Document ID: SEC-2022-0116-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BYX Exchange, Inc.
Posted Date: 2022-01-26T05:00Z

[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4060-4066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01465]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94012; File No. SR-CboeBYX-2021-024]

Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Approving on an Accelerated Basis a 
Proposed Rule Change, as Modified by Amendment No. 2, To Make 
Clarifying Changes Regarding Its Periodic Auctions

January 20, 2022.
    On October 14, 2021, Cboe BYX Exchange, Inc. (``BYX'' 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 make certain clarifying changes regarding its 
Periodic Auctions. The proposed rule change was published for comment 
in the Federal Register on October 26, 2021.\3\ On January 12, 2022, 
the Exchange filed Amendment No. 1 to the proposed rule change. On 
January 14, 2022, the Exchange withdrew Amendment No. 1 and filed 
Amendment No. 2, which replaces in its entirety the proposal as 
originally submitted on October 14, 2021.\4\ The Commission received no 
comment letters regarding the proposal. This order approves the 
proposed rule change, as modified by Amendment No. 2, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93390 (October 20, 
2021), 86 FR 59202.
    \4\ The amendments to the proposed rule change are available at: 
https://www.sec.gov/comments/sr-cboebyx-2021-024/srcboebyx2021024.htm.
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I. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change \5\
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    \5\ This description of the proposed rule change was 
substantially prepared by the Exchange.
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    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
    This Amendment No. 2 to SR-CboeBYX-2021-024 amends and replaces in 
its entirety the proposal as originally submitted on October 14, 
2021.\6\ The Exchange submits this Amendment No. 2 in order to clarify 
certain points and add additional details to the proposal.
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    \6\ The Exchange notes that it submitted Amendment No. 1 to this 
proposal on January 12, 2022, which it subsequently withdrew on 
January 14, 2022.
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    The purpose of this proposed rule change is to make certain 
clarifying changes to Exchange Rule 11.25 related to periodic auctions 
for the trading of U.S. equity securities (``Periodic Auctions'').\7\ 
The Commission approved the Exchange's proposal to introduce Periodic 
Auctions on March 26, 2021.\8\ The Exchange has not yet implemented 
Periodic Auctions. The Exchange is submitting this proposal in order to 
simplify certain portions of the Periodic Auction process and to add 
clarity to the rule text prior to implementation.
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    \7\ The term ``Periodic Auction'' shall mean an auction 
conducted pursuant to Rule 11.25. See Rule 11.25(a)(4).
    \8\ See Securities Exchange Act Release No. 91423 (March 26, 
2021), 86 FR 17230 (April 1, 2021) (SR-BYX-2020-021, Amendments No. 
3 and 4) (the ``Approved Proposal''). The Exchange also notes that 
the original proposal to adopt Periodic Auctions (the ``Original 
Proposal'') was submitted on July 17, 2020. See Securities Exchange 
Act Release No. 89424 (July 29, 2020), 85 FR 47262 (August 4, 2020).
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    Specifically, the Exchange is proposing that: (i) Periodic Auction 
Eligible Orders \9\ will be ranked as non-displayed limit orders 
consistent with the priority of orders outlined in Rule 11.12(a); (ii) 
incoming Periodic Auction Eligible Orders that are eligible both to 
trade on the Continuous Book and initiate a Periodic Auction against a 
Periodic Auction Only Order at the same price will trade immediately 
with the Continuous Book, and other incoming Periodic Auction Eligible 
Orders will upon entry interact with Continuous Book Orders \10\ and 
other Periodic Auction Eligible Orders according to their rank under 
Rule 11.12(a); and (iii) Periodic Auction Eligible Orders that are also 
Minimum Quantity Orders \11\ will only initiate a Periodic Auction upon 
entry where a single contra-side Periodic Auction Order would satisfy 
the specified minimum size. The Exchange is also proposing to make a 
simplifying change to reject Periodic Auction Orders that are 
immediate-or-cancel (``IOC''). Finally, the Exchange is proposing to 
make certain clean-up changes to Rule 11.25(b)(1), (2), and (3) to 
eliminate certain typos from the rule text.
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    \9\ The term ``Periodic Auction Order'' shall mean a ``Periodic 
Auction Only Order'' or ``Periodic Auction Eligible Order'' as those 
terms are defined in Rules 11.25(b)(1)-(2), and the term ``Periodic 
Auction Book'' shall mean the System's electronic file of such 
Periodic Auction Orders. See Rule 11.25(a)(6).
    \10\ The term ``Continuous Book Order'' shall mean an order on 
the BYX Book that is not a Periodic Auction Order, and the term 
``Continuous Book'' shall mean System's electronic file of such 
Continuous Book Orders. See Rule 11.25(a)(2).
    \11\ See BYX Rule 11.9(c)(5).
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Ranking Periodic Auction Eligible Orders
    Rule 11.25(b)(2) currently reads as follows:
    Periodic Auction Eligible Orders. A ``Periodic Auction Eligible 
Order'' is a Non-Displayed Limit Order eligible to trade on the 
Continuous Book that is entered with an instruction to also initiate a 
Periodic Auction, if possible, pursuant to this Rule 11.25. An incoming 
Periodic Auction Eligible Order that is eligible both to trade on the 
Continuous Book and initiate a Periodic Auction will trade immediately 
with the Continuous Book.
    The first sentence makes clear that Periodic Auction Eligible 
Orders are

