Document ID: SEC-2019-0514-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2019-04-17T04:00Z

[Federal Register Volume 84, Number 74 (Wednesday, April 17, 2019)]
[Notices]
[Pages 16119-16130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07616]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85626; File No. SR-CboeEDGX-2019-017]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Adopt All-or-None (``AON'') Orders

April 11, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 2, 2019, Cboe EDGX Exchange, Inc. (``Exchange'' or 
````EDGX'''') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
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 Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
adopt all-or-none (``AON'') orders. 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

[[Page 16120]]

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
    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 Exchange proposes to adopt AON orders. Proposed Rule 21.1(d)(4) 
defines AON orders as orders to be executed in their entirety or not at 
all. Additionally, it specifies that AON orders may be market or limit 
orders. Several other options exchanges offer AON orders (which can be 
market or limit orders), and this proposed definition is consistent 
with the definition of AON orders in other options exchanges' rules, 
including Cboe Options.\5\ The Exchange will not disseminate bids or 
offers of AON orders to OPRA, as the prices of AON orders are not 
included in the Exchange's best bid or offer (``BBO'') for a series.\6\
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    \5\ See, e.g., Cboe Options Rule 6.53(i); NASDAQ ISE, LLC 
(``ISE'') Rule 715(c) (ISE requires AON orders to be entered as 
immediate-or-cancel (``IOC'')); NASDAQ OMX PHLX, LLC (``PHLX'') Rule 
1066(c)(4); NASDAQ Options Market LLC (``NOM'') Chapter VI, Section 
1(e)(10) (NOM requires AON orders to be entered as IOC and only 
after the market open); and NYSE Arca, Inc. (``Arca'') Rule 6.62-
O(d)(4). The proposed rule change permits Users to apply all Times-
in-Force to AON orders (as Cboe Options permits), as the Exchange 
already offers fill-or-kill (``FOK'') orders, which are the 
equivalent of an IOC AON order. See Rule 21.1(f)(5) (a FOK order is 
a limit order that is to be executed in its entirety as soon as it 
is received and, if not so executed, cancelled). However, as 
discussed below, Users may not apply a Post Only instruction to AON 
orders.
    \6\ See proposed Rule 21.1(d)(4)(A). Rules of other options 
exchanges explicitly provide that AON orders are not disseminated to 
OPRA. See, e.g., Cboe Options Rule 6.44, Interpretation and Policy 
.02; and Phlx Option Floor Procedures A-9. Proposed Rule 
21.1(d)(4)(E) states the Exchange may restrict the entry of AON 
orders in a series or class if the Exchange deems it necessary or 
appropriate to maintain a fair and orderly market. Cboe Options 
rules provide it with the same authority. See, e.g., Cboe Options 
Rule 6.44, Interpretation and Policy .03.
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    The proposed AON order is similar to the existing Minimum Quantity 
Order currently available on the Exchange. Minimum Quantity Orders are 
orders that require a specified minimum quantity of contracts be 
obtained, or the order is cancelled.\7\ Today, a Minimum Quantity Order 
with the minimum set as the full size of the order would function 
similar to the proposed AON order (except, as noted above, an AON order 
will not be required to be submitted as IOC).\8\ The Exchange also 
offers a fill-or-kill (``FOK'') Time-in-Force, pursuant to which a 
limit order is to be executed in its entirety as soon as it is received 
and, if not so executed, cancelled.\9\ A FOK order is equivalent to an 
AON entered with an IOC Time-in-Force. As discussed below, unlike 
Minimum Quantity Orders or orders designated as FOK, AON orders may 
rest in the Book or be routed, may also be market orders, and may have 
any Time-in-Force. However, the primary characteristic of both, which 
is that they must execute in their entirety, is the same.
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    \7\ See Rule 21.1(d)(3). While Minimum Quantity Orders may only 
be IOC, the proposed rule change does not limit the Times-in-Force 
that Users may apply to AON orders as discussed above.
    \8\ For example, a Minimum Quantity Order for 100 contracts with 
a minimum set at 100 contracts has the same result as an AON order 
for 100 contracts, because both can only trade against an order(s) 
for 100 contracts.
