Document ID: SEC-2019-0274-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2019-03-13T04:00Z

[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Notices]
[Pages 9183-9189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04561]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85267; File No. SR-CboeEDGX-2019-007]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Bats Auction Mechanism (``BAM'')

March 7, 2019.
    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 March 5, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend the Bats Auction Mechanism (``BAM''). 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/options/regulation/rule_filings/edgx/), 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.

[[Page 9184]]

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

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(``Cboe Global''), which is the parent company of Cboe Exchange, Inc. 
(``Cboe Options'') and Cboe C2 Exchange, Inc. (``C2''), acquired the 
Exchange, Cboe EDGA Exchange, Inc. (``EDGA''), Cboe BZX Exchange, Inc. 
(``BZX or BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, 
together with C2, Cboe Options, the Exchange, EDGA, and BZX, the ``Cboe 
Affiliated Exchanges''). 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. Cboe Options intends to migrate its technology to the same 
trading platform used by the Exchange, C2, and BZX Options in the 
fourth quarter of 2019. The proposal set forth below is intended to add 
certain functionality to the Exchange's System that is available on 
Cboe 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.
    The proposed rule change amends Rule 21.19 related to BAM, which 
the proposed rule change renames as the Automated Improvement Mechanism 
(``AIM''). This is the name of the corresponding price improvement 
auction mechanism on Cboe Options, and the proposed rule change will 
refer to the Exchange's auction process as AIM.\5\
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    \5\ See Cboe Options Rule 6.74A. The proposed rule change also 
replaces the reference to BAM with AIM in Rule 22.12(c).
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    The proposed rule change will permit the Initiating Order to 
consist of one or more solicited orders. This will accommodate multiple 
contra-parties and increase the opportunities for customer orders to be 
submitted into an AIM Auction with the potential for price improvement, 
since the Initiating Order must stop the full size of the Agency Order. 
This has no impact on the execution of the Agency Order, which may 
already trade against multiple contra-parties depending on the final 
auction price, as set forth in proposed paragraph (e). This proposed 
change is consistent with Cboe Options AIM functionality.\6\
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    \6\ See Cboe Options Regulatory Circular RG17-074 (May 19, 
2017); see also NASDAQ ISE, LLC (``ISE'') Rule 723(b).
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    The proposed rule change adopts a Sweep and AIM order, which is the 
submission of two orders for crossing in an AIM Auction with a stop 
price that does not need to be within the BBO and where the Exchange 
sweeps all Protected Quotes, as defined in Rule 27.1, by routing one or 
more ISOs, as necessary, to execute against the full displayed size of 
any Protected Quote with a price better than the stop price, as well as 
sweep all interest in the EDGX Options Book with a price better than 
the stop price simultaneously with the commencement of the AIM Auction. 
Any execution(s) resulting from these sweeps accrue to the Agency 
Order.\7\ This proposed order is consistent with the current BAM ISO 
functionality,\8\ except the Exchange will route the ISOs on behalf of 
the User rather than requiring the User to route the ISOs itself. 
Additionally, the proposed rule change is consistent with Cboe Options 
functionality.\9\ This proposed order type will provide Users with an 
additional, efficient method to initiate an AIM while preventing trade-
throughs.
