Document ID: SEC-2023-0857-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-08-10T04:00Z

[Federal Register Volume 88, Number 153 (Thursday, August 10, 2023)]
[Notices]
[Pages 54384-54389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17106]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98059; File No. SR-CboeBZX-2023-053]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Enhance 
Its Drill-Through Protection Processes for Simple Orders and Make Other 
Clarifying Changes

August 4, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 24, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
enhance its drill-through protection processes for simple orders and 
make other clarifying changes. 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.

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

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

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

1. Purpose
    The purpose of this rule filing is to amend Rule 21.17, Additional 
Price Protection Mechanisms and Risk Controls, to enhance the drill-
through protection process for simple orders and make other clarifying 
changes.
    Drill-through price protection is currently described in Exchange 
Rule 21.17(d). Under Rule 21.17(d)(1), if a buy (sell) order enters the 
BZX Options Book \3\ (``Book'') at the conclusion of the opening 
auction process or would execute or post to the Book at the time of 
order entry, the System \4\ executes the order up to a buffer amount 
(the Exchange determines the buffer amount on a class and premium 
basis) above (below) the offer (bid) limit of the Opening Collar \5\ or 
the National Best Offer (``NBO'') (National Best Bid (``NBB'')) that 
existed at the time of order entry, respectively (the ``drill-through 
price'').\6\
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    \3\ ``BZX Book'' means the System's electronic file of orders. 
See Rule 1.5 (e).
    \4\ ``System'' means 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 Rule 1.5 (aa).
    \5\ See Rule 21.7(a) for the definition of Opening Collar.
    \6\ See Rule 21.17(d)(1).
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    Current Rule 21.17(d)(2) (as amended, proposed Rule 21.17(d)(3)) 
\7\ establishes an iterative drill-through process, whereby the 
Exchange permits orders to rest in the Book for multiple time periods 
and at more aggressive displayed prices during each time period.\8\ 
Specifically, the System enters the order in the Book with a displayed 
price equal to the drill-through price (unless the terms of the order 
instruct otherwise).\9\ The order (or unexecuted portion) will rest in 
the Book at the drill-through price for the duration of consecutive 
time periods (the Exchange determines on a class-by-class basis the

[[Page 54385]]