    \9\ See Rule 21.1(f)(5). The proposed rule change does not adopt 
a provision corresponding to Cboe Options Rule 6.44, Interpretation 
and Policies .04 or .05, because the Exchange believes those 
provisions are redundant and unnecessary. Cboe Options Rule 6.44 
states that an all-or-none bid or offer shall be deemed to be made 
only for the amount stated (i.e., deemed to be all-or-none), which 
is redundant of the proposed definition of an AON order. Similarly, 
Cboe Options Rule 6.44, Interpretation and Policy .04, which 
essentially says that a FOK order will be deemed to be made only for 
the amount stated, is redundant of the Exchange's current definition 
of a FOK order. Cboe Options Rule 6.44, Interpretation and Policy 
.05 relates to minimum volume orders (which are similar to Minimum 
Quantity Orders on the Exchange, except minimum volume orders on 
Cboe Options may only be executed in open outcry), and states 
minimum volume orders will be deemed to be made only for the amount 
stated (i.e., deemed to be all-or-none), which the Exchange believes 
is redundant of the Exchange's current definition of a Minimum 
Quantity Order.
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    The proposed rule change does not permit a User to designate an AON 
order as Post Only.\10\ An AON order's size contingency, and the fact 
that (as discussed below) AON orders will have last priority while 
resting in the EDGX Options Book, will provide AON orders resting on 
the EDGX Options Book with few opportunities for AON orders to receive 
an execution. For this reason, the Exchange believes there will be 
minimal investor demand for Post Only AON orders.\11\ The Exchange 
believes it is appropriate to not restrict the opportunities for 
execution of an AON order to the minimal execution opportunities that 
would exist for an AON order while resting on the Book. This ensures 
that an AON order may execute upon entry if there is sufficient size 
resting on the EDGX Options Book, as well as have an opportunity for 
execution if it cannot so execute.
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    \10\ See proposed Rule 21.1(d)(4)(B). Pursuant to Rule 
21.1(d)(8), a Post Only order may not, among other things, remove 
liquidity from the EDGX Options Book.
    \11\ Cboe Options does not offer a Post Only instruction. 
Additionally, other exchanges, such as ISE and NOM, only permit AON 
orders to be entered as IOC, and thus AON orders at those options 
exchanges would only execute upon entry and never rest on the book 
(and thus Post Only, if available on those exchanges, would not be 
permitted).
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    Additionally, the proposed rule change only permits Users to apply 
MCN (MTP cancel newest), but no other MTP Modifiers, to an AON 
order.\12\ Rule 21.1(g)(1) provides that an incoming order marked with 
the MCN Modifier will not execute against opposite side resting 
interest market with any MTP modifier originating from the same Unique 
Identifier. The incoming order marked with the MCN modifier will be 
cancelled back to the originating User(s). The resting order marked 
with an MTP modifier will remain on the EGDX Options Book. The Exchange 
believes there will be little demand for the use of any MTP Modifiers 
on AON orders given that primarily retail investors submit AONs, and 
retail investors are unlikely to have interest

[[Page 16121]]

on both sides of the market. Given this expected minimal demand, the 
Exchange believes offering one MTP Modifier for AON orders is 
sufficient. The Exchange believes MCN is the most appropriate MTP 
modifier for AON orders, because it is the simplest modifier to 
implement from a System perspective and an offering of other MTP 
modifier for investors would present significant technical complexities 
given the size contingency of AON orders.\13\ Additionally, the 
Exchange has determined to handle an AON order with any other MTP 
Modifier as an MCN rather than cancel the AON, because the proposed 
rules provide investors with sufficient transparency regarding how the 
System will handle AON orders with MTP Modifiers, and Users may achieve 
other results manually if so desired. For example, if User were to 
prefer to have a resting order with an MTP Modifier cancel and let the 
newer AON order rest, it could manually cancel the resting order and 
then resubmit the AON order.
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    \12\ See proposed Rule 21.1(d)(4)(D). If a User applies any 
other MTP Modifier to an AON order, the System will handle it as an 
MCN).
    \13\ Additionally, the Decrement and Cancel MTP Modifier is 
inconsistent with an AON order, because it may result in partial 
execution of an order.