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    \7\ In other words, any contracts executed at an away exchange 
would count as execution against the Agency Order (and thus reduce 
the size of the Agency Order available for execution during an AIM 
Auction). This is consistent with how ISOs work for all order types.
    \8\ See current Rule 21.19(b)(6) and proposed Rule 
21.19(b)(3)(A); see also Cboe Options Rule 6.53(q).
    \9\ See Cboe Options Rule 6.53(r).
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    The proposed rule change clarifies that if an Initiating Member 
submits an AIM Sweep or Sweep and AIM order, the stop price may be 
inferior to the Initial NBBO, but is still subject to the price 
improvement requirement in proposed subparagraph (b)(1)(A). In other 
words, while AIM Sweep and Sweep and AIM orders permit an Initiating 
Member to stop an Agency Order at a price inferior to the NBBO at the 
time it submits the Agency Order to an AIM Auction, the Initiating 
Member must still comply with the price-improvement requirement for 
smaller-sized orders if the width of the NBBO is $0.01. For example, if 
an Initiating Member submits an Agency Order to buy for 20 contracts as 
a Sweep and AIM with a stop price of 1.01 when the NBBO is 1.00 x 1.01, 
the System rejects the Agency Order (and the Initiating Order). Note if 
the Initiating Member instead submitted an AIM Sweep, the Exchange 
initiates an AIM, because the Initiating Member is responsible for 
submitting the ISO and the System cannot confirm that the NBBO width 
will ultimately be $0.01. However, the Initiating Member is still 
responsible for complying with the price-improvement requirement for 
smaller-sized orders if the width of the resulting NBBO following 
execution of the ISO is $0.01.
    Proposed Rule 21.19(e)(1) provides that the Initiating Order 
allocation percentage is based on the number of contracts remaining of 
the Agency Order after execution against Priority Customer orders 
rather than the initial size of the Agency Order. This ensures the size 
used to determine the allocation percentage for the Initiating Order 
will be based on the same number of contracts that would otherwise be 
available to other contra-side interest. The proposed rule change is 
the same as the rules of other options exchanges.\10\
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    \10\ See, e.g., ISE Rule 723(d)(2) and MIAX Rule 515A, 
Interpretation and Policy .11.
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    Additionally, pursuant to current Rule 21.19(b)(1)(A), the 
Initiating Member may receive an allocation up to 50% of the Agency 
Order if there interest from one other User at the stop price or 40% of 
the Agency Order if there is interest from two or more other Users at 
the stop price. Pursuant to proposed Rule 21.19(e)(1)(B), the 
Initiating Order may receive an allocation up to the greater of one 
contract or such percentage. If the Agency Order is small, it is 
possible that the Initiating Order may receive no contracts due to 
rounding. For example, if the Agency Order is for two contracts, and at 
the end of the AIM Auction there is a Priority Customer order for one 
contract at the final auction price and two other participants at the 
final auction price, allocation would be as follows (based on the 
proposed change above that the allocation percentage is based on the 
number of contracts remaining after execution against Priority Customer 
orders), the Initiating Order would receive zero contracts (40% of the 
one remaining contract after execution against the Priority Customer 
order contract, which is 0.4 that gets rounded down to zero), and the 
remaining contra-interest would receive the final contract. This 
proposed change will ensure that the Initiating Order will receive at 
least a partial execution in an AIM Auction of a small order, and thus 
continue to incentive Options Members to submit customer orders into 
AIM auctions for potential price improvement. This is also consistent 
with current AIM priority, which provides that the Initiating Order has 
priority over non-Priority Customer