[[Page 4061]]

eligible to trade on the Continuous Book and suggests that Periodic 
Auction Eligible Orders would be ranked as non-displayed limit orders 
by referring to such as orders as types of non-displayed limit orders. 
However, reading this sentence together with the second sentence could 
make it unclear as to how Periodic Auction Eligible Orders are ranked 
and how an incoming Periodic Auction Eligible Order would interact with 
other Periodic Auction Orders and resting orders on the Continuous 
Book.\12\
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    \12\ The Exchange notes that in the Original Proposal the second 
sentence of Rule 11.25(b)(2) originally said ``An incoming PAE Order 
that is eligible both to trade on the Continuous Book and initiate a 
Periodic Auction will initiate a Periodic Auction.'' In Amendment 1 
of the Original Proposal, the Exchange instead proposed the current 
language which remained in the Approved Proposal. The intent of this 
change in the rule text was to make clear that the Exchange would 
not prioritize a Periodic Auction Order over every other resting 
order, which is made clear in the examples and in the Approved 
Proposal. The proposed new language further clarifies this intent 
from Amendment 1 of the Original Proposal in the rule text.
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    As such, the Exchange is proposing to add a new sentence in between 
the two sentences that reads ``Periodic Auction Eligible Orders will be 
ranked as non-displayed limit orders consistent with the priority of 
orders outlined in Rule 11.12(a).'' \13\ This will make explicit that 
Periodic Auction Eligible Orders will be ranked in price-time priority 
among Continuous Book Orders and will also help to make clear how 
incoming orders (both Periodic Auction Eligible Orders and Continuous 
Book Orders) will interact with resting orders, as further discussed 
below. Practically, the Exchange believes this clarifying change is 
reasonably inferred from the definition of Periodic Auction Eligible 
Orders, which defines a Periodic Auction Eligible Order as (emphases 
added) ``a Non-Displayed Limit Order eligible to trade on the 
Continuous Book that is entered with an instruction to also initiate a 
Periodic Auction, if possible, pursuant to this Rule 11.25.'' If such 
orders are eligible to trade on the Continuous Book, they would need to 
be prioritized by the System and it would only make sense for them to 
be prioritized in accordance with the Exchange's existing priority 
rules. Rather than rely on this implication, the Exchange is proposing 
to explicitly state this in the Rules by adding the language proposed 
above.
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    \13\ Rule 11.12(a)(1) and (2) relate to the priority and ranking 
of orders and specifically state: ``(a) Ranking. Orders of Users 
shall be ranked and maintained in the BYX Book based on the 
following priority: (1) Price. The highest-priced order to buy (or 
lowest-priced order to sell) shall have priority over all other 
orders to buy (or orders to sell) in all cases. (2) Time. Subject to 
the execution process described in Rule 11.13(a) below, where orders 
to buy (or sell) are made at the same price, the order clearly 
established as the first entered into the System at such particular 
price shall have precedence at that price, up to the number of 
shares of stock specified in the order. The System shall rank 
equally priced trading interest within the System in time priority 
in the following order: (A) Displayed size of limit orders; (B) Non-
Displayed limit orders; (C) Non-Displayed Pegged Orders; (D) Mid-
Point Peg Orders; (E) Reserve size of orders; (F) Discretionary 
portion of Discretionary Orders as set forth in Rule 11.9(c)(9); (G) 
Supplemental Peg Orders.''

Example 1:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 100 shares @ $10.02 Displayed--Continuous Book Order
Order 3: Sell 100 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