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    Cboe Options offers match trade prevention only for market-makers, 
and thus the Cboe Options rules regarding AON orders contains no 
restrictions on the use of match trade prevention instructions, as it 
would only be available to market-makers that submit AON orders. 
Because the Exchange has match-trade prevention functionality available 
for all Users and not just Market-Makers, the Exchange believes it is 
appropriate to provide this functionality to all Users that submit AON 
orders and want match trade prevention functionality. The rules of 
other exchanges are also silent on whether any match trade prevention 
instructions are available for AON orders.
    An AON limit order will always be subject to the Price Adjust 
process in Rule 21.1(i).\14\ Because AON orders will have last priority 
on the EDGX Options Book (as discussed below), the Exchange believes it 
will maximize execution opportunities for AON limit orders to be 
subject to the Price Adjust process.\15\ The Price Adjust process 
applies to orders (subject to the User's instructions or the Rules) 
that do not execute upon entry and go to rest in the EDGX Options Book 
(for example, because an order is not marketable upon entry, is not 
eligible to route, or, in the case of an AON order, there is 
insufficient size to satisfy its size contingency). It ensures these 
orders rest at executable prices in accordance with linkage rules.\16\
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    \14\ See proposed Rule 21.1(d)(4)(C). If an AON market order is 
unable to execute for any reason, it would cancel in accordance with 
the terms of a market order. This is consistent with the handling of 
any other market order that was not able to execute on the Exchange.
    \15\ If a User does not want an AON order to rest on the EDGX 
Options Book at an adjusted price, it may cancel the AON order and 
resubmit it for execution at a later time.
    \16\ See Rule 27.3, which provides that the Exchange will 
reasonably avoid displaying quotations that lock or cross a 
Protected Quotation.
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    Currently, if an order, at the time of entry, would lock or cross a 
Protected Quotation of another options exchange or the Exchange, it 
will be ranked and displayed by the System at one minimum price 
variation below (above) the current NBO (NBB) for bids (offers).\17\ An 
AON order resting on the EDGX Options Book is not displayed or part of 
the BBO (thus is not protected and would not be part of the NBBO). The 
proposed rule change provides that AON orders will rest on the EDGX 
Options Book at potentially executable prices (and thus not at prices 
that cross a Protected Quotation or the BBO).
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    \17\ See current Rule 21.1(i)(1) (which the proposed rule change 
renumbers and letters to be Rule 21.1(i)(1)(A)(i)).
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    Specifically, proposed Rule 21.1(i)(1)(A)(ii) provides if a buy 
(sell) non-AON order, at the time of entry, would lock or cross the 
offer (bid) of a sell (buy) AON order resting on the EDGX Options Book 
at or better than the Exchange's best offer (bid), the System ranks 
\18\ the resting AON order at one minimum price variation above (below) 
the bid (offer) of the non-AON order. This is consistent with the price 
at which non-AON orders would rest on the EDGX Options Book if subject 
to price adjustment (except price adjustment currently only applies to 
incoming orders, not resting orders). For example, if an AON order to 
buy 5 at 1.10 is resting on the EDGX Options Book (which is the NBB), 
and a non-AON order to sell 1 (which does not satisfy the size of the 
AON order) at 1.10 enters the EDGX Options Book, the System reprices 
the AON order to rest in the EDGX Options Book at 1.05 (assuming the 
minimum price variation for the class is $0.05).
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    \18\ In the EDGX Rules, the term ``ranked'' means that an order 
will be prioritized and eligible for execution at its ranked price 
for purposes of allocation if an execution were to occur at that 
price. For an AON order ``ranked'' at a price, it would be 
prioritized last at that price (as discussed above).
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    Similarly, pursuant to proposed Rule 21.1(i)(1)(B)(ii), if a buy 
(sell) AON order, at the time of entry, would lock or cross a Protected 
Offer (Bid) of the Exchange, the System ranks the incoming AON order at 
a price one minimum price variation below (above) the offer (bid) of 
the non-AON order resting on the EDGX Options Book at the Protected 
Offer (Bid). This is consistent with how an incoming non-AON would be 
handled if it locked or crossed a Protected Offer (Bid) of the 
Exchange. For example, if a non-AON order to buy 1 at 1.10 is resting 
at the top of the EDGX Options Book, and an AON order to sell 5 (which 
cannot satisfied by the resting interest) at 1.10 enters the EDGX 
Options Book, the System reprices the AON order to rest in the EDGX 
Options Book at 1.15 (assuming the minimum price variation for the 
class is $0.05).