[[Page 9185]]

orders. This proposed change is the same as other options 
exchanges.\11\
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    \11\ See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and Miami 
International Securities Exchange, LLC (``MIAX'') Rule 
515A(a)(2)(iii)(H).
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    Additionally, the proposed Sweep and AIM order described above 
provides that the paired orders submitted as a Sweep and AIM order may 
not both be for the accounts of Priority Customers.\12\ Unlike an AIM 
ISO (for which the Initiating Member sends an ISO),\13\ the Exchange 
sends the ISO for a Sweep and AIM order and then receives the fill 
report for the ISO during the AIM Auction period, so it knows by the 
end of the AIM Auction how much of the Agency Order is left for 
execution against contra-interest on the Exchange. If both orders were 
for Priority Customers, they would immediately cross pursuant to 
paragraph (f) (as described below), prior to the Exchange receiving 
information regarding the size of any executions on away exchanges (and 
thus prior to knowing the NBBO that price of the immediate cross should 
have traded through). Not permitting pairs of Priority Customer orders 
to be submitted as Sweep and AIM orders ensures that the Agency Order 
is not oversubscribed, which can be prevented if there is an AIM 
Auction period, and that the immediate cross occurs at a price at or 
better than the NBBO. Users can submit these pairs of orders through 
the AIM Auction process. The Exchange believes there is minimal demand 
to submit pairs of Priority Customer orders as Sweep and AIM orders.
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    \12\ See proposed Rule 21.19(b)(3)(B).
    \13\ Users are responsible for sending the ISO order for an AIM 
ISO, and thus the Exchange does not need to wait for a fill report 
for the ISO. Because it is a User's responsibility to send the ISO, 
and thus account for any executions resulting from that ISO at away 
exchanges (and the resulting NBBO), the proposed rule change does 
not prohibit pairs of Priority Customer orders to be submitted as an 
AIM ISO. However, the Exchange believes there is minimal demand for 
use of this order type for pairs of Priority Customer orders.
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    Current Rule 21.19(c)(2) (and proposed paragraph (f)) provides that 
the System does not initiate a Customer-to-Customer AIM Immediate Cross 
if there is a resting Priority Customer order on the same side and at 
the same price as the Agency Order, and instead cancels the Agency 
Order and Initiating Order. However, current subparagraph (c)(3) will 
initiate an AIM Auction if the resting Priority Customer order is on 
the opposite side and at the same price as the Agency Order. Pursuant 
to the proposed rule change, the System will also cancel the Agency 
Order and Initiating Order in this situation rather than initiate the 
auction process. The Exchange believes it is appropriate to cancel in 
this situation, as that will ensure the Agency Order will not trade at 
the same price as a resting Priority Customer. This is consistent with 
the provision in proposed subparagraph (f)(1), which states a Customer-
to-Customer AIM Immediate Cross may not occur at the same price as any 
Priority Customer resting on the EDGX Options Book. This is the same as 
Cboe Options functionality.\14\
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    \14\ See Cboe Options Rule 6.74A, Interpretation and Policy .08.
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    The proposed rule change also makes various clarifications in, and 
nonsubstantive changes to, Rule 21.19, including the following:
     The definition of ``Initiating Member'' moves from current 
paragraph (a) to the introductory paragraph, where the first reference 
to the submitting Options Member is first used.
     The restriction that a solicited order cannot be for the 
account of any Options Market Maker registered in the applicable series 
on the Exchange moves from current paragraph (a)(6) to the introductory 
paragraph.
     The provision that all options traded on the Exchange are 