Order 2 is ranked ahead of Order 1 because it is a displayed limit 
order in accordance with Rule 11.12(a)(1), meaning that Order 3 would 
execute 100 shares against Order 2.
Incoming Periodic Auction Eligible Orders
    As described above, Rule 11.25(b)(2) currently states that ``An 
incoming Periodic Auction Eligible Order that is eligible both to trade 
on the Continuous Book and initiate a Periodic Auction will trade 
immediately with the Continuous Book.'' This language was originally 
introduced to make clear that an incoming Periodic Auction Eligible 
Order would interact with other Periodic Auction Eligible Orders and 
Continuous Book Orders before interacting with Periodic Auction Only 
Orders, as made clear in Example 3 in the Approved Proposal (``AP 
Example 3'').\14\ While part of the rule is made clear by the 
surrounding rule text and the clarifying context from the Approved 
Proposal, on its own it could be read to imply that all resting 
Periodic Auction Eligible Orders would either be prioritized behind any 
executable Continuous Book Order or that such resting orders should 
immediately execute against an incoming Periodic Auction Eligible Order 
instead of initiating a Periodic Auction, which is not the case. 
Additionally, another example from the Approved Proposal laid out 
circumstances under which an incoming Periodic Auction Eligible Order 
that is eligible both to trade on the Continuous Book and initiate a 
Periodic Auction against a Periodic Auction Only Order will trade 
immediately with the Continuous Book, even where the Periodic Auction 
Only Order is more aggressively priced than the Continuous Book 
Order.\15\ The Exchange is proposing to add language to Rule 
11.25(b)(2) in order to change the outcome of that example such that an 
incoming Periodic Auction Eligible Order that is eligible both to trade 
on the Continuous Book and initiate a Periodic Auction against a more 
aggressively priced Periodic Auction Only Order will initiate a 
Periodic Auction (the ``Aggressive PAO Change'').
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    \14\ AP Example 3 specifically provides the following example:
     NBBO: $10.00 x $10.10
    Order 1: Buy 100 shares @ $10.05 Midpoint Peg--Periodic Auction 
Only
    Order 2: Buy 100 shares @ $10.05 Midpoint Peg--Continuous Book 
Order
    Order 3: Sell 100 shares @ $10.05 Midpoint Peg--Periodic Auction 
Eligible
    A Periodic Auction is not initiated. Instead, Order 3, which is 
a Periodic Auction Eligible Order, would trade immediately with the 
Continuous Book and execute 100 shares against Order 2 at $10.05. 
Although Order 1 is available to initiate a Periodic Auction, a 
Periodic Auction Eligible Order would trade immediately with 
Continuous Book Orders on entry if it can do so instead of 
initiating a Periodic Auction.
    \15\ The Exchange notes that the functionality captured in 
Example 6 as laid out in Amendment No. 3 to the Approved Proposal as 
corrected in Amendment No. 4 to the Approved Proposal (``Corrected 
Example 6 from Amendment No. 3'') provided that even where a 
Periodic Auction Only Order was priced more aggressively than a 
Continuous Book Order, the incoming Periodic Auction Eligible Order 
would trade immediately with the Continuous Book. While this example 
was technically replaced as part of Amendment No. 4, it was laid out 
in Amendment No. 3 with an incorrect outcome and Amendment No. 4 
provided some explanation about what should have happened before 
laying out a new replacement Example 6. What follows is the example 
as laid out in Amendment No. 3 and followed by the explanation from 
Amendment No. 4.
    NBBO: $10.00 x $10.10
    Order 1: Buy 500 shares @ $10.05 Non-Displayed--Periodic Auction 
Only
    Order 2: Buy 300 shares @ $10.04 Non-Displayed--Continuous Book 
Order
    Order 3: Sell 100 shares @ $10.04 Non-Displayed--Periodic 
Auction Eligible
    Order 4: Sell 200 shares @ $10.04 Non-Displayed--Periodic 
Auction Eligible
     Specifically, Amendment No. 4 stated ``the amended 
functionality would require that Order 3 and Order 4, which are 
Periodic Auction Eligible Orders, each trade immediately with Order 
2, which is a Non-Displayed Continuous Book Order.''
     As such, current functionality provides that an order that is 
eligible both to trade on the Continuous Book and initiate a 
Periodic Auction will trade immediately with the Continuous Book, 
even where the Periodic Auction Only Order is more aggressively 
priced than the Continuous Book Order, which is consistent with 
Corrected Example 6 from Amendment No. 3.
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    Specifically, the Exchange is proposing to add language to Rule 
11.25(b)(2) such that it will instead read (additions in italics): ``An 
incoming Periodic Auction Eligible Order that is eligible both to trade 
on the Continuous Book and initiate a Periodic Auction against a 
Periodic Auction Only Order at the same price will trade immediately

[[Page 4062]]

with the Continuous Book. Incoming Periodic Auction Eligible Orders 
will upon entry interact with Continuous Book Orders and other Periodic 
Auction Eligible Orders according to their rank under Rule 11.12(a).'' 
\16\ This language will: (i) Make explicit in the rule text the outcome 
described in AP Example 3; and (ii) change the functionality from how 
it was described in the Approved Proposal such that an incoming 
Periodic Auction Eligible Order will now initiate a Periodic Auction 
where there is a Periodic Auction Only Order that is priced more 
aggressively than any other Continuous Book Orders instead of executing 
immediately with the most aggressively priced Continuous Book Order. 
Further, this proposed change will provide additional clarity to the 
language in Rule 11.25(c) describing when a Periodic Auction will be 
initiated. Specifically, Rule 11.25(c) provides that a Periodic Auction 
will be initiated in a security when ``one or more Periodic Auction 
Orders to buy become executable against one or more Periodic Auction 
Orders to sell.'' The proposed amendment to Rule 11.25(b)(2) to 
specifically describe how incoming Periodic Auction Eligible Orders 
will interact with resting orders will add clarity regarding what it 
means when Periodic Auction Orders become ``executable'' against one 
another in this context.
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    \16\ See supra note 12.