length of the time period in milliseconds, which may not exceed three 
seconds).\10\ Following the end of each period, the System adds (if a 
buy order) or subtracts (if a sell order) one buffer amount (the 
Exchange determines the buffer amount on a class-by-class basis) to the 
drill-through price displayed during the immediately preceding period 
(each new price becomes the ``drill-through price'').\11\ The order (or 
unexecuted portion) rests in the Book at that new drill-through price 
for the duration of the subsequent period. The System applies a 
timestamp to the order (or unexecuted portion) based on the time it 
enters or is re-priced in the Book for priority reasons. The order 
continues through this iterative process until the earliest of the 
following to occur: (a) the order fully executes; (b) the User \12\ 
cancels the order; and (c) the buy (sell) order's limit price equals or 
is less (greater) than the drill-through price at any time during 
application of the drill-through mechanism, in which case the order 
rests in the Book at its limit price, subject to a User's instructions.
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    \7\ As part of the rule changes described herein, the Exchange 
proposes to renumber current subparagraph (d)(2) to be proposed 
subparagraph (d)(3), and to renumber current subparagraph (d)(3) to 
be proposed subparagraph (d)(4).
    \8\ The Exchange will announce to Members the buffer amount and 
the length of the time periods. The Exchange notes that each time 
period will be the same length (as designated by the Exchange), and 
the buffer amount applied for each time period will be the same.
    \9\ Currently, the drill-through protections described under 
current Rule 21.17(d)(2) apply only to a limit order with a Time-in-
Force of Day, Good-til-Cancel (``GTC''), or Good-til-Day (``GTD''). 
This rule proposal also seeks to clarify which orders are subject to 
the drill-through protections, as described herein.
    \10\ See current Rule 21.17(d)(2)(A) (as amended, Rule 
21.17(d)(3)(A)). The proposed rule change defines this time period 
as an ``iteration.''
    \11\ See current Rule 21.17(d)(2)(B) (as amended, Rule 
21.17(d)(3)(B)).
    \12\ The term ``User'' shall mean any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3. See Rule 1.5(cc).
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    Currently, the above-described iterative drill-through process does 
not apply to market orders. Specifically, if a buy (sell) market order 
would execute at the time of order entry, the System executes the order 
up to the Exchange-determined buffer amount above (below) the NBO (NBB) 
at the time of order entry and then rejects any remaining amount. For 
example, suppose a market order to buy two contracts enters the System; 
assume that the drill-through price buffer for a certain option series 
is $0.90 and that the following quotes are in the Book: Quote 1 (NBBO): 
1 @5.00 x 1 @7.00; Quote 2: 2 @4.00 x 1 @8.00. One contract in the 
market order will execute against the 7.00 offer quote. The remaining 
one contract of the market order is cancelled, because the next best 
offer of 8.00 is 1.00 above the NBO, which is more than the 0.90 buffer 
amount.
    The Exchange proposes for market orders with a Time-in-Force of Day 
to go through the iterative drill-through process described above.\13\ 
The Exchange also proposes to amend current Rule 21.17(d)(2) (as 
amended, proposed Rule 21.17(d)(3)) to clarify that limit orders with a 
Time-in-Force of Day, GTC, or GTD also go through the iterative drill-
through process. In the above example, rather than cancel the remaining 
one contract, the System would rest the one contract in the Book at the 
drill-through price of 7.90 (i.e. the NBO plus the buffer amount) for 
the Exchange-determined time period. At the end of that time period, 
assuming the market has not changed, the remaining one contract would 
execute against the 8.00 offer, which is within a buffer amount of the 
subsequent drill-through price of 8.80. As a result, like super-
aggressive limit orders (except for those with Time-in-Force of 
Immediate-or-Cancel (``IOC'') or Fill-or-Kill (``FOK'')) do today, 
market orders (except for those with Time-in-Force of IOC) will have 
additional execution opportunities pursuant to the drill-through 
process. As the proposed rule change only applies to market orders with 
a Time-in-Force of Day, and the drill through protections described 
under current Rule 21.17(d)(2) continue to apply only to limit orders 
with a Time-in-Force of Day, GTC, or GTD, the Exchange also proposes to 
adopt proposed Rule 21.17(d)(2) \14\ to specify that the System will 
cancel or reject any market order with Time-in-Force of IOC (or 
unexecuted portion) or limit order with a Time-in-Force of IOC or FOK 
(or unexecuted portion) not executed pursuant to 21.17(d)(1).\15\ The 
Exchange believes it is appropriate to not have a market order with a 
Time-in-Force of IOC to go through the iteration process, because the 
iteration process would be inconsistent with the IOC instruction (and 
thus the user's intent). Further, the Exchange proposes to amend Rule 
21.17(d)(1) to more generally describe when applicable order types may 
become subject to drill-through protection. Specifically, the Exchange 
proposes to specify that the protections described in Rule 21.17(d)(1) 
become applicable if a buy (sell) order, to which Rule 21.17(d)(1) 
would apply, (i) enters the Book at the conclusion of opening auction 
process, or (ii) would execute or post to the Book when it enters the 
Book.\16\
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    \13\ See proposed Rule 21.17(d)(3).
    \14\ See supra note 9.
    \15\ There is no change to the handling of market orders with a 
Time-in-Force of GTC or GTD as a result of this rule change; such 
orders will continue to be rejected by the Exchange.
    \16\ This includes, for example, when a Stop (Stop-Loss) or 
Stop-Limit order is elected.
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    The Exchange also proposes to amend Rule 21.17(e)(1)(B) to exclude 
from the current protections for market orders in no-bid series certain 
orders that would be otherwise subject to the drill-through protection 
under the proposed rule changes. Currently, under Rule 21.17(e)(1)(B), 
if the System receives a sell market order in a series after it is open 
for trading with an NBB of zero, and the NBO in the series is greater 
than $0.50, the System cancels or rejects the market order. The 
Exchange proposes amending this protection in the event a drill-through 
process is in progress. Specifically, the Exchange proposes to amend 
Rule 21.17(e)(1)(B) to note that in the event the System receives a 
sell market order in a series after it is open for trading with an NBB 
of zero and the NBO in the series is greater than $0.50, if the drill-
through process is in progress for sell orders and the sell market 
order would be subject to drill-through protection, then the order 
would join the on-going drill-through process in the then-current 
iteration and at the then-current drill-through price, regardless of 
NBBO. The Exchange believes it is not optimal for these orders to be 
immediately booked at the minimum tick increment, as under the proposed 
rule change, such orders would instead, be subject to the drill-through 
protection mechanism described under Rule 21.17(d), which may allow 
opportunity for execution at a more beneficial price level than the 
minimum tick increment.
    Further, the Exchange proposes to amend Rule 21.17(a) to 
specifically exclude orders that would be subject to drill-through 
protection from the market order NBBO width protections described 
therein. Currently, under Rule 21.17(a), if a User submits a market 
order to the System when the NBBO width is greater than x% of the 
midpoint of the NBBO, subject to a minimum and maximum dollar amount 
(as determined by the Exchange on a class-by-class basis), the System 
cancels or rejects the market order. The Exchange proposes amending 
Rule 21.17(a) to exclude Stop Orders \17\ and Market-on-Close orders 
from this protection. Such orders may intentionally be further away 
from the NBBO at the time the order is entered, and the protection may 
cause the orders to be inadvertently rejected pursuant to this check. 
The Exchange believes it is not optimal for these orders to be subject 
to the market order NBBO width protection, as the check may