eligible for AIM moves from current paragraph (a) to proposed 
subparagraph (a)(1).
     The requirement that the Initiating Member mark the Agency 
Order for AIM processing moves from current paragraph (b)(1)(A), which 
relates to the Auction process, to proposed subparagraph (a)(2), as 
this is a requirement to initiate an Auction rather than being a part 
of the Auction process.
     Proposed paragraph (a)(3) states there is no minimum size 
for Agency Orders, and that the Initiating Order must be for the same 
size as the Agency Order. This is consistent with current 
functionality, as the current rule states Agency Orders may have size 
smaller than and greater than 50 contracts, and states the Initiating 
Member must stop the entire Agency Order.\15\
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    \15\ See current Rule 21.19(a)(1); see also Cboe Options Rule 
6.74A, Interpretation and Policy .03.
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     Proposed paragraph (a)(4) states the minimum increment for 
the Agency Order and Initiating Order is $0.01. This is consistent with 
current subparagraph (a)(1), except the proposed rule change eliminates 
Exchange flexibility to change the increment, as the Exchange does not 
intend to increase the minimum increment.
     The provision that states an Initiating Member may not 
submit an Agency Order if the NBBO is crossed moves from current 
subparagraph (a)(5) to proposed subparagraph (a)(6). The proposed rule 
change adds this does not apply in the case of an AIM ISO or Sweep and 
AIM order, consistent with the definitions of those two terms.
     Proposed subparagraph (a)(5) states an Initiating Member 
may not designate an Agency Order or Initiating Order as Post Only. 
This is consistent with current functionality, and the proposed rule 
change is merely clarifying this in the Rules. The Exchange believes 
this is appropriate, as the purpose of a Post Only order is to not 
execute upon entry and instead rest in the EDGX Options Book, while the 
purpose of an AIM Auction is to receive an execution following the 
auction but prior to entering the EDGX Options Book.
     The provisions that require the stop price be at least 
$0.01 better than the NBBO if the Agency Order is for less than 50 
option contracts, and at or better than the NBBO in all other 
situations (if the Agency Order is for 50 contracts or more, or the NBO 
width is greater than $0.01) moves from current subparagraph (a)(1) to 
proposed subparagraph (b)(1), as proposed paragraph (b) contains all 
provisions regarding the price of the Agency and Initiating Orders.\16\ 
The proposed rule change makes no substantive change to these price 
requirements.
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    \16\ The proposed rule change clarifies the size requirements 
for mini-option contracts, which are \1/10\th the size of standard 
option contracts. This is consistent with current functionality and 
is merely adding detail to the rule. See Rule 19.6, Interpretation 
and Policy .07 (which permits the listing of mini-options); see also 
Cboe Options Rule 6.74A(a)(3).
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     The provisions that require the stop price be at least 
$0.01 better than an order (including a Priority Customer order) at the 
EDGX BBO on the same side as the Agency Order or at or better than a 
non-Priority Customer order at the EDGX BBO on the same side as the 
Agency Order if the Agency Order is a Priority Customer order (and the 
Priority Customer overlay applies) moves from current paragraph (a)(2) 
to proposed paragraph (b)(2), as proposed paragraph (b) contains all 
provisions regarding the price of the Agency and Initiating Orders. The 
proposed rule change makes no substantive change to these price 
requirements.
     The provisions that state an Agency Order must satisfy all 
of the eligibility and price requirements are moved from various 
locations in the rule, including current subparagraphs (a)(4) and 
(a)(5), to proposed paragraphs (a) and (b). This also clarifies which 
requirements must be met in order for an Agency Order to be accepted 
and initiate an AIM Auction.