    Proposed subparagraph (i)(1)(B)(i) states if a buy (sell) AON 
order, at the time of entry, would cross a Protected Offer (Bid) of 
another options exchange or a sell (buy) AON order resting on the EDGX 
Options Book at or better than the Exchange's best offer (bid), the 
System will rank the incoming AON order at a price equal to the 
Protected Offer (Bid) or the offer (bid) of the resting AON order, 
respectively. For example, if a buy AON order has a bid of 1.05 and 
enters the EDGX Options Book when the NBO is 1.00, the System ranks the 
AON order at a 1.00 bid.\19\ Or, if a sell AON order has an offer of 
1.10 and enters the EDGX Options Book, where there is a resting AON 
order with a bid of 1.15, the System ranks the incoming AON order at a 
price of 1.15.
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    \19\ Pursuant to subparagraph (i)(2), if the NBO changes to 
1.05, the resting AON order would receive a new timestamp and be 
repriced to 1.05.
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    The proposed rule change applies the current Price Adjust process 
to the existence of AONs to reflect the fact that AONs are not 
displayed on the EDGX Options Book (and thus are not Protected 
Quotations). This factor distinguishes AONs from other orders on the 
Exchange. The Exchange believes the proposed application of the Price 
Adjust process to AONs is reasonable, because an AON order will rest on 
the EDGX Options Book at an executable price (i.e., a price that locks 
or is one minimum price variation away from the new Protected Quotation 
or AON resting on the EDGX Options Book at or better than the 
Exchange's BBO).\20\ The

[[Page 16122]]

proposed process will generally re-price the incoming (and thus later 
arriving order), which is consistent with the current Price Adjust 
process. As proposed, if an incoming buy (sell) AON order locked or 
crosses a Protected Offer (Bid) of the Exchange (i.e., a non-AON order 
that was displayed at the Exchange's best offer (bid)), the System 
would adjust the price of the AON order to be one minimum price 
variation below (above) the Protected Offer (Bid). Similarly, if an 
incoming buy (sell) AON order crossed a Protected Offer (Bid) of 
another options market or a sell (buy) AON order resting on the 
Exchange, the System would adjust the price of the incoming order. 
However, unlike the current Price Adjust process, the proposed rule 
change will reprice a resting AON order rather than an incoming non-AON 
order, because AON orders have last priority (as discussed below) and 
are not displayed, and thus should not cause the price of an incoming 
non-AON order to reprice. Because AONs are not displayed and have last 
priority on the Book, the Exchange believes it is appropriate to adjust 
the price of an AON rather than an incoming order that would be 
displayed and protected. The proposed rule change is consistent with 
linkage rules, because AONs will not be part of the EDGX BBO, and 
repricing an AON to lock an away exchange price or a resting (and 
nondisplayed) order on the EDGX Options Book will, therefore, not 
result in a displayed locked market.
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    \20\ The proposed rule change makes corresponding changes to 
Rule 21.1(i)(2) to provide that in the event the circumstances that 
caused the System to adjust the price of an order pursuant to 
proposed subparagraph (1) change so that it would not lock or cross, 
as applicable, a Protected Quotation or an AON resting on the EDGX 
Options Book at a price at or better than the Exchange's BBO, the 
order subject to the price adjust will receive a new timestamp and 
be ranked or displayed at a price that locks or is one minimum price 
variation away from the new Protected Quotation or AON resting on 
the EDGX Options Book at a price at or better than the Exchange's 
BBO. These proposed changes reflect the fact that the trade or 
cancellation of an order resting on the EDGX Options Book at or 
better than the Exchange's best offer (bid) (as applicable) may 
cause a resting AON order to become repriced. Pursuant to the 
current Price Adjust process applicable to non-AON orders, repricing 
only occurs when the NBBO changes. The proposed rule change adds the 
phrase ``if applicable'' to the current rule text regarding orders 
being ranked and displayed to reflect the fact that AON orders will 
not be displayed in the EDGX Options Book.