Example 2:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 100 shares @ $10.02 Displayed--Continuous Book Order
Order 3: Sell 400 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

Order 3 would execute 100 shares against Order 2 (consistent with 
Example 1). Order 3 and Order 1 would then be executable against one 
another and are both Periodic Auction Eligible Orders, so the remaining 
300 shares from Order 3 would be sent to the Periodic Auction Book and 
the Periodic Auction initiation process would begin.\17\
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    \17\ As noted in the Approved Proposal, Periodic Auctions would 
operate alongside trading on the Continuous Book. The Exchange has 
therefore developed its system for processing Periodic Auctions with 
the goal of minimizing interference with trading in the continuous 
market. Thus, in rare circumstances where a number of Periodic 
Auctions could potentially be triggered at or around the same time, 
the Exchange may throttle the initiation of such Periodic Auctions 
if needed to maintain appropriate system performance and latency. In 
the event that the System was throttling Periodic Auctions during 
this example, it would delay the Periodic Auction initiation 
process. See Approved Proposal at 17234.

Example 3:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 100 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Sell 400 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

This example is identical to Example 2 except that Order 2 is Non-
Displayed rather than Displayed. Upon entry, Order 3 would be 
executable against Order 1 and both are Periodic Auction Eligible 
Orders, so the 400 shares from Order 3 would be sent to the Periodic 
Auction Book and the Periodic Auction initiation process would 
begin.\18\
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    \18\ See supra note 15.

Example 4:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction Only
Order 2: Buy 100 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Sell 100 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

Because an incoming Periodic Auction Eligible Order that ``is eligible 
both to trade on the Continuous Book and initiate a Periodic Auction 
against a Periodic Auction Only Order at the same price will trade 
immediately with the Continuous Book,'' Order 3 would execute 100 
shares against Order 2 and a Periodic Auction would not be initiated.

Example 5:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.03 Non-Displayed--Periodic Auction Only
Order 2: Buy 100 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Sell 100 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

Because an incoming Periodic Auction Eligible Order that ``is eligible 
both to trade on the Continuous Book and initiate a Periodic Auction 
against a Periodic Auction Only Order at the same price will trade 
immediately with the Continuous Book,'' and Order 1 is priced more 
aggressively than Order 2 (i.e., not against a Periodic Auction Only 
Order at the same price), the 100 shares from Order 3 would be sent to 
the Periodic Auction Book and the Periodic Auction initiation process 
would begin.\19\
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    \19\ See supra note 15.

Example 6:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.03 Non-Displayed--Periodic Auction Only
Order 2: Buy 100 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Sell 100 shares @ $10.03 Non-Displayed--Periodic Auction 
Eligible

This example is identical to Example 5 except that Order 3 has a limit 
of $10.03 instead of $10.02. Because the only orders that are able to 
execute against one another are Order 3 and Order 1, Order 3 would post 
and the System would check to see whether a Periodic Auction could be 
initiated (which it could because Order 3 and Order 1 are executable 
against one another), and the Periodic Auction initiation process would 
begin.

Periodic Auction Eligible Orders With a Minimum Quantity

    Rule 11.25(b)(2)(C) describes how Minimum Quantity Orders will 
participate in Periodic Auctions and the use of such orders with 
Periodic Auction Eligible Orders, but does not address how such orders 
will be handled in initiating Periodic Auctions. It states that 
``Minimum Quantity Orders, as defined in Rule 11.9(c)(5),\20\ will be 
executed in a Periodic Auction only if the minimum size specified can 
be executed against one or more contra-side orders. Orders entered with 
the alternative instruction that requires the minimum size specified to 
be satisfied by each individual contra-side order cannot be entered as 
Periodic Auction Eligible Orders.''
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    \20\ See Rule 11.9(c)(5).
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    The current rule and the Approved Proposal are clear in describing 
how Minimum Quantity Orders will be handled in a Periodic Auction (they 
``will be executed in a Periodic Auction only if the minimum size 
specified can be executed against one or more contra-side orders''), 
but as noted above they do not describe how incoming Periodic Auction 
Eligible Orders with minimum size requirements will be handled in 
initiating Periodic Auctions. Because Periodic Auction Eligible Orders 
are eligible to both execute against orders on the book or to initiate 
a Periodic Auction where they would execute against a Periodic Auction 
Order, an incoming order with a minimum size requirement creates unique 
issues related to how to calculate executable quantity and determining 
whether an order should be executed or initiate a Periodic Auction, 
especially where resting orders also have minimum size requirements. As 
such, the Exchange is proposing to explain how it intends to handle 
such orders by adding a sentence that states ``A Periodic Auction 
Eligible Order entered with a minimum execution quantity will only 
initiate a Periodic Auction upon entry where a single contra-side 
Periodic Auction Order would satisfy the specified minimum size.'' This 
provides a