[[Page 9186]]

     The proposed rule change simplifies current subparagraph 
(b)(1)(A) (and proposed subparagraph (b)(4)) regarding the instructions 
an Initiating Member must specify regarding the prices at which it is 
willing to trade with the Agency Order. The proposed rule change makes 
no substantive changes to these provisions.
     The provision regarding the submission of ISOs to BAM 
moves from current subparagraph (b)(6) to proposed subparagraph 
(b)(3)(A). These orders are renamed as AIM Sweep orders or AIM ISO 
orders. This is consistent with an AIM Sweep Order in Cboe Options Rule 
6.53(q), as well as current functionality. The proposed rule change 
merely adds detail regarding how these orders work (substantively the 
same as the Cboe Options definition of an AIM Sweep Order). The 
functionality for these orders is not changing.
     The provision regarding concurrent AIM Auctions moves from 
current subparagraph (a)(3) and Interpretation and Policy .04 to 
proposed subparagraph (c)(1). The proposed rule change makes no 
substantive changes to the provisions regarding concurrent AIM 
Auctions.
     The provision that does not permit the Agency Order to be 
modified or cancelled after the Initiating Member submits the Agency 
Order to an AIM Auction moves from current subparagraph (b)(1)(A) to 
proposed paragraph (c)(4).
     Proposed subparagraph (c)(5) clarifies that an AIM 
response may only participate in the AIM Auction with the Auction ID 
specified in the response. This is consistent with the requirement that 
a response identify the Auction to which it is being submitted and 
consistent with current functionality. The proposed rule change is 
merely adding this detail to the rule.
     The provision that states AIM responses will not be 
visible to Auction participants or disseminated to OPRA moves from 
current subparagraph (b)(1)(F) to proposed subparagraph (c)(5)(H).
     Current subparagraph (b)(1)(L) is deleted and replaced by 
proposed subparagraph (c)(5)(B), which states AIM responses that cross 
the Initial NBBO are capped at the Initial NBO on the same side as the 
Agency Order and $0.01 better than the EDGX BBO on the same side as the 
Agency Order if the EDGX BBO is represented by a Priority Customer on 
the EDGX Options Book (unless the Agency Order is an AIM ISO or Sweep 
and AIM). The System will execute AIM responses, if possible, at the 
most aggressive permissible price not outside the NBBO. This is 
consistent with current subparagraph (L), except clarifies that the 
System does accept AIM responses that cross the Initial NBBO (the 
current provision states responses cannot cross the NBBO, so the 
proposed rule change clarifies such responses would not be rejected) 
but capped and executed within the Initial NBBO (which is consistent 
with the current provision that states these responses will execute at 
the most aggressive permissible price).
     The provisions that state an AIM response is capped at the 
size of the Agency Order moves from current subparagraph (b)(1)(H) and 
(I) to proposed subparagraph (c)(5)(D).
     The provision that states AIM responses may be aggregated 
clarifies that these are aggregated by User by EFID. This is consistent 
with current functionality and is adding this detail to the Rule 
regarding how the System aggregates this interest.
     The provision that states AIM responses may not be 
designated as FOK or IOC moves form current subparagraph (b)(1)(K) to 
proposed subparagraph (c)(5)(G).
     The provision that states AIM responses may be modified or 
cancelled during an Auction moves from current subparagraph (b)(1)(J) 
to proposed subparagraph (c)(5)(I).
     Pursuant to proposed subparagraph (e)(6), the System 
