Document ID: SEC-2018-0335-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2018-02-26T05:00Z

[Federal Register Volume 83, Number 38 (Monday, February 26, 2018)]
[Notices]
[Pages 8306-8308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03787]

[[Page 8306]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82741; File No. SR-CboeEDGX-2018-005]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Modify EDGX Rule 21.1 and Related Functionality Applicable to the 
Exchange's Options Platform

February 20, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 9, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to modify Rule 21.1 of Exchange's 
rules and related functionality applicable to the Exchange's options 
platform (``EDGX Options'') in preparation for the technology migration 
of the Exchange's affiliated options exchanges onto the same technology 
as the Exchange.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts of such 
statements.

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

1. Purpose
    In 2016, the Exchange and its affiliates Cboe BYX Exchange, Inc. 
(``BYX''), Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe BZX Exchange, 
Inc. (``BZX'') received approval to affect a merger (the ``Merger'') of 
the Exchange's then-current indirect parent company, Bats Global 
Markets, Inc., with Cboe Global Markets f/k/a CBOE Holdings, Inc. 
(``Cboe''), the direct parent of Cboe Exchange, Inc. (``Cboe Options'') 
and Cboe C2 Exchange, Inc. (``C2 Options'', and together with the 
Exchange, BZX, and Cboe Options the ``Cboe Affiliated Exchanges'').\5\ 
The Cboe Affiliated Exchanges are working to align certain system 
functionality, retaining only intended differences between the Cboe 
Affiliated Exchanges, in the context of a technology migration. Thus, 
the proposals set forth below are intended to add certain functionality 
to the Exchange's System \6\ that is more similar to functionality 
offered by Cboe Options and C2 Options in order to ultimately provide a 
consistent technology offering for market participants who interact 
with the Cboe Affiliated Exchanges. Although the Exchange intentionally 
offers certain features that differ from those offered by its 
affiliates and will continue to do so, the Exchange believes that 
offering similar functionality to the extent practicable will reduce 
potential confusion for Users.
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    \5\ See Securities Exchange Act Release No. 79585 (December 16, 
2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-2016-68; SR-
BatsBYX-2016-29; SR-BatsEDGA-2016-24; SR-BatsEDGX-2016-60). The 
Exchange notes that BYX and EDGA are also affiliated exchanges but 
do not operate options platforms and thus the integration described 
in this proposal is inapplicable to such exchanges.
    \6\ The ``System'' is the automated trading system used by EDGX 
Options for the trading of options contracts. See Rule 16.1(a)(59).
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    The Exchange is proposing to adopt periodic but relatively minor 
changes to functionality in order to reduce risk in connection with the 
technology migration described above; this proposal is related to one 
such proposed change but is primarily intended to add language to the 
Exchange's rules regarding ports that are referenced in the Exchange's 
fee schedule. Specifically, the Exchange proposes to add language to 
Rule 21.1 to define various types of ports used to submit orders to and 
receive information from the Exchange. In addition, the Exchange 
proposes to modify the operation of bulk order entry ports, as 
described below.
Port Definitions
    The Exchange currently provides access to EDGX Options to Users \7\ 
through various ports. These ports have been previously described in 
multiple filings submitted by the Exchange \8\ and are referenced on 
the Exchange's fee schedule. However, the Exchange has not previously 
maintained any language in its rules related to such ports. The 
Exchange proposes to add language to Rule 21.1 to provide additional 
clarity in the Exchange's rules and to accommodate changes to the rules 
of other Cboe Affiliated Exchanges that refer to analogous, but 
different, concepts to describe the technology used to describe system 
access.\9\
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    \7\ The term ``User'' means any Options Member or Sponsored 
Participant who is authorized to obtain access to the Exchange's 
System (as defined below) pursuant to Rule 11.3. See Rule 
16.1(a)(63).
    \8\ See Securities Exchange Act Release Nos. 82064 (November 13, 
2017), 82 FR 54442 (November 17, 2017) (SR-BatsEDGX-2017-46) 
(modifying and describing fees for physical ports on an immediately 
effective basis); 76453 (November 17, 2015), 80 FR 72999 (adopting 
initial fees for EDGX Options, including description of logical 
ports and bulk order entry ports to be provided free of charge, on 
an immediately effective basis).
    \9\ For instance, C2 Options Rules refer to logins as the 
mechanism through which a participant on C2, or Trading Permit 
Holder (``TPH''), can access C2. See, e.g., C2 Options Rule 6.17(g)-
(i), which describes various risk controls that can restrict access 
to the Exchange acronym (i.e., the letters used to identify the TPH) 
or the login level (i.e., the equivalent of the port level).
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    The Exchange proposes to define three different types of ports, 
specifically, physical ports, logical ports, and bulk order ports. The 
Exchange notes that bulk order ports is a type of logical port and that 
there are other types of logical ports that are not specifically 
identified in the proposed rule. The Exchange believes that a separate 
definition is warranted for bulk order ports given the specific 
functionality provided through such ports but that the other types of 
logical ports are sufficiently described in the proposed definition of 
logical port.
    The Exchange proposes to define a ``physical port'' as a port that 
provides a physical connection to the System. The Exchange also 
proposes to note that a physical port may provide access to multiple 
logical ports.
    The Exchange proposes to define a ``logical port'' or ``logical 
session'' as a port that provides Users with the ability within the 
System to accomplish a specific function through a connection,