[[Page 4063]]

straightforward approach to managing minimum execution quantity that 
makes the interaction of minimum execution quantity more easily 
understandable and predictable while ensuring that the minimum 
execution quantity will be satisfied if the incoming order initiates a 
Periodic Auction. This proposed change is consistent with the 
protection of investors and the public interest as it would help to 
simplify the minimum execution quantity functionality. The following 
examples represent basic illustrations of the unique issues and 
explanation of how the Exchange will manage incoming Periodic Auction 
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Eligible Orders with minimum size requirements.

Example 7:
NBBO: $10.00 x $10.05
Order 1: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 100 shares @ $10.02 Displayed--Continuous Book Order
Order 3: Buy 400 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 4: Sell 1000 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible; Minimum Quantity = 500

Order 4 would execute 700 shares upon entry against Orders 2, 1, and 3, 
and would post 300 shares. Even though there are a collective 600 
shares of Periodic Auction Orders between Orders 1 and 3 (enough to 
satisfy the minimum size requirement for Order 4), the Periodic Auction 
initiation process would not occur because no single Periodic Auction 
Order satisfies the Minimum Quantity of 500 shares.

Example 8:
NBBO: $10.00 x $10.05
Order 1: Buy 300 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 500 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 4: Sell 800 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible; Minimum Quantity = 500

Order 4 would execute 800 shares upon entry against Orders 1 and 2. 
Even though there are a collective 500 shares of Periodic Auction 
Orders between Orders 1 and 3 (enough to satisfy the minimum size 
requirement for Order 4), the Periodic Auction initiation process would 
not occur because no single Periodic Auction Order would satisfy the 
Minimum Quantity of 500 shares.

Example 9:
NBBO: $10.00 x $10.05
Order 1: Buy 500 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 2: Buy 500 shares @ $10.02 Non-Displayed--Continuous Book Order
Order 3: Buy 200 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 4: Sell 800 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible; Minimum Quantity = 500

The only difference between this Example 9 and Example 8 above is that 
Order 1 has 500 shares instead of 300. This change means that Order 1 
would on its own satisfy the 500 share minimum size requirement of 
Order 4 and would thus be ``a single contra-side Periodic Auction 
Order'' that ``would satisfy the specified minimum size'' of the 
incoming order. As such, Order 4 would be sent to the Periodic Auction 
Book and the Periodic Auction initiation process would begin.\21\ 
Similarly, where a Periodic Auction Eligible Order with a minimum size 
requirement is already on the book, incoming orders that do not 
individually satisfy the minimum size requirements will not execute 
immediately. However, consistent with the Exchange's treatment of 
Minimum Quantity Orders generally, such orders will aggregate after 
posting.
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    \21\ See supra note 15.

Example 10:
NBBO: $10.00 x $10.05
Order 1: Buy 1000 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible; Minimum Quantity = 500
Order 2: Sell 400 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible
Order 3: Sell 400 shares @ $10.02 Non-Displayed--Periodic Auction 
Eligible

Orders 2 and 3 do not satisfy the minimum size requirement of Order 1 
and therefore would not execute or initiate a Periodic Auction upon 
entry. After the orders are resting, however, the System will aggregate 
the size of Orders 2 and 3, check whether a Periodic Auction can be 
initiated (which it could because the minimum size requirement for 
Order 1 is satisfied), and the Periodic Auction initiation process 
would begin.\22\
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    \22\ See supra note 15.
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IOC Orders
    The Exchange is also proposing to amend Rule 11.25(b)(2)(A) in 
order to reject Periodic Auction Orders that are IOC. Based on industry 
feedback, the Exchange believes that the majority of participants would 
use RHO \23\ orders to initiate or participate in a Periodic Auction 
and would not generally enter IOC orders to participate in the Periodic 
Auction process.\24\ Allowing for IOCs to participate in Periodic 
Auctions requires additional development work and, because the Exchange 
believes that there would not at the outset be significant interest in 
using such functionality, the Exchange believes that rejecting Periodic 
Auction Orders that are IOCs would simplify the Periodic Auction 
process without meaningfully impacting its practical functionality. 
Stated another way, the minimal benefits that would come from including 
IOCs at this time are outweighed by the cost to implement the 
functionality and rejecting IOCs would simplify the Periodic Auction 
process. As such, the Exchange is proposing to reject Periodic Auction 
Orders that are IOC orders.
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    \23\ As provided in Rule 11.9(b)(7), an RHO order is an order 
that is designated for execution only during Regular Trading Hours.
    \24\ The Exchange notes that it may consider adding IOC 
functionality in the future in the event that there was meaningful 
interest from participants.
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Clean-Up Changes
    The Exchange is also proposing to make non-substantive clean-up 
changes to make references to ``Non-Displayed Limit Order'' in Rules 
11.25(b)(1) and (2) instead read ``non-displayed limit order'' and to 
delete an extra instance of the word ``be'' from Rule 11.25(b)(3).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\25\ in general, and 
Section 6(b)(5) of the Act,\26\ 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. As further described below, 
the Exchange believes that the proposed rule change is consistent with 
the protection of investors and the public interest as it would help to 
clarify and simplify the Exchange's Periodic Auction process, which 
itself is intended to facilitate improved price formation and provide 
additional execution opportunities for investors, particularly in 
securities that may suffer from limited liquidity, including thinly-
traded securities. Specifically, the Exchange believes that its 
proposed changes to the rule text that: (i) Periodic Auction Eligible 
Orders will be ranked as non-displayed limit orders consistent with the 
priority of orders outlined in Rule 11.12(a); (ii) incoming Periodic 
Auction Eligible Orders that are eligible both to trade on the 
Continuous Book and initiate a Periodic Auction against a Periodic 
Auction Only Order at the same price will trade immediately with