cancels or rejects any unexecuted AIM response (or unexecuted portions) 
at the conclusion of the AIM Auction. This is consistent with current 
subparagraph (b)(5). However, currently, the System immediately rejects 
AIM responses if they are not executable based on the price of the 
Auction. The Exchange believes it is appropriate to cancel all 
unexecuted AIM responses, regardless of whether they are marketable, at 
the same time at the conclusion of the Auction. This has no impact on 
the allocation of an AIM Auction, as responses that are not marketable 
at the beginning of an AIM Auction will also be unmarketable at the 
conclusion of an AIM Auction and be cancelled. The proposed rule change 
merely changes the time at which these unmarketable responses are 
cancelled.
     Proposed paragraph (c)(5) specifies when the System will 
reject AIM responses if they do not meet the specified criteria and are 
obviously wrong (such as being in the wrong increment or on the wrong 
side). This is consistent with current functionality, and the proposed 
rule change is adding this detail to the rule.
     Current subparagraph (b)(2)(B), which is proposed 
subparagraph (d)(1)(B), is clarified to state that the Auction will 
conclude upon receipt of a Priority Customer order on the same side as 
the Agency Order if the price of the Priority Customer order is at or 
better than the stop price. This is consistent with current 
functionality, as in both cases it would otherwise cause a Priority 
Customer Order to be posted on the EDGX Options Book with a price 
better than the stop price. The proposed rule change is adding this 
detail to the rule.
     The provisions regarding allocation when an Initiating 
Member selects Last Priority moves from current subparagraph (b)(1)(B) 
to proposed subparagraph (e)(5). Proposed paragraph (e) contains all 
provisions related to the allocation of the Agency Order. The proposed 
rule change makes no substantive changes to the application of Last 
Priority. The proposed rule change deletes current subparagraph 
(b)(1)(B)(ii), which states Last Priority will not be applied if both 
the Initiating Order and the Agency Order are Priority Customer orders. 
Because paired orders with a Priority Customer on both sides (Agency 
and Initiating) are immediately crossed pursuant to current paragraph 
(c) and proposed paragraph (f), Last Priority would never apply since 
there is no allocation order for such immediate crosses. Therefore, 
current subparagraph (b)(1)(B)(ii) is unnecessary.
     The proposed rule change moves all provisions regarding 
allocation of the Agency Order (including from current subparagraphs 
(b)(1)(A) and (B) and (b)(4)(B)) to proposed paragraph (e). The 
proposed rule change sets forth the exact order in which the Agency 
Order will be allocated to contra-side interest when there is no price 
improvement, when there is price improvement with a single-price 
submission, and when there is price improvement with auto-match. Except 
as discussed above, the proposed rule change makes no substantive 
changes to the order in which the Agency Order is allocated to contra-
side interest. The Exchange believes this clarifies the allocation and 
priority provisions at the end of an AIM Auction.
     The proposed rule change adds detail regarding when the 
nondisplayed portions of Reserve Orders will trade against the Agency 
Order. Specifically, proposed subparagraphs (e)(2) and (3) provides 
that the nondisplayed Reserve Quantity will trade against the Agency 
Order at each price level better than the final auction price, after 
all displayed quantity at each price level (and after the Initiating 
Order if auto-match was selected). This is consistent with Rule 
21.8(l), which provides that displayed

