(1).
---------------------------------------------------------------------------

    At the same time, BZX Rule 11.24(e)(2) provides that where neither 
of the conditions required for the initiation of the Exchange's 
automated re-opening process have occurred, trading in the security may 
be resumed on the Exchange at its discretion. The Exchange therefore 
periodically invokes it authority pursuant to this rule to manually 
initiate the resumption of trading in NYSE-listed securities outside of 
regular trading hours.\8\ However, initiating trading on the Exchange 
in this manner requires manual intervention by Exchange staff. The 
Exchange believes that it would be in the interest of market 
participants and investors to instead automate its process for 
initiating trading in this situation and avoid the need for manual 
intervention.
---------------------------------------------------------------------------

    \8\ The Exchange estimates that it currently invokes its 
authority under this rule to manually initiate a re-opening in NYSE-
listed securities a handful of times each month.
---------------------------------------------------------------------------

Current Process for NYSE-Listed Securities Re-Opened in Pre- and Post-
Market
    As discussed, the Exchange currently employs a manual process to 
initiate the resumption of trading in NYSE-listed securities outside of 
regular trading hours. This manual process requires personnel from the 
Exchange's Trade Desk to become aware of, and react to, NYSE's 
determination to lift a trading halt in one of their listed 
securities.\9\ Typically, this occurs in one of two ways. First, the 
Trade Desk performs proactive monitoring of halt notifications from 
NYSE and subsequent resumptions during the After Hours Trading 
Session.\10\ If a security is halted by NYSE during regular trading, 
Trade Desk personnel will monitor internal tools beginning at 4:00 p.m. 
ET to identify whether NYSE has lifted the halt. Second, even with the 
proactive monitoring performed by the Trade Desk, there may be 
instances where the Exchange has not immediately initiated the manual 
re-opening of a security that has resumed trading. In such 
circumstances, Exchange members may reach out to the Trade Desk when 
they notice that their orders are not reflected in the market. In 
either case, Trade Desk personnel would check internal tools to confirm 
that the security is no longer halted, and would routinely invoke the 
authority described in the paragraph above to initiate the re-opening 
process on the Exchange after identifying that there are quotes 
available in the security

[[Page 73834]]

on other exchanges. The Exchange believes that this manual process is 
inefficient, and members have also reached out to the Trade Desk with 
requests that the Exchange replace this process with a more efficient 
automated process. As a result, the Exchange is proposing to automate 
its process for initiating trading in this situation to avoid the need 
for manual intervention by Exchange staff.
---------------------------------------------------------------------------

    \9\ Section 203.07 of NYSE's Listed Company Manual describes its 
trading halt procedures, and provides NYSE with discretion to 
declare a material news halts in its listed securities, as well as 
to lift such a halt when it determines that trading should resume. 
As a matter of practice, NYSE may exercise its discretion to lift a 
trading halt in its listed securities outside of its own hours for 
trading such securities. In that event, NYSE would disseminate a 
resume message through the SIP, which would permit trading to resume 
on other national securities exchanges, including the Exchange.
    \10\ Although it is possible for a resumption to take place in 
the Early Trading and Pre-Opening Sessions, Trade Desk personnel do 
not monitor for resumptions in those trading sessions as this 
scenario normally occurs in the After Hours Trading Session.
---------------------------------------------------------------------------

Proposed Automated Process for Initiating the Exchange's Re-Opening
    As proposed, the Exchange would replace the manual process 
described above with automated procedures that would automatically 
resume trading after one second has passed following the Exchange's 
receipt of the first NBBO following the resumption of trading after the 
halt, suspension, or pause.\11\ This change would allow the Exchange to 
avoid the need for Trade Desk staff to monitor for resumption messages, 
and would allow members' orders to be automatically reflected in the 
market, while continuing to ensure that the Exchange's re-opening is 
tied to the existence of a market in the security on a national 
securities exchange(s).\12\ With this change, the Exchange would 
continue to re-open trading in NYSE-listed securities in the same 
manner that it is able to under BZX Rule 11.24(e)(2) today, but would 
not have to rely on manual procedures for initiating the resumption of 
trading. Specifically, rather than conducting the standard midpoint re-
opening described in BZX Rule 11.24(e)(1) when the listing exchange has 
not established a market in the security, the Exchange would continue 
to follow the process described in BZX Rule 11.24(e)(2), without the 
need for manual intervention. Thus, as is the case following the manual 
initiation of the re-opening of trading in a security on the Exchange, 
orders would be processed using the ``contingent open'' procedures 
described in BZX Rule 11.24(d), which provides that orders are to be 
handled in time sequence and placed on the BZX Book, routed, cancelled, 
or executed in accordance with the terms of the order.\13\
---------------------------------------------------------------------------

