Document ID: SEC-2018-1599-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2018-10-16T04:00Z

[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52264-52266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22426]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84393; File No. SR-CboeEDGX-2018-043]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Amend the Exchange's Rulebook To 
Allow the Post Only Order Instruction on Complex Orders That Route to 
Its Electronic Book for Trading Options

October 10, 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 October 1, 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, 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

    The Exchange is proposing to amend the Exchange's rulebook to allow 
the Post Only Order instruction on complex orders that route to its 
electronic book for trading options (``EDGX Options'').
    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.

[[Page 52265]]

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
    EDGX Options currently offers the Post Only Order instruction on 
simple orders that route to its electronic book (``Simple Book'') and 
now proposes to adopt the Post Only Order instruction on complex orders 
that route to its electronic book (``COB'').
Background
    Pursuant to Exchange Rule 21.1(d)(8), Post Only Orders are ``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.'' In other words, 
if a Post Only Order is entered into the EDGX Options electronic 
trading facility (``System''), it will not execute against an order 
resting in the Simple Book or route to another exchange. The purpose of 
the Post Only Order is to add liquidity to the Simple Book.
Complex Orders
    EDGX Options does not currently offer Post Only complex orders. 
Based on the EDGX Options fee structure, the execution of a complex 
order taking liquidity from the COB is subject to a higher fee than the 
execution of a complex order adding liquidity to the COB. For example, 
a Non-Customer complex order that adds liquidity to the COB in a non-
penny class incurs a fee of $0.10, whereas a Non-Customer complex order 
that removes liquidity from the COB in a non-penny class incurs a fee 
of $0.75. Without the ability to mark a complex order as Post Only, a 
Member that intends to submit a complex order to add liquidity to the 
COB may not receive the benefit of the reduced fee. Accordingly, EDGX 
Options is proposing to add Post Only to the available types of complex 
orders submitted to the Exchange in Exchange Rule 21.20(b).
    Proposed Exchange Rule 21.20(b)(2) states that complex Orders that 
are marked Post Only with any Time in Force will, by default, not 
initiate a complex order auction (``COA''), and if a Member marks a 
Post Only complex order to initiate a COA, that order will be 
cancelled.. [sic] This is consistent with the purposes of a Post Only 
Order, which as discussed above is to add liquidity to the COB. 
Proposed Exchange Rule 21.20(c)(2)(F) states that complex orders marked 
Post Only may not Leg into the Simple Book, and proposed Exchange Rule 
21.20(c)(4)(C) states that the System will cancel or reject a Post Only 
complex order if it locks or crosses a resting complex order in the COB 
or the then-current opposite side synthetic best bid or offer 
(``SBBO''). For example, assume there are no orders for a specific 
strategy resting on the COB, the synthetic national best bid or offer 
(``SNBBO'') is $3.00 by $3.15, and the SBBO is $2.95 by $3.15. Assume 
next that Complex Order 1 enters the COB to sell 10 of that strategy at 
$3.14 and such order is posted to the COB. If Complex Order 2 then 
enters the COB to buy 10 contracts of that strategy at $3.14, but 
Complex Order 2 also contains the Post Only instruction, Complex Order 
2 is rejected since it locks the resting contra order. Similarly, 
assume there are no orders for a specific strategy resting on the COB, 
the SNBBO is $3.00 by $3.15, and the SBBO is $2.95 by $3.20. If a two-
leg Complex Order with the Post Only instruction enters the COB to buy 
10 contracts of that strategy at $3.20, that Complex Order is rejected 
since it cannot leg in to the Simple Book and it locks the contra side 
SBBO. This proposed functionality is consistent with the purpose of the 
Post Only instruction and ensures a Post Only complex order will not 
remove liquidity from the COB. This is also consistent with the 
functionality and purpose of the Post Only Order instruction on simple 
orders.
    By adding the Post Only Order instruction for complex orders, 
Members will be given the ability to exercise more control over the 
circumstances in which their complex orders are executed and be 
encouraged to add liquidity in the complex order market. Any additional 
liquidity will subsequently benefit all participants who trade complex 
orders on the Exchange.
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.\3\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \4\ 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) \5\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ Id.
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    Specifically, the Post Only Order instruction on complex orders is 
designed to encourage market participants to add liquidity in the 
complex order market, which will benefit investors. By giving market 
participants the flexibility to manage their execution costs and the 
circumstances in which their complex orders are executed, the Exchange 
believes the proposed rule change would remove impediments to perfect 
the mechanism of a free and open market and a national market system 
and protect investors. The Exchange also believes that the proposed 
rule change will contribute to the protection of investors and the 
public interest by assuring compliance with rules related to locked and 
crossed markets.
    Additionally, the Exchange notes that Post Only functionality is 
not new or unique functionality and is already available in a similar 
capacity. While the Post Only complex order type is not currently 
available in the market, the Exchange and other exchanges have 
implemented the Post Only simple order type, which functions in the 
same manner as the proposed Post Only complex order type. The purpose 
of a Post Only complex order is the same as the purpose of a Post Only 
simple order, and the Post Only Order instruction on complex orders 
ensures the submitter

[[Page 52266]]

receives the benefit of a reduced fee when intending to add liquidity.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. In 
particular, the Exchange believes the proposed rule change will not 
burden intramarket competition because the Post Only Order instruction 
on complex orders will be available to all market participants. 
Additionally, use of the Post Only Order instruction on complex orders 
is voluntary. The Exchange also believes the proposed rule change will 
not impose any burden on intermarket competition because this relates 
to an instruction on orders that are submitted to the Exchange and may 
only execute on the Exchange. Additionally, nothing prevents other 
options exchanges that offer complex orders from adopting a Post Only 
complex order type. The Exchange also believes the proposed rule change 
will promote competition, as the Exchange believes it will encourage 
the provision of additional liquidity in the complex order market, 
which benefits all market participants.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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-CboeEDGX-2018-043 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-2018-043. 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-2018-043, and should be 
submitted on or before November 6, 2018.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22426 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-01-P