[[Page 54386]]

inadvertently cause rejections for orders that may otherwise not have 
an opportunity to execute if they are immediately cancelled due to 
market width. Under the proposed rule change, such orders would 
instead, upon entry into the Book (when elected in accordance with 
their definitions), be subject to the drill-through protection 
mechanism described under Rule 21.17(d). The Exchange also proposes a 
clarification to proposed Rule 21.17(d)(4).\18\ Currently, under Rule 
21.17(d)(4), if multiple Stop (Stop-Loss) or Stop-Limit \19\ orders to 
buy (sell) have the same stop price and are thus triggered by the same 
trade price or NBBO, and would execute or post to the Book, the System 
uses the contra-side NBBO that existed at the time the first order in 
sequence was entered into the Book as the drill-through price for all 
orders. The Exchange proposes to remove the conditional language noting 
that such Stop (Stop-Loss) or Stop-Limit orders to buy (sell) must have 
the same stop price, as it is possible that orders with different stop 
prices may be triggered by the same trade price or NBBO. Further, the 
Exchange proposes to add language stating that, where multiple orders 
are simultaneously re-priced, the orders will be prioritized under 
proposed Rule 21.17(d)(3)(E) \20\ and will be sequenced based on the 
original time each order was entered into the Book.
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    \17\ A ``Stop Order'', or Stop (Stop-Loss) Order, is an order 
that becomes a BZX market order when the stop price is elected. A 
Stop Order to buy is elected when the consolidated last sale in the 
security occurs at, or above, the specified stop price. A Stop Order 
to sell becomes a limit order when the consolidated last sale in the 
security occurs at, or below, the specified stop price. See Rule 
11.9(c)(16).
    \18\ See supra note 9.
    \19\ A ``Stop-Limit'' order is an order that becomes a limit 
order when the stop price is elected. A Stop Limit Order to buy is 
elected when the consolidated last sale in the security occurs at, 
or above, the specified stop price. A Stop Limit Order to sell 
becomes a sell limit order when the consolidated last sale in the 
security occurs at, or below, the specified stop price. See Rule 
11.9(c)(17).
    \20\ See supra note 9.
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    For example, assume that the drill-through price buffer for a 
certain option series is $0.90, and that the following quotes are in 
the Book: Quote 1 (NBBO): 1 @5.00 x 1 @7.00; Quote 2: 2 @4.00 x 1 
@8.00. Additionally, the following Stop orders are being held in the 
System when Quote 2 is updated to 2 @4.00 x 1 @6.50 (the System 
received these stop orders in the below sequence):

Order 1: Sell 1 @Market, Stop Price = $6.50
Order 2: Sell 1 @Market, Stop Price = $6.55
Order 3: Sell 1 @$3.95, Stop Price = $6.60