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    The proposed rule change also ensures that a resting AON order will 
not lock the price of a Protected Quotation on the EDGX Options Book. 
This prevents the situation in which an incoming order may execute 
ahead of the resting non-AON order. For example, if a non-AON order to 
buy 1 at 1.10 is resting on the EDGX Options Book, and an AON order to 
sell 5 (and thus is not satisfied by the resting interest) at 1.10 
enters the EDGX Options Book, if the System permitted the AON order to 
rest at a price of 1.10 (rather than reprice the AON to rest at 1.15 as 
proposed), if subsequently an AON to buy 5 at 1.10 was submitted to 
EDGX Options, that AON would execute against the resting AON at 1.10, 
and thus ahead of the non-AON order to buy.\21\ The proposed rule 
change will also reprice an AON order to a more aggressive price up to 
the limit price at which it would be able to execute without causing a 
trade-through as the market changes.\22\
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    \21\ Priority rules apply to orders resting in the Book, not 
incoming orders. Therefore, with respect to an incoming order, the 
System checks opposite side interest to see if the incoming order 
can execute. It does not check to see if there is same-side interest 
ahead of which it cannot trade, as there would only be marketable 
same-side interest (from a price perspective) that would not 
otherwise execute against opposite side interest if such opposite 
side interest was an AON order.
    \22\ See Rules 27.2 (which prohibits trade-throughs, subject to 
certain exceptions) and 27.3 (requires the Exchange to reasonably 
avoid displaying quotes that lock a Protected Quotation).
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    Cboe Options does not have functionality that corresponds to the 
Price Adjust process. However, Cboe Options rules do not provide any 
special handling that applies to AON orders that lock or cross orders 
on Cboe Options or the quote of an away options market. Therefore, 
pursuant to Cboe Options' rules, if an AON order is unable to execute 
upon entry into the Cboe Options System (or after routing, if eligible 
for routing pursuant to Cboe Options' rules), the AON order will rest 
at its price, even if it locks or crosses the Cboe Options BBO or the 
quote of an away options market.\23\ The proposed rule change will 
similarly permit an AON order to rest at a price that locks the quote 
of an away options market, as well as an AON order resting on the EDGX 
Options Book at a price at or better than the EDGX Options BBO. On Cboe 
Options, an AON order resting at a price that locks or crosses an order 
may only execute in accordance with the priority principles set forth 
in Cboe Options Rule 6.45 and may not execute at prices that would 
cause a trade-through pursuant to Cboe Options Rule 6.81. The Exchange 
believes the proposed rule change ultimately creates the same result 
for a resting AON order that would otherwise occur on Cboe Options (the 
proposed rule change merely changes the price of an AON order upon 
entry rather than at the time of execution), and in some cases results 
in price improvement for an AON order.
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    \23\ If the AON order submitted to Cboe Options was a market 
order and was unable to execute for any reason, it would cancel in 
accordance with the terms of a market order. This is consistent with 
the handling of any other market order that was not able to execute 
on the Exchange.
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    For example, as proposed, if the EDGX BBO was 1.15 x 1.30 (size of 
50), and the NBBO was 1.15 x 1.20 (size of 50), and a User submitted an 
AON order for 100 to buy at 1.25, the AON order would rest on the EDGX 
Options Book with a price of 1.20 (which locks the Protected Offer of 
1.20). If an order to sell 100 at 1.20 was later submitted to EDGX 
Options, it would execute against the resting AON order at its ranked 
price of 1.20. On Cboe Options, the AON would rest at 1.25. If an order 
to sell 100 at 1.20 was later submitted to Cboe Options, it would 
execute against the resting AON order at a price of 1.20 (and thus the 
same price at which it would execute on EDGX Options), as executions 
may only occur at or within the NBBO.
    Additionally, suppose the EDGX BBO was 1.15 x 1.25 (non-AON order 
with size of 50), and was also the NBBO, and a User submitted an AON 
order for 100 to buy at 1.25, the AON order would rest on the EDGX 
Options Book with a price of 1.20 (which is one minimum price variation 
below the resting non-AON order). If an order to sell 100 at 1.20 was 
later submitted to EDGX Options, it would execute against the resting 
AON order at a price of 1.20 (which results in price improvement for 
the AON order). On Cboe Options, the AON would rest at 1.25. If an 
order to sell 100 at 1.20 was later submitted to Cboe Options, the AON 
would receive execution at a price of 1.25.\24\ The Exchange believes 
the proposed rule change is an enhancement that will prevent such 
incoming orders to trade against a resting AON at the same price as a 
resting non-AON order on the opposite side of the market that had 
insufficient size to trade against the AON order.