    \11\ The Exchange utilizes a combination of direct feeds and the 
applicable securities information processor (``SIP'') feeds to 
determine the NBBO in a security. See BZX Rule 11.26. In addition, 
such NBBO information, as well as applicable halt and resume 
messages, are disseminated to market participants through the SIP 
feeds during the pre- and post-market trading hours of all U.S. 
equities exchanges.
    \12\ Pursuant to Regulation NMS, the NBBO in a given security is 
established by the best bid and best offer in such security 
calculated and disseminated on a current and continuing basis by a 
plan processor pursuant to an effective national market system plan. 
See 17 CFR 242.600(b)(43). As such, an NBBO may be established when 
one or more national securities exchanges are disseminating 
quotations in an equity security.
    \13\ See BZX Rule 11.24(e)(2),(d).
---------------------------------------------------------------------------

    In the event that there is no available NBBO in the security, the 
proposed automated procedures would not resume trading on the Exchange, 
but the Exchange would retain the ability to manually resume trading at 
its discretion pursuant to current BZX Rule 11.24(e)(2). To increase 
transparency around when the Exchange could invoke this discretion, the 
Exchange proposes to amend BZX Rule 11.24(e)(2) to specifically state 
that the discretion provided pursuant to this rule applies when a 
security has not otherwise been re-opened for trading on the Exchange 
pursuant to Proposed BZX Rule 11.24(e)(3). This change would not 
substantively modify the scope of the discretion provided pursuant to 
BZX Rule 11.24(e)(2). However, the Exchange believes that modifying the 
rule in this manner would serve to increase transparency by 
specifically identifying the times when this discretion is not relevant 
due to the fact that the Exchange has successfully re-opened the 
security using its automated procedures.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\14\ in general, and 
Section 6(b)(5) of the Act,\15\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Today, Trade Desk staff must 
manually intervene to initiate the re-opening on the Exchange of NYSE-
listed securities following the resumption of trading after a halt, 
suspension, or pause, if the security resumes trading during the Early 
Trading Session, Pre-Opening Session, or After Hours Trading Session. 
Although NYSE may trade securities pursuant to unlisted trading 
privileges prior to regular trading hours, it does not offer pre- or 
post-market trading for its listed securities. Since the Exchange's 
current rules require trading to have commenced on the primary listing 
market in order to initiate the Exchange's automated process for re-
opening securities following a halt, suspension, or pause, the Exchange 
is forced to periodically invoke manual procedures to resume trading 
these securities pursuant to unlisted trading privileges. The Exchange 
believes, however, that an automated process would be more consistent 
and reliable for market participants and investors as such a process 
would not rely on manual intervention by Trade Desk staff before the 
Exchange can resume trading. In addition to generally increasing 
efficiency of the re-opening process, the Exchange believes that the 
proposed automated procedures would reduce the need for members to 
contact the Trade Desk with questions about the status of their orders. 
Further, such a process would be responsive to member requests to 
improve on the inefficient manual process currently employed.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change would promote the public interest and the 
protection of investors by eliminating the need for manual intervention 
and replacing it with a more consistent procedure that would be applied 
by its trading systems on an automated basis. The proposed change would 
not impact the process by which the security would be re-opened, which 
would continue to follow the ``contingent open'' procedures used today. 
However, instead of relying on Trade Desk staff to manually re-open 
trading in the security, trading would resume on the Exchange once one 
second has passed following the Exchange's receipt of the first NBBO 
following the resumption of trading after the halt, suspension, or 
pause. This condition is designed to ensure that a market has been 
established in the security prior to resuming trading on the Exchange, 
and mirrors the steps that Trade Desk personnel would conduct today to 
verify that there is a market in the security on one or more other 
exchanges before manually initiating a re-opening. Specifically, 
trading on the Exchange would not resume until one second after an NBBO 
has been established in the security following the resumption of 
quoting on at least one other national securities exchange. The 
Exchange believes that resuming trading once this condition has been 
satisfied would ensure that trading can be resumed in an automated and 
efficient fashion, while also ensuring that the re-opening of trading 
on the Exchange continues to be tied to the existence of an established 
market in the security on one or more other exchanges in the absence of 
trading on the primary listing market during the pre- and post-market. 
In addition, the Exchange would continue

[[Page 73835]]

to have the authority to manually initiate the re-open of trading 
pursuant to BZX Rule 11.24(e)(2), which would allow the Exchange to re-
open trading in the event that trading is not re-opened pursuant to its 
automated procedures. The proposed amendments to BZX Rule 11.24(e)(2) 
would increase the transparency of that rule by specifically noting 
that this discretion would be used when the Exchange is not otherwise 
able to re-open trading in an automated fashion under its rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
designed to facilitate a more efficient re-opening process in 
situations where the Exchange's current rules would require unnecessary 
and inefficient manual intervention, and is not designed to address any 
competitive issues. The Exchange therefore does not believe that the 
proposed rule change would have any significant impact on competition. 
Rather than impact the competitive environment, the proposed rule 
change would benefit members and investors by eliminating the need for 
manual intervention when initiating the Exchange's re-opening process 
for NYSE-listed securities that resume trading during the Early Trading 
Session, Pre-Opening Session, or After Hours Trading Session.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received on the proposed rule 
change.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-083 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2020-083. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2020-083 and should be submitted 
on or before December 10, 2020.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25496 Filed 11-18-20; 8:45 am]
BILLING CODE 8011-01-P