[[Page 8307]]

such as order entry, data receipt, or access to information.
    The Exchange proposes to define a ``bulk order port'' as a logical 
port that provides Users with the ability to submit bulk messages to 
enter, modify or cancel orders designated as Post Only Orders, provided 
such orders are entered with a Time-in-Force of Day or GTD with an 
expiration time on that trading day. The Exchange does not currently 
limit bulk order ports to Post Only Orders and further describes this 
proposed limitation below.
Modification to Operation of Bulk Order Entry Ports
    In addition to codifying the three types of ports in the Exchange's 
Rules, as set forth above, the Exchange proposes to restrict the type 
of messages that may be submitted through bulk order ports to orders 
submitted as Post Only Orders with a Time-in-Force of Day or a Time-in-
Force of GTD with an expiration time on that trading day. Post Only 
Orders are defined in Rule 21.1(d)(8) as ``orders that are to be ranked 
and executed on the Exchange pursuant to Rule 21.8 (Order Display and 
Book Processing) or cancelled, as appropriate, without routing away to 
another options exchange except that the order will not remove 
liquidity from the EDGX Options Book.'' Rule 21.1(d)(8) further 
provides that ``[a] Post Only Order that is not subject to the Price 
Adjust process that would lock or cross a Protected Quotation of 
another options exchange or the Exchange will be cancelled.'' The Time-
in-Force of DAY is defined in Rule 21.1(f)(3) to mean, ``for an order 
so designated, a limit order to buy or sell which, if not executed 
expires at market close.'' The Time-in-Force of GTD is defined in Rule 
21.(f)(1) to mean ``for orders so designated, that if after entry into 
the System, the order is not fully executed, the order (or the 
unexecuted portion thereof) shall remain available for potential 
display and/or execution for the amount of time specified by the 
entering User unless canceled by the entering party.'' In sum, Post 
Only Orders with a Time-in-Force of Day or GTD are orders that will be 
posted to and displayed by the Exchange, rather than removing liquidity 
or routing to another options exchange. As noted above, the Exchange 
proposes to limit the acceptable messages with the time in force of GTD 
to orders with an expiration time on the applicable trading day.
    As a general matter, and as further described below, the proposed 
change is intended to limit the use of bulk order ports to liquidity 
provision, particularly by, but not limited to, market makers 
registered with the Exchange. In turn, the Exchange believes it 
unnecessary to allow orders entered via bulk order entry ports to be 
able to last beyond the trading day on which they were entered. The 
Exchange notes that while, as a general matter, bulk order entry 
provides an efficient way for a market participant to conduct business 
on the Exchange by allowing the bundling of multiple instructions in a 
single message, the main purpose of such functionality has always been 
to encourage quoting on exchanges.\10\
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    \10\ For instance, when initially adopted by the Exchange's 
affiliate, BZX, bulk order entry was described as a ``bulk-quoting 
interface'' and such functionality was limited to BZX market makers. 
See Securities Exchange Act Release No. 65133 (August 15, 2011), 76 
FR 52032 (August 19, 2011) (SR-BATS-2011-029). Bulk quoting was 
shortly thereafter expanded to be available to all participants on 
BZX's options platform but the focus remained on promoting liquidity 
provision on the Exchange, even though the types of messages 
permitted were not limited to liquidity providing orders. See 
Securities Exchange Act Release No. 65307 (September 9, 2011), 76 FR 
57092 (September 15, 2011) (SR-BATS-2011-034).
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    The Exchange proposes this change in order to provide functionality 
that is more similar to quoting functionality available on Cboe Options 
and C2 Options. In particular, the Exchange has never differentiated 
between a quote or an order on entry. Rather, Users submit orders to 
the Exchange regardless of the capacity of the order (i.e., customer, 
market-maker or other non-market-maker professional) and regardless of 
the intended result from submitting such order (e.g., to remove 
liquidity, post and display liquidity on the Exchange, route to another 
market, etc.). Of course, an order that is posted and displayed on the 
Exchange is a quotation and the Exchange does maintain various 
requirements regarding quotations and quoting on the Exchange; the 
Exchange, however, reiterates that in order to quote on the Exchange a 
User submits an order. In contrast, Cboe Options and C2 Options 
distinguish between orders and quotes, with quotes being required of 
and only available to registered market makers.\11\ While the Exchange 
does not propose to limit bulk order entry functionality to registered 
market makers on the Exchange, as such a change would remove access to 
functionality currently available to all Exchange Users, the Exchange 
does propose to limit the type of messages that may be submitted 
through bulk order entry ports in order to mimic the quoting 
functionality offered by Cboe Options and C2 Options.
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    \11\ See Cboe Rule 1.1(ooo), C2 Rule 1.1 (defining ``quote'' or 
``quotation'' as ``a bid or offer entered by a Market-Maker that is 
firm and that updates the Market-Maker's previous quote, if any'').
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. In particular, consistent rules and functionality between the 
Exchange and its affiliated exchanges will reduce complexity and help 
avoid potential confusion by the Users of the Exchange that are also 
participants on other Cboe Affiliated Exchanges.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed amendment will reduce complexity 
and increase the understanding of the Exchange's operations for all 
Users of the Exchange. In particular, the Exchange is promoting 
transparency by adopting definitions within Rule 21.1 to describe 
various ports used to access the Exchange that are currently described 
on the Exchange's fee schedule and in filings previously made by the 
Exchange.\14\ In turn, when Cboe Options and C2 Options are migrated to 
the same technology as that of the Exchange, Users of the Exchange and 
other Cboe Affiliated Exchanges will have access to similar 
functionality on all Cboe Affiliated Exchanges and similar language can 
be incorporated into the rules of all Cboe Affiliated Exchanges. As 
such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system.
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    \14\ See supra, note 8.
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    The Exchange further believes that the proposed modification to the 
operation of bulk order entry ports such that only Post Only Orders 
with a time in force of DAY or GTD may be entered, modified or 
cancelled through such ports will protect investors and the public 
interest and maintain fair and orderly markets by offering specific 
functionality through which Users can submit orders that will result in 
quotations on the Exchange. In particular, the options markets are 
quote driven markets dependent on liquidity providers to an even 
greater extent than equities