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    \24\ See Cboe Options Rule 6.45.[sic]
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    As another example, if the EDGX BBO was 1.15 x 1.30 and was also 
the NBBO, and there was a sell AON order for 50 to sell at 1.25 resting 
on the EDGX Options Book, and a User submitted an AON order for 100 to 
buy at 1.25, the incoming AON order would rest on the EDGX Options Book 
at 1.25 (which locks the resting AON order). If an order to sell 100 at 
1.25 was later submitted to EDGX Options, it would execute against the 
resting AON order to buy at 1.25. This is the same result that would 
occur on Cboe Options.
    Because the proposed Price Adjust process always applies to an AON 
order, which provides that an AON order may rest at a price that locks 
the price of an away options exchange, proposed Rule 21.9(a)(3)(B) 
states that a User may not apply the Super Aggressive Re-Route 
instruction. The Super Aggressive Re-Route instruction provides that if 
an order resting on the EDGX Options Book

[[Page 16123]]

at a price that becomes subsequently locked or crossed by the price of 
another options exchange, the System will route the order to that 
exchange. This instruction conflicts with the proposed Price Adjust 
process for an AON order, which may enter the EDGX Options Book at a 
price that locks the price of another options exchange. A User may 
apply the Aggressive Re-Route instruction pursuant to Rule 
21.9(a)(3)(A), pursuant to which a resting AON order may be re-routed 
if its price is subsequently crossed by another options exchange.
    Cboe Options does not have a process that corresponds to the 
Exchange's Re-Route instructions. As a result, if an AON order were 
resting on the Cboe Options Book, it will remain there, even if it is 
resting at a price that subsequently becomes locked or crossed by 
another options exchange. AON orders resting on the EDGX Options Book 
that subsequently become locked by another options exchange will be 
handled in the same manner as those AON orders would be handled by Cboe 
Options--they will remain on the EDGX options Book and not route to an 
away market. However, because the Exchange will make the Aggressive Re-
Route instruction available to AON orders (which Users may specify when 
submitting AON orders), the proposed rule change will provide an AON 
order submitted to the Exchange that includes an Aggressive Re-Route 
instruction and rests at a price that subsequently becomes crossed by 
another options exchange with additional routing (and thus execution) 
opportunities not currently available to AON orders on Cboe Options.
    The proposed rule change provides that the Exchange will accept AON 
orders for queuing prior to the completion of the Opening Process, but 
AON orders will not participate in the Opening Process. Following 
completion of the Opening Process, the System processes any queued AON 
orders in accordance with Rule 21.8.\25\ In other words, it may execute 
if possible or rest in the EDGX Options Book, subject to a User's 
instructions (for example, the User may cancel the AON order). As set 
forth in Rule 21.7(b), the System executes orders at the opening price, 
in accordance with standard priority (as discussed below, AON orders 
will have last priority at each price level). Given the size 
contingency of an AON order and the last priority of AON orders, it 
will not be known whether there will be sufficient size to execute AON 
orders at the opening price until after the System executes all other 
interest at the opening price. AON orders will be eligible for 
execution once a series is open for trading.
---------------------------------------------------------------------------

    \25\ See proposed Rule 21.7(a).
---------------------------------------------------------------------------

    Currently on Cboe Options, AON orders may participate in the 
opening process in classes in which it has activated the Hybrid Agency 
Liaison (``HAL'') for openings.\26\ HAL is the Cboe Options equivalent 
to the Exchange's Step Up Mechanism (``SUM''). EDGX does not activate 
SUM for openings, making classes trading on EDGX similar to classes 
trading on Cboe Options in which Cboe Options has not activated HAL for 
openings. Therefore, the proposed rule change is consistent with the 
Cboe Options rule.
---------------------------------------------------------------------------

    \26\ See Cboe Options Rule 6.2(c)(i)(B).