[[Page 9187]]

orders have priority over nondisplayed orders, and that customer 
nondisplayed orders trade ahead of non-customer nondisplayed orders (if 
the Customer Overlay has been applied). This is consistent with current 
priority principles and functionality, and the proposed rule change is 
adding this detail to the Rules. The Exchange believes this is 
appropriate, as it ensures all interest (including nondisplayed 
interest) at a better price than the final auction price will trade 
against the Agency order (and thus provide maximum opportunity for 
price improvement), while encouraging the submission of displayed 
orders, as nondisplayed interest at the final auction price will not 
trade, as remaining interest at the final auction price will trade 
against the Initiating Order. The one exception to this is, as provided 
in proposed subparagraph (e)(5), if the Initiating Member selects last 
priority, any nondisplayed interest at the final auction price will 
trade ahead of the Initiating Order, which is consistent with the 
Initiating Member's intentions by submitting the request for last 
priority.
    The proposed rule change makes certain rule language plain English, 
updates cross-references as necessary, and inserts defined terms as 
appropriate.
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.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
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    In particular, the proposed rule change to permit the Initiating 
Order to be comprised of multiple contra-party orders will benefit 
investors, because it may increase the opportunity for customers to 
have orders participate in an AIM auction. As a result, this would 
increase opportunities for price improvement, because this will 
increase the liquidity available for the Initiating Order, which is 
consistent with the purpose of AIM Auctions. The Exchange believes that 
this will be beneficial to participants because allowing multiple 
contra-parties should foster competition for filling the Initiating 
Order and thereby result in potentially better prices, as opposed to 
only allowing one contra-party and, thereby requiring that contra-party 
to do a larger size order which could result in a worse price for the 
trade. The proposed rule change is also based on rules of other options 
exchanges.\20\
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    \20\ See, e.g., Cboe Options Rule 6.74A and Regulatory Circular 
RG17-074 (May 19, 2017); and ISE Rule 723(b).
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    The proposed Sweep and AIM order type is similar to current AIM ISO 
functionality, except the Exchange will route the ISO orders on behalf 
of the Initiating Member rather than require the Initiating Member to 
separately route ISO orders. This will benefit investors and remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, as it will provide Users with an additional, 
efficient method to initiate an AIM while preventing trade-throughs. 
The proposed rule change is also based on the rules of another options 
exchange.\21\
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    \21\ See, e.g., Cboe Options Rule 6.53(r).
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    The proposed rule change to provide that the Initiating Order will 
be allocated the greater of one contract or the specified percentage 
will ensure that the Initiating Order will receive at least a partial 
execution in an AIM Auction of a small order. This will incentive 
Options Members to continue submit customer orders into AIM auctions 
for potential price improvement, which ultimately benefits investors. 
This proposed change is the same as other options exchanges.\22\
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    \22\ See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and MIAX Rule 
515A(a)(2)(iii)(H).
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    The proposed rule change to provide that the Initiating Order's 
percentage allocation will be based on the number of contracts 
remaining after the Agency Order executes against Public Customer 
orders will promote just and equitable principles of trade, as it 
ensures the size used to determine the allocation percentage for the 
Initiating Order will be based on the same number of contracts that 
would otherwise be available to other contra-side interest. It is also 
the same as other options exchanges.\23\
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    \23\ See, e.g., ISE Rule 723(d)(2); and MIAX Rule 515A, 
Interpretation and Policy .11. While this functionality is not 
specified in Cboe Options Rule 6.74A, it is the Exchange's 
understanding this proposed rule change is consistent with Cboe 
Options functionality.
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    The proposed rule change to not immediately cross a pair of orders 
for customer accounts at the same price as any Priority Customer order 
resting on the EDGX Options Book, and to cancel an Agency Order if 
there is a Priority Customer order resting on the opposite side of the 
market at the same price (as currently occurs if there is a Priority 
Customer order resting on the same side of the market at the same 
price), will protect customer orders that enter the EDGX Options Book. 
This proposed rule change is the same as the rules of another options 
exchange.\24\ The Exchange believes it promotes just and equitable 
principles of trade to limit immediate crosses without auctions only 
when there are no Priority Customer orders resting on the Book, as that 
is consistent will protect Priority Customer orders on the book, which 
may then have opportunities to trade against Agency Orders. The 
Exchange similarly believes it will protect investors by rejecting 
Sweep and AIM orders with pairs of orders for customer accounts, as 
this will ensure customers will receive better prices at least as good 
as the Initial NBBO and not oversubscribe the Agency Order. The 
Exchange does believes there is minimal demand for use of Sweep and AIM 
orders for pairs of Priority Customer orders.
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    \24\ See Cboe Options Rule 6.74A, Interpretation and Policy .08.
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    The proposed clarifications and nonsubstantive changes will benefit 
investors, as they provide additional detail and transparency to the 
rules regarding the AIM Auction process, including the AIM eligibility 
requirements, AIM response parameters, and allocation of the Agency 
Order following an AIM Auction. This includes the proposed 
clarification that an Initiating Member may not designate an Agency 
Order or Initiating Order as Post Only. This clarification protects 
investors, because provides transparency regarding functionality that 
is not available on BAM today. The Exchange believes this is 
appropriate, as the purpose of a Post Only order is to not execute upon 
entry and instead rest in the EDGX Options Book, while the