[[Page 8308]]

markets. In contrast to the approximately 7,000 different securities 
traded in the U.S. equities markets each day, there are more than 
500,000 unique, regularly quoted option series. Given this breadth in 
options series the options markets are more dependent on liquidity 
providers than equities markets; such liquidity is provided most 
commonly by registered market makers but also by other professional 
traders. As such, the Exchange believes maintaining specific 
functionality to maintain quotations on the Exchange through bulk order 
entry ports will protect investors and the public interest and the 
maintenance of fair and orderly markets by ensuring that an efficient 
process to enter and update quotations is available to Exchange Users. 
The Exchange also believes this is reasonable and is necessary to 
afford the Exchange the ability to establish a marketplace that 
operates more similar to the existing Cboe and C2 options exchanges, 
which are quote-based markets.

(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 notes that the 
proposal will further promote consistency between the Exchange and its 
affiliated exchanges, and is part of a larger technology integration 
that will ultimately reduce complexity for Users of the Exchange that 
are also participants on other Cboe Affiliated Exchanges. The Exchange 
does not believe that the proposed changes will have any direct impact 
on inter-market competition. The Exchange does not believe that 
restricting bulk order entry ports to orders that will be displayed as 
quotations will impose any burden on intra-market competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
In particular, while the Exchange believes it could be appropriate to 
propose to limit such functionality to registered market makers, the 
Exchange has not proposed such limitation at this time. As such, bulk 
order entry functionality will still be available to all Users of the 
Exchange, as it is today.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and the text of 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2018-005 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-CboeEDGX-2018-005. 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-CboeEDGX-2018-005 and should be 
submitted on or before March 19, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03787 Filed 2-23-18; 8:45 am]
 BILLING CODE 8011-01-P