---------------------------------------------------------------------------

    Additionally, the opening process on Cboe Options is an auction and 
thus significantly different than the Exchange's Opening Process, which 
is a cross at a valid price as set forth in Rule 21.7. The Exchange 
believes it is best for investors to open a series for trading as soon 
as possible. As noted above, it will not be known whether there will be 
sufficient size to execute AON orders at the opening price until after 
the System executes all other interest at the opening price, since AON 
orders will have last priority. The Exchange believes it is appropriate 
to exclude AON orders from the Opening Process to ensure series can 
open as fast as possible. Currently, once the Exchange determines the 
Opening Price for a series (for example, the NBBO), it executes as much 
interest as possible at that price and opens a series. If AONs were 
eligible for execution during the Opening Process, after executing non-
AON interest, the System would then have to check to determine whether 
there was sufficient size to execute against any AON orders. Rather 
than delay the opening of a series to determine whether an execution of 
AON orders can occur (and no execution may ultimately occur), the 
Exchange believes it is appropriate to open the series and let all non-
executed orders (including AONs) be eligible for execution in an open 
trading state. Execution of any AON orders whose size contingency can 
be satisfied by any other interest on the Exchange would occur just 
after the opening of the series, which is close to the time at which it 
would have executed if the System waited to open the series and 
executed these orders during the Opening Process. Therefore, the 
Exchange believes not attempting to execute AON orders until after the 
Opening Process would have a de minimis impact, if any, on the time of 
execution of an AON order.
    Proposed Rule 21.8(m) sets forth the priority of AON orders. AON 
orders will have last priority at each price level (including after 
nondisplayed Reserve Quantity). The System allocates AON orders at the 
same price based on the time the System receives them (i.e., in time 
priority), except if the Exchange applies the Customer Overlay to a 
class, Priority Customer AON orders have priority over non-Priority 
Customer AON orders.\27\ An AON order must always be last in priority 
to ensure there is sufficient size to satisfy the condition of that 
order to trade in its entirety after all other orders at the same price 
have executed. Additionally, the Exchange believes it is reasonable for 
orders not displayed in the book to not receive priority over orders 
that are displayed, as this encourages market participants to display 
their best bids and offers, which may lead to enhanced liquidity and 
tighter markets. This is consistent with the non-inclusion of AON 
orders in the BBO or NBBO, as discussed above.
---------------------------------------------------------------------------

    \27\ This priority is the same as the priority of AON orders on 
Cboe Options. See Cboe Options Rule 6.45(a)(v)(D). This priority is 
also consistent with Cboe Options Rule 6.44, Interpretation and 
Policy .01, which the Exchange is not explicitly adopting because it 
is redundant with this proposed provision, because having last 
priority means that AON orders will only trade if there is no other 
interest at the same price. Cboe Options Rule 6.44 does not address 
customer priority.
---------------------------------------------------------------------------

    The proposed rule change states that a transaction may occur at the 
same price as an AON order resting on the EDGX Options Book without the 
AON order participating in the transaction, and that a transaction may 
occur at a price lower (higher) than an AON order bid (offer) resting 
on the EDGX Options Book if the size of the transaction is less than 
the size of the resting AON order. As discussed above, an AON order 
will trade last at each price level. These proposed provisions ensure 
execution of an AON order if there is sufficient size to satisfy the 
AON order, while not preventing execution of orders that can execute 
against other interest but cannot satisfy the AON order size 
contingency.\28\
---------------------------------------------------------------------------

    \28\ These provisions are substantively the same as Cboe Options 
Rule 6.44, Interpretation and Policy .02.
---------------------------------------------------------------------------

    Users may designate AON orders to be routable pursuant to Rule 
21.9. Pursuant to proposed rule 21.9(a)(1), the System only routes an 
AON order (as an FOK) designated as available for routing to options 
exchanges with sufficient size to satisfy the AON order. Pursuant to 
current Rule 21.9(a)(1), orders are routed as IOCs. Because a FOK order 
is equivalent to an AON order designated as IOC, routing an AON as a 
FOK is

[[Page 16124]]

consistent with the Exchange's current routing rule. Only routing an 
AON order to an exchange with sufficient size to satisfy the AON order 
ensures the System will only route an AON order at which it may receive 
an execution.\29\
---------------------------------------------------------------------------

    \29\ If the size at the away options exchange was not available 
when the AON order arrived at the away options exchange, it would 
return to the Exchange and continue to be processed, as is the case 
for any other order that routes to an away options exchange and is 
unable to execute. While not specified in Cboe Options rules, the 
Exchange understands this proposed change is the same as Cboe 
Options functionality.