[[Page 4064]]

the Continuous Book, and other incoming Periodic Auction Eligible 
Orders will upon entry interact with Continuous Book Orders \27\ and 
other Periodic Auction Eligible Orders according to their rank under 
Rule 11.12(a); and (iii) Periodic Auction Eligible Orders that are also 
Minimum Quantity Orders will only initiate a Periodic Auction upon 
entry where a single contra-side Periodic Auction Order would satisfy 
the specified minimum size, are all consistent with the Act because 
they are designed to promote just and equitable principles of trade 
and, in general, to protect investors and the public interest because 
the changes make the rules of the Exchange more straightforward and 
easily understandable. The Exchange also believes that its simplifying 
change to reject Periodic Auction Orders that are IOC is consistent 
with the Act because it is designed to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest because it will simplify Periodic Auction functionality 
without meaningfully impacting its utility. Finally, the Exchange 
believes that its proposed non-substantive clean-up changes to Rule 
11.25(b)(1), (2), and (3) are consistent with the Act because they are 
designed to promote just and equitable principles of trade and, in 
general, to protect investors and the public interest because the 
changes are designed to make the rules of the Exchange more easily 
understandable.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ The term ``Continuous Book Order'' shall mean an order on 
the BYX Book that is not a Periodic Auction Order, and the term 
``Continuous Book'' shall mean System's electronic file of such 
Continuous Book Orders. See Rule 11.25(a)(2).
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Ranking Periodic Auction Eligible Orders
    The Exchange believes that the proposed change to add a new 
clarifying sentence to Rule 11.25(b)(2) is consistent with the Act 
because it is designed to promote just and equitable principles of 
trade and, in general, to protect investors and the public interest 
because the changes are designed to make the rules of the Exchange more 
straightforward and easily understandable by making explicit that 
Periodic Auction Eligible Orders will be ranked in price-time priority 
among Continuous Book Orders and will also help to make clear how 
incoming orders (both Periodic Auction Eligible Orders and Continuous 
Book Orders) will interact with resting orders. As described above, the 
point that is being clarified could reasonably be inferred from the 
definition of Periodic Auctions Orders and is consistent with the 
intent of current Rule 11.25(b)(2). The Exchange believes that adding 
the clarifying change will promote just and equitable principles of 
trade and remove impediments to a free and open market by making 
explicit how Periodic Auction Eligible Orders will be ranked and how 
incoming orders will interact with resting orders.
Incoming Periodic Auction Eligible Orders
    The Exchange believes that the proposed change to Rule 11.25(b)(2) 
is consistent with the Act because it is designed to promote just and 
equitable principles of trade and, in general, to protect investors and 
the public interest because the changes are designed to make the rules 
of the Exchange more straightforward and easily understandable by 
making more clear how incoming Periodic Auction Eligible Orders will 
interact with resting orders. The current rule text was originally 
introduced to make clear that an incoming Periodic Auction Eligible 
Order would interact with other Periodic Auction Eligible Orders and 
Continuous Book Orders before interacting with Periodic Auction Only 
Orders, as made clear in AP Example 3. The Exchange believes that the 
proposed new language is consistent with the Act in that it will make 
the rule text more clear and easily understandable. The proposed rule 
text will also change the existing functionality from how it was 
described in Corrected Example 6 from Amendment No. 3 such that an 
incoming Periodic Auction Eligible Order will now initiate a Periodic 
Auction where there is a Periodic Auction Only Order that is priced 
more aggressively than any other Continuous Book Orders instead of 
executing immediately with the most aggressively priced Continuous Book 
Order. The Exchange believes that this proposed new language will 
specify how resting Periodic Auction Only Orders will interact with 
incoming Periodic Auction Eligible Orders by specifying that immediate 
executions will occur where a Periodic Auction Only Order and 
Continuous Book Order are at the same price, but a Periodic Auction 
will be initiated when the Periodic Auction Only Order is priced more 
aggressively than the Continuous Book Order. The Exchange believes that 
this proposed change is consistent with the Act because it is designed 
to promote just and equitable principles of trade and, in general, to 
protect investors and the public interest because the change strikes a 
middle ground between prioritizing immediate executions and initiating 
Periodic Auctions as it relates to incoming Periodic Auction Eligible 
Orders and how they interact with resting Periodic Auction Only Orders 
and Continuous Book Orders. Further, the Exchange also notes that the 
proposed change will also clarify what it means when Periodic Auction 
Orders become ``executable'' against one another. Additionally, this 
proposal specifies that an order that is eligible both to trade on the 
Continuous Book and initiate a Periodic Auction against a Periodic 
Auction Only Order at the same price will trade immediately with the 
Continuous Book, but where the Periodic Auction Only Order is more 
aggressively priced than the Continuous Book Order, the incoming 
Periodic Auction Eligible Order will be sent to the Periodic Auction 
Book and the Periodic Auction initiation process would begin. The 
Exchange believes that such proposed functionality would promote just 
and equitable principles of trade and remove impediments to a free and 
open market by incentivizing the entry of aggressively priced Periodic 
Auction Only Orders, which the Exchange believes will add additional 
detail already memorialized in the Approved Proposal and making the 
Exchange's rules related to Periodic Auctions more explicit.
Periodic Auction Eligible Orders With a Minimum Quantity
    The Exchange believes that its proposed change to Rule 
11.25(b)(2)(C) is also consistent with the Act because it is designed 
to promote just and equitable principles of trade and, in general, to 
protect investors and the public interest because the changes are 
designed to make the rules of the Exchange more straightforward and 
easily understandable by making clear how Minimum Quantity Orders will 
be handled in initiating Periodic Auctions. Specifically, Rule 
11.25(b)(2) currently describes how Minimum Quantity Orders will 
participate in Periodic Auctions and the use of such orders with 
Periodic Auction Eligible Orders, but does not explicitly address how 
such orders will be handled in initiating Periodic Auctions.
    The current rule and the Approved Proposal are clear in describing 
how Minimum Quantity Orders will be handled in a Periodic Auction (they 
``will be executed in a Periodic Auction only if the minimum size 
specified can be executed against one or more contra-side orders''), 
but they do not describe how incoming Periodic Auction Eligible Orders 
with minimum size requirements will be handled in initiating Periodic 
Auctions. Because