    Each of orders 1, 2 and 3 have a stop price less than the NBO, and 
will therefore be triggered by the 6.50 quote and enter the Book for 
execution or posting. A drill-through price for all three orders is set 
at the contra-side NBB of 5.00. Per proposed Rule 21.17(d)(3), the 
orders will go through the drill-through process as follows:
    1. Order 1 will execute against Quote 1 @$5.00.
    2. Orders 2 and 3 are posted to sell at $4.10 for the Exchange-
determined time period.
    3. Drill-through process continues for orders 2 and 3 until they 
are canceled or executed.
    As amended, under Rule 21.17(d)(4), all Stop (Stop-Loss) and Stop-
Limit orders elected as a result of the same election trigger (NBBO 
update or last sale price) will continue to use the same reference 
price for drill-through (even though they may have different stop 
prices).
    The Exchange proposes to amend Rule 21.17(d)(3)(B),\21\ to specify 
that if at any time during the drill-through process, the NBO (NBB) 
changes to be below (above) the current drill-through price, such NBO 
(NBB) will become the new drill-through price and a new drill-through 
will immediately begin. As a result, any improvements to the market 
that occur while the drill-through is in process will be incorporated, 
thereby providing Users with further opportunity to be priced within 
the market while still being protected. Under the proposed rule change, 
any limit order with a price that is less aggressive than the new 
drill-through price would be entered in the Book at its limit price.
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    \21\ See supra note 9.
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    The Exchange also proposes to add Rule 21.17(d)(3)(D) \22\ to 
provide that if the System receives a market or limit order that would 
be subject to the drill-through process while a drill-through is in 
progress in the same series, the order joins the ongoing drill-through 
process in the then-current iteration and at the then-current drill-
through price. Under the proposed rule, orders that come in while a 
drill-through is in process receive the benefit of joining the drill-
through at the NBBO at the time of entry, as opposed to immediately 
executing or being displayed at a more aggressive price than the drill-
through price. By way of illustration, consider the following example:
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    \22\ As a result of the additional provisions described herein, 
the proposed rule change renumbers current subparagraph (D) to be 
proposed subparagraph (F) and current subparagraph (E) to be 
proposed subparagraph (H). See also supra note 9.
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    Assume that the drill-through price buffer for a certain option 
series is $0.90, and that the following quotes are in the Book: Quote 1 
(NBBO): 1 @5.00 x 1 @7.00; Quote 2: 2 @4.00 x 1 @8.00. The System 
receives the following orders in the below sequence:
Order 1: Sell 1 @Market, Stop Price = $6.50
Order 2: Sell 1 @Market, Stop Price = $6.55
Order 3: Sell 1 @$3.95, Stop Price $6.60
Order 4: Sell 2 @Market, Stop Price = $4.50

    During this time, Quote 2 is updated to: 2 @4.00 x 1 @6.50. Orders 
1, 2, and 3 are elected, and the drill-through reference price for all 
three orders is set to contra-side NBB of 5.00.
    1. Order 1 executes Quote 1 @$5.00.
    2. Orders 2 and 3 are posted to sell @$4.10 (drill-through price) 
for the Exchange-determined time period.
    3. Order 4 is elected due to updated best offer of $4.10, and joins 
Orders 2 and 3 at the iterative drill-through price of $4.10. The offer 
is updated to 4 @$4.10.
    4. Order 5 (Sell 10 @Market (Day)) and Order 6 (Sell 1 @$4.05 Limit 
(Day)) enter the Book. Per proposed Rule 21.17(d)(3)(D), Orders 5 and 6 
join the drill-through iteration at the drill-through reference price 
of $4.10, and the best offer is updated to 15 @$4.10.
    5. The drill-through process continues for orders 2, 3, 4, 5, and 6 
until the contracts are canceled or executed.
    Because the proposed rule change may result in multiple orders 
going through the drill-through process at the same price and at the 
same time, the proposed rule change also describes how these orders 
will be prioritized and allocated when executing against resting 
interest or incoming interest. Specifically, proposed Rule 
21.17(d)(3)(E) \23\ states the System prioritizes orders that are part 
of the same drill-through iteration (A) based on the time the System 
enters or reprices them in the Book (i.e., in time priority) when, 
after an iteration, the new drill-through price makes the order(s) 
marketable against resting orders and (B) in accordance with the 
applicable base allocation algorithm when executing against any 
incoming interest. The Exchange believes this is appropriate because 
incoming marketable orders would ultimately execute in time priority 
today. Additionally, having multiple orders execute in accordance with 
the applicable base allocation algorithm when executing against 
incoming interest is consistent with how resting orders execute against 
incoming interest.
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    \23\ Id.
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    Continuing from the above example, assume the drill-through process 
iterates to the next drill-through price, which would be $3.20. In 
doing so, Order 6 posts at its limit price of $4.05, and the rest of 
the orders are eligible to execute in time sequence against the resting 
$4.00 bid. Per proposed Rule 21.17(d)(3)(E), the orders will go through 
the drill-through process as follows:

[[Page 54387]]

    1. Order 2 (Sell 1 @Market) will execute against Quote 2 @$4.00.
    2. Order 3 (Sell 1 @$3.95) will execute against Quote 2 @$4.00.
    3. The Quote 2 is exhausted, and the next best bid is Quote 1 for 5 
@$3.00.
    4. Remaining drill-through is Order 4 (Sell 2 @Market) and Order 5 
(Sell 10 @Market). Market is now 5 @$3.00 x 12 @$3.20, and the drill-
through process continues until these contracts are executed or 
cancelled.
    If, prior to the next drill-through iteration, Order 7 (buy 5 
@$3.25) is entered and executes against Orders 4 and 5 at $3.20, the 
allocation will depend on the allocation algorithm for the relevant 
class, under the amended Rule.
    1. If pro-rata, Order 7 trades 1 contract against Order 4 and 4 
contracts against Order 5.
    2. If price-time, Order 7 trades 2 contracts against Order 4 and 3 
contracts against Order 5.
    3. Remaining size on Order 4 (if applicable) and Order 5 will 
continue to drill-through as described in previous examples.
    The Exchange also proposes to amend Rule 21.17(d)(3)(F).\24\ 
Currently, the rule states that an order will continue through the 
drill-through process until the earliest of the following to occur: (a) 
the order fully executes; (b) the User cancels the order; and (c) the 
buy (sell) order's limit price equals or is less (greater) than the 
drill-through price at any time during application of the drill-through 
mechanism, in which case the orders rests in the Book at its limit 
price, subject to a User's instruction. The Exchange proposes to amend 
part (c) to remove reference to when the order's limit price equals the 
drill-through price, since under the drill-through process, if a buy 
(sell) order's limit price equals the drill-through price during the 
application of the drill-through mechanism it will remain part of the 
drill-through process, until the order's limit price is less (greater) 
than the drill-through price, at which point it will rest in the Book 
at its limit price. The Exchange also proposes to remove reference to a 
User's instruction, as there is no additional instruction that would 
allow a User to choose a different order handling option once the buy 
(sell) order limit price is less (greater) than the drill-through 
price.
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    \24\ Id.
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    Finally, the Exchange proposes to add Rule 21.17(d)(3)(G) to 
specify that if an order(s) (or unexecuted portion(s)) is undergoing 
the drill-through process at the end of its last eligible trading 
session for that trading day (i.e., RTH), the drill-through process 
concludes. Any order (or unexecuted portion) with a Time-in-Force of 
(i) Day is canceled, and (ii) GTC or GTD enters the Queuing Book for 
the next eligible trading session as a market order or limit order (at 
its limit price).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\25\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \26\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \27\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, the Exchange believes the proposed rule change to 
enhance drill-through protections for simple orders and to make certain 
market orders eligible for drill-through protection will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors, because 
it will provide these orders with additional and consistent execution 
opportunities and protections. The primary purpose of the drill-through 
price protection is to prevent orders from executing at prices ``too 
far away'' from the market when they enter the Book for potential 
execution. The Exchange believes the proposed rule change is consistent 
with this purpose, because Users who submit market orders with a Time-
in-Force of Day will receive the same level of drill-through price 
protection against execution at potentially erroneous prices that is 
currently afforded to supermarketable limit orders while receiving the 
same additional execution opportunities. Supermarketable limit orders 
currently go through the drill-through process, and market orders with 
a Time-in-Force of Day are functionally similar to supermarketable 
limit orders. Therefore, the Exchange believes it is appropriate to 
provide both types of orders with the same price protection.
    Further, the proposed rule change to provide that any new market 
and limit orders that would be subject to drill-through protection will 
join any in-progress drill-through iterations and display at the then-
current drill-through price (and the corresponding changes regarding 
allocation and prioritization) allows new orders to receive the same 
level of price protection as other orders undergoing the drill-through 
process. The proposed rule change will allow all orders additional 
execution opportunities while continuing to protect them against 
execution at potentially erroneous prices. Similarly, the Exchange 
believes the proposed change to consider changes to the NBO (NBB) 
during drill-through and to update the drill-through price to such NBO 
(NBB) should it be lower (higher) than the drill-through price will 
further provide opportunity for execution at reasonable prices by 
capturing any market moves that may result in more aggressive prices.
    The Exchange believes the proposal will enhance risk protections, 
the individual firm benefits of which flow downstream to counterparties 
both at the Exchange and at other options exchanges, which increases 
systemic protections as well. The Exchange believes enhancing risk 
protections will allow Users to enter orders and quotes with further 
reduced fear of inadvertent exposure to excessive risk, which will 
benefit investors through increased exposure to liquidity for the 
execution of their orders.
    Additionally, the Exchange believes changes to specifically exclude 
from market order NBBO width and market order in no-bid series 
protections certain orders that would be subject to drill-through 
protection will remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors. Specifically, the Exchange believes the changes to 
exclude certain orders that would be subject to drill-through 
protection from market order NBBO width protections may reduce 
inadvertent rejection of such orders which may be purposely priced far 
away from the NBBO at the time of entry and may otherwise miss an 
opportunity for execution if immediately cancelled. The Exchange also 
believes the changes to exclude