---------------------------------------------------------------------------

    An AON order may be exposed pursuant to the Exchange's Step Up 
Mechanism (``SUM'') pursuant to Rule 21.18. An AON order will be 
exposed and executed in the same manner as a non-AON order during SUM, 
except as follows:
     Currently, any responses priced at the prevailing NBBO 
\30\ or better, and any unrelated order (or quote) on the opposite side 
of the market from the exposed order that could trade against the 
exposed order at the prevailing NBBO or better, will immediately trade 
against the exposed order, and the exposure period will continue.\31\ A 
SUM exposure period will currently terminate upon the receipt of a 
response (or unrelated order or quote) to trade the entire exposed 
order at the NBBO or better.\32\ Because an AON order cannot partially 
execute pursuant to its terms, the proposed rule change provides that 
during the exposure of an AON order, the System will hold responses 
priced at or better than the prevailing NBBO (rather than trade against 
the exposed AON immediately) until there is sufficient aggregate size 
to satisfy the AON order, and that a SUM exposure period will terminate 
upon the receipt of multiple responses with sufficient aggregate size 
to satisfy the AON order.\33\ The proposed rule change also states that 
if the exposed order is an AON order, the exposure period will 
terminate upon the receipt of multiple responses and unrelated orders 
in quotes with sufficient aggregate size to satisfy the exposed AON 
order.\34\ This is consistent with size contingency of an AON order and 
will provide an AON order with opportunities to have its size 
contingency met during an exposure period, while ensuring the entire 
AON order will trade at a price equal to or better than the NBBO.
---------------------------------------------------------------------------

    \30\ References to the ``prevailing NBBO'' mean the NBBO at the 
time of any execution.
    \31\ See Rule 21.18(c)(1) and (2).
    \32\ See Rule 21.18(d).
    \33\ See proposed Rule 21.18(c)(1) and (d).
    \34\ While not specified in Cboe Options rules, the Exchange 
understands this proposed change is the same as Cboe Options 
functionality.
---------------------------------------------------------------------------

     Currently, as noted above, if the Exchange receives an 
unrelated order or quote that could trade against the exposed order at 
the prevailing NBBO price or better, that order executes against the 
exposed order, and the exposure period continues. The proposed rule 
change states if an AON order is exposed and the Exchange receives an 
unrelated order (or quote) that would be displayed at a price at or 
better than the NBBO with insufficient size to satisfy the exposed 
order, the SUM exposure period terminates and the exposed order is 
processed pursuant to Rule 21.18(c) (it either executes, routes, or 
enters the EDGX Options Book, subject to a User's instructions).\35\ If 
an AON order is exposed and the Exchange receives an unrelated AON 
order with a price at or better than the NBBO with insufficient size to 
satisfy the exposed order the exposure period will continue.\36\ This 
is consistent with current SUM functionality, pursuant to which the 
exposed price of an order will not lock the Exchange's opposite side 
BBO if the BBO is not at the NBBO. Because a SUM would not have begun 
if the Exchange displayed a contra-side order at the NBBO, the Exchange 
believes it is appropriate to terminate the exposure period if that 
situation arises during the exposure period. Unlike when non-AON orders 
are exposed, an unrelated order (if it is smaller than the exposed AON 
order) will not execute against the exposed order, and thus would enter 
the EDGX Options Book. For example, suppose the NBBO is 1.00 x 1.20 and 
the EDGX Options BBO is 1.00 x 1.25, and an AON order to buy 10 at 1.20 
is exposed at 1.20 pursuant to SUM. During the exposure period, the 
Exchange receives an order to sell 5 at 1.20. The incoming order cannot 
satisfy the size of the exposed AON order, so it would enter the EDGX 
Options Book and would cause the EDGX