Document ID: SEC-2021-1500-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BYX Exchange, Inc.
Posted Date: 2021-10-26T04:00Z

[Federal Register Volume 86, Number 204 (Tuesday, October 26, 2021)]
[Notices]
[Pages 59202-59208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23257]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93390; File No. SR-CboeBYX-2021-024]

Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Make Certain Clarifying Changes to 
Its Rule Related to Periodic Auctions

October 20, 2021.
    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 October 14, 2021, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BYX Exchange, Inc. (``BYX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to make certain clarifying changes to its rule 
related to periodic auctions for the trading of U.S. equity securities. 
The text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this 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'').\3\ 
The Commission approved the Exchange's proposal to introduce Periodic 
Auctions on March 26, 2021.\4\ 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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    \3\ The term ``Periodic Auction'' shall mean an auction 
conducted pursuant to Rule 11.25. See Rule 11.25(a)(4).
    \4\ 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 to make clear that: (i) 
Periodic Auction Eligible Orders \5\ 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 will upon 
entry interact with Continuous Book Orders \6\ 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 \7\ 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

[[Page 59203]]

changes to Rule 11.25(b)(1), (2), and (3) to eliminate certain typos 
from the rule text.
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    \5\ 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).
    \6\ 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).
    \7\ 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 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.\8\
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    \8\ 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, 
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 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).'' \9\ 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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    \9\ 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'').\10\ While 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.
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    \10\ 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.
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    As such, the Exchange is proposing to add language to that sentence 
in Rule 11.25(b)(2) such that the sentence 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 will trade immediately with the Continuous Book and will upon 
entry interact with Continuous Book Orders and other Periodic Auction 
Eligible Orders according to their rank under Rule 11.12(a).'' This 
language will make explicit in the rule text the outcome described in 
AP Example 3. Further, this proposed change will add further 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 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.

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

[[Page 59204]]

    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.\11\
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    \11\ 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.\12\
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    \12\ See supra note 11.

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 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 will trade immediately with the Continuous Book,'' Order 3 
would execute 100 shares against Order 2 and a Periodic Auction would 
not be initiated.\13\
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    \13\ The Exchange notes that this example is meant to illustrate 
the same 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''). 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. This example is relevant because it specifically 
illustrates the interaction of a Periodic Auction Only Order that is 
priced more aggressively than a resting Continuous Book Order when 
contra-side executable Periodic Auction Eligible Orders are entered. 
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, this example is consistent with the explanation of 
what the outcome should have been in described in Amendment No. 4 
stating ``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 provided in Amendment No. 4 to the Approved Proposal:
    ``Example 6 was added to the Proposal in Amendment No. 1 to 
illustrate the Exchange's proposed Periodic Auction Price 
calculation. Prior to the submission of Amendment No. 1, the 
Proposal provided that an incoming Periodic Auction Eligible Order 
that is eligible both to trade on the Continuous Book and initiate a 
Periodic Auction would initiate a Periodic Auction. However, 
Amendment No. 1 changed this proposed behavior such that an incoming 
Periodic Auction Eligible Order that is eligible both to trade on 
the Continuous Book and initiate a Periodic Auction would instead 
trade immediately with the Continuous Book, including any Displayed 
or Non-Displayed Continuous Book Orders.''
     Consistent with Corrected Example 6 from Amendment No. 3, 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. Such 
functionality is consistent with language in the Approved Proposal 
related to securing a guaranteed execution for an order.

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 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 and will upon entry interact with Continuous Book 
Orders and other Periodic Auction Eligible Orders according to their 
rank,'' the System will look to see if Order 3 could interact with any 
Continuous Book Orders or Periodic Auction Eligible Orders prior to 
looking to Order 1. In this instance, Order 3 would not be able to 
execute against Order 2. As such, 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),\14\ 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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    \14\ 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

[[Page 59205]]

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 
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.\15\ 
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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    \15\ See supra note 11.

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.\16\
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    \16\ See supra note 11.
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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 \17\ orders to initiate or participate in a Periodic Auction 
and would not generally enter IOC orders to participate in the Periodic 
Auction process.\18\ 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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    \17\ As provided in Rule 11.9(b)(7), an RHO order is an order 
that is designated for execution only during Regular Trading Hours.
    \18\ 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,\19\ in general, and 
Section 6(b)(5) of the Act,\20\ 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

[[Page 59206]]

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 
further clarify in 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 will upon entry interact with Continuous Book 
Orders 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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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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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 and further articulated in 
Corrected Example 6 from Amendment No. 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. Further to 
this point, the Exchange also notes that the proposed change will also 
clarify what it means when Periodic Auction Orders become 
``executable'' against one another. Additionally, consistent with 
Corrected Example 6 from Amendment No. 3, this proposal makes clear 
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. The Exchange believes that such 
functionality is consistent with the functionality previously described 
in Corrected Example 6 from Amendment No. 3 and remains consistent with 
the rationale applied in the Approved Proposal related to securing a 
guaranteed execution for an order. As such, the Exchange believes that 
the proposed change would promote just and equitable principles of 
trade and remove impediments to a free and open market by adding 
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 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

[[Page 59207]]

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.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [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

[[Page 59208]]

should be submitted on or before November 16, 2021.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23257 Filed 10-25-21; 8:45 am]
BILLING CODE 8011-01-P