[[Page 9188]]

purpose of submitting orders to an AIM Auction is to receive an 
execution following the auction and not to have those orders enter the 
EDGX Options Book. Pursuant to current and proposed Rule 21.19, an 
Agency Order will fully execute against contra-side interest (possibly 
including the Initiating Order, which must be for the same size as the 
Agency Order, and thus there cannot be remaining contracts in an Agency 
Order to enter the EDGX Options Book if there is an execution following 
a BAM/AIM Auction). This proposed clarification is not changing current 
functionality, and the Post Only designation is not available to any 
Initiating Member for Agency Orders and Initiating Orders.
    The proposed clarification that provides an AIM response that 
crosses the Initial NBBO is capped at the Initial NBBO on the same side 
as the Agency Order and $0.01 better than the EDGX BBO on the same side 
as the Agency Order if the EDGX BBO is represented by a Priority 
Customer on the EDGX Options Book (unless the Agency Order is an AIM 
ISO or Sweep and AIM), and that an AIM response will execute, if 
possible, at the most aggressive permissible price not outside the 
Initial NBBO protects investors, because it adds detail to the rules 
regarding current functionality. Current Rule 21.19 may imply the 
System may not accept responses that cross the Initial NBBO. However, 
because responses are a source of liquidity and potential price 
improvement, the Exchange believes it is appropriate to instead accept 
these responses and cap them at the Initial NBBO. This promotes just 
and equitable principles of trade, because it is consistent with the 
requirement that the stop price (which is the minimum price at which 
the Agency Order may execute) must be at or better than the Initial 
NBBO, and will ensure the execution price does not cross the Initial 
NBBO in accordance with linkage rules. This proposed clarification is 
not changing current functionality, and this functionality applies in 
the same manner to the responses of all Users.
    The proposed clarification to state that the stop price 
requirements that apply to Agency Orders for less than 50 standard 
option contracts and to Agency Orders for 50 standard option contracts 
or more similarly apply to the corresponding number of mini-option 
contracts (i.e., 500 mini-option contracts) protects investors, because 
it is consistent with current functionality. Rule 19.6, Interpretation 
and Policy .07 permits the listing of mini-options, which is an option 
with a 10 share deliverable of the underlying security rather than 100 
share deliverable of the underlying security (which is the standard 
deliverable for a standard option contract). The proposed change to 
state that 50 standard option contracts is consistent with 500 mini-
option contracts is consistent with this definition of mini-options. 
This provides transparency to investors that AIM functionality and the 
potential for price improvement is available to Agency Orders for mini-
options as well as standard options. The proposed clarification also 
promotes fair and equitable principles of trade, because the volume 
restrictions apply in the same manner to an equivalent number of 
contracts in a standard option and a mini-option. This proposed 
clarification does not impose any significant burden on competition, as 
it applies in the same manner to all Agency Orders and is also the same 
as Cboe Options Rule 6.74A(a)(3).
    Additionally, these proposed changes reorganize Rule 21.19 so that 
all provisions related to the same part of the auction process and 
located in the same part of the rule. These proposed changes have no 
impact on how the AIM Auction will work, as they are consistent with 
current functionality.
    The proposed rule change is generally intended to align system 
functionality currently offered by the Exchange with Cboe Options 
functionality in order to provide a consistent technology offering for 
the Cboe Affiliated Exchanges. A consistent technology offering, in 
turn, will simplify the technology implementation, changes, and 
maintenance by Users of the Exchange that are also participants on Cboe 
Affiliated Exchanges. The Exchange believes this consistency will 
promote a fair and orderly national options market system. When Cboe 
Options migrates to the same technology as that of the Exchange and 
other Cboe Affiliated Exchanges, Users of the Exchange and other Cboe 
Affiliated Exchanges will have access to similar functionality on 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.

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 the proposed rule change will impose any burden on intramarket 
competition, as the proposed rule change will apply in the same manner 
to all orders submitted to an AIM Auction. With respect to the proposed 
changes that limit the Immediate Customer-to-Customer AIM crosses, 
those changes will apply in the same manner to all pairs of customer 
orders submitted in those circumstances. The Exchange does not believe 
the proposed rule change will impose any burden on intermarket 
competition, because the proposed changes, as described above and 
below, are based on rules for similar price improvement auction 
mechanisms at other options exchanges.

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) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \27\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \28\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Exchange states that waiver of the operative delay would allow the 
Exchange to continue towards a complete technology integration of the 
Cboe Affiliated Exchanges. According to the Exchange, a consistent 
technology offering will simplify the technology implementation, 
changes, and

[[Page 9189]]

maintenance by Options Members of the Exchange that are also 
participants on Cboe Affiliated Exchanges. The Exchange notes that it 
intends to implement the proposed rule change on March 21, 2019. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal as operative upon filing.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 change 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 rule-comments@sec.gov. Please include 
File Number SR-CboeEDGX-2019-007 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-2019-007. 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 a.m. and 3 p.m. 
Copies of such 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-2019-007, and should be submitted on or before April 3, 2019.

    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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04561 Filed 3-12-19; 8:45 am]
BILLING CODE 8011-01-P