[[Page 4065]]

Periodic Auction Eligible Orders are eligible to both execute against 
orders on the book or to initiate a Periodic Auction where they would 
execute against a Periodic Auction Order, an incoming order with a 
minimum size requirement creates unique issues related to how to 
calculate executable quantity and determining whether an order should 
be executed or initiate a Periodic Auction, especially where resting 
orders also have minimum size requirements. As such, the Exchange 
believes that it will benefit investors to explain how it intends to 
handle such Minimum Quantity Orders. The Exchange believes that having 
a Periodic Auction Eligible Order entered with a minimum execution 
quantity only initiate a Periodic Auction upon entry where a single 
contra-side Periodic Auction Order would satisfy the specified minimum 
size represents a straightforward approach to managing minimum 
execution quantity that makes the interaction of minimum execution 
quantity more easily understandable and predictable while ensuring that 
the minimum execution quantity will be satisfied if the incoming order 
initiates a Periodic Auction. This proposed change is consistent with 
the protection of investors and the public interest as it would help to 
simplify the minimum execution quantity functionality. As such, the 
Exchange believes that the proposed change to Rule 11.25(b)(2)(C) 
related to Minimum Quantity Orders is consistent with the Act.
IOC Orders
    The Exchange believes that the proposed change to reject Periodic 
Auction Orders that are IOC orders will remove impediments to and 
perfect a national market system by simplifying the Periodic Auction 
process without meaningfully impacting its functionality. Specifically, 
based on industry feedback, the Exchange believes that the majority of 
participants would use RHO orders to initiate or participate in a 
Periodic Auction and would not generally enter IOC orders to 
participate in the Periodic Auction process. Allowing for IOCs to 
participate in Periodic Auctions requires additional development work 
and, because the Exchange believes that there would not at the outset 
be significant interest in using such functionality, the Exchange 
believes that rejecting Periodic Auction Orders that are IOCs would 
simplify the Periodic Auction process without meaningfully impacting 
its practical functionality. Stated another way, the minimal benefits 
that would come from including IOCs at this time are outweighed by the 
cost to implement the functionality and rejecting IOCs would simplify 
the Periodic Auction process. The Exchange also believes that 
eliminating this order instruction is consistent with the public 
interest and the protection of investors given the expected limited 
demand for use of this order instruction upon implementation. As such, 
the Exchange believes that this proposed change is consistent with the 
Act because it is designed to promote just and equitable principles of 
trade and, in general, to protect investors and the public interest 
because it will simplify Periodic Auction functionality without 
meaningfully impacting its utility.
Clean-Up Changes
    Finally, the Exchange believes that making the non-substantive 
clean up changes including changing references to ``Non-Displayed Limit 
Order'' in Rules 11.25(b)(1) and (2) instead read ``non-displayed limit 
order'' and to delete an extra instance of the word ``be'' from Rule 
11.25(b)(3) are consistent with the Act because they are designed to 
promote just and equitable principles of trade and, in general, to 
protect investors and the public interest because the changes are 
designed to make the rules of the Exchange more easily understandable.