[[Page 54388]]

certain orders that would be subject to drill-through protection from 
market order in no-bid series protections may allow opportunity for 
execution at a more beneficial price level than if they were 
immediately booked at the minimum tick increment. This proposed rule 
change may increase execution opportunities for Users that submit such 
Stop (Stop-Loss) and Market-on-Close orders (in the case of market 
order NBBO width protections) and sell market orders with an NBB of 
zero when the NBO in the series is greater than $0.50 (in the case of 
market orders in no-bid series protections).
    The Exchange believes the proposed change to Rule 21.17(d)(4) will 
protect investors because it clarifies that if multiple Stop (Stop-
Loss) and Stop-Limit orders are triggered by the same trade price or 
NBBO (even if the orders have different stop prices), and would execute 
or post to the Book, the System uses the contra-side NBBO that existed 
at the time the first order in sequence was entered into the Book as 
the drill-through price for all orders. The Exchange believes that the 
proposed rule change will bring greater transparency and clarity to the 
rulebook, thus benefitting investors.
    Finally, the Exchange believes the proposed changes to specify what 
happens to orders undergoing drill-through at the end of a trading 
session will protect investors by adding transparency to the rules 
regarding the drill-through functionality and provide greater certainty 
as to the application of the drill-through process.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the enhanced drill-
through protection will apply to all marketable orders in the same 
manner. Additionally, it will provide the same price protection and 
execution opportunities to relevant market orders that are currently 
provided to supermarketable limit orders, which function in a similar 
manner.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
enhancement to the drill-through protection is consistent with the 
current protection and provides relevant market orders with improved 
protection against execution at potentially erroneous prices through 
drill-through price protection in accordance with User instructions. 
Additionally, the proposed rule change relates specifically to a price 
protection offered on the Exchange and how the System handles orders as 
part of this price protection mechanism.
    The Exchange believes the proposed rule change would ultimately 
provide all market participants with additional execution opportunities 
when appropriate while providing protection from erroneous execution. 
The Exchange believes the proposal will enhance risk protections, the 
individual firm benefits of which flow downstream to counterparties 
both at the Exchange and at other options exchanges, which increases 
systemic protections as well. The Exchange believes enhancing risk 
protections will allow Users to enter orders and quotes with further 
reduced fear of inadvertent exposure to excessive risk, which will 
benefit investors through increased exposure to liquidity for the 
execution of their orders. Without adequate risk management tools, 
Members could reduce the amount of order flow and liquidity they 
provide. Such actions may undermine the quality of the markets 
available to customers and other market participants. Accordingly, the 
proposed rule change is designed to encourage Members to submit 
additional order flow and liquidity to the Exchange. Accordingly, the 
proposed rule change is designed to encourage Members to submit 
additional order flow and liquidity to the Exchange. The proposed 
flexibility may similarly provide additional execution opportunities, 
which further benefits liquidity in potentially volatile markets. In 
addition, providing Members with more tools for managing risk will 
facilitate transactions in securities because, as noted above, Members 
will have more confidence protections are in place that reduce the 
risks from potential system errors and market events.
    Finally, the proposed clarifying changes are not intended to have 
any impact on competition, but rather codify current functionality to 
add transparency to the Rules.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \28\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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    \28\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-053 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-CboeBZX-2023-053. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/

[[Page 54389]]

rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-CboeBZX-2023-053 and 
should be submitted on or before August 31, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17106 Filed 8-9-23; 8:45 am]
BILLING CODE 8011-01-P