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. Rather, the proposed rule 
change would allow the Exchange to make certain clarifying and 
simplifying changes to the Exchange's rules and functionality related 
to Periodic Auctions in a manner consistent with the current Rules (and 
the Approved Proposal), making the Periodic Auction functionality more 
straightforward and transparent prior to implementation. The Exchange's 
Periodic Auction functionality is designed to introduce innovative 
functionality to allow competition and to improve market quality in 
thinly-traded and other securities. The equities industry is fiercely 
competitive as the Exchange must compete with other equities exchanges 
and off-exchange venues for order flow and this proposal will allow the 
Exchange to implement certain simplifying and clarifying changes to its 
Periodic Auction rules and functionality that will allow it to better 
compete in this market.

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.

II. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\28\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(1) of the Act,\29\ which requires that a national 
securities exchange be so organized as to have the capacity to be able 
to (among other things) carry out the purposes of the Act and to comply 
with the provisions of the Act, the rules and regulations thereunder, 
and the rules of the exchange. These changes, including the clean-up 
changes, will allow BYX to continue to be organized to have the 
capacity to be able to comply with its rules. The Commission also finds 
that the clarifications regarding the operation of Periodic Auctions 
are consistent Section 6(b)(5) of the Act,\30\ which requires that the 
proposed rule change be designed to (among other things) 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. 
The Commission believes that the Exchange's effort to help market 
participants' understand how order types will interact and the 
operation of Periodic Auctions is consistent with the protection of 
investors and the public interest.
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    \28\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \29\ 15 U.S.C. 78f(b)(1).
    \30\ 15 U.S.C. 78f(b)(5).
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    Similarly, the Commission finds that the proposal to reject 
Periodic Auction Orders that are IOC, as well as the proposal to permit 
a Periodic Auction Eligible Order entered with a minimum execution 
quantity to initiate a Periodic Auction upon entry only where a single 
contra-side Periodic Auction Order satisfies the specified minimum 
size, are consistent with Section 6(b)(5) of the Act. The rejection of 
Periodic Auction Orders that are IOC should simplify

[[Page 4066]]

Periodic Auctions without negatively affecting their utility and 
therefore the Commission believes this proposal is consistent with the 
protection of investors and the public interest. The Commission 
believes that the new provision that allows a Periodic Auction Eligible 
Order entered with a minimum execution quantity to initiate a Periodic 
Auction upon entry only where a single contra-side Periodic Auction 
Order satisfies the specified minimum size clarifies the operation of 
Periodic Auctions and therefore is consistent with the protection of 
investors and the public interest. Lastly, the Commission finds that 
the Aggressive PAO Change is consistent with Section 6(b)(5) of the 
Act.\31\ The Commission believes that this discrete change may 
incentivize entry of aggressively priced Periodic Auction Only Orders 
and should in this particular circumstance improve the opportunity for 
price improvement for incoming orders, which is consistent with the 
removal of impediments to and perfection of the mechanism of a free and 
open market and a national market system, the promotion of just and 
equitable principles of trade, and the protection of investors and the 
public interest.
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    \31\ As approved by the Approved Proposal, an immediate 
execution will occur where a Periodic Auction Only Order and 
Continuous Book Order are at the same price.
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III. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Exchange 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 [email protected]. Please include 
File Number SR-CboeBYX-2021-024 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-CboeBYX-2021-024. 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-CboeBYX-2021-024, and should be 
submitted on or before February 16, 2022.

IV. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. In Amendment No. 2, the Exchange proposed 
the Aggressive PAO Change in place of a clarification it sought in the 
original proposal. As discussed above, the Aggressive PAO Change is 
consistent with the requirements of the Act,\32\ and does not raise 
novel regulatory issues. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\33\ to approve the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \32\ See supra text following note 31.
    \33\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change, as modified by Amendment No. 2 
(SR-CboeBYX-2021-024), be, and hereby is, approved on an accelerated 
basis.
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    \34\ 15 U.S.C. 78s(b)(2).
    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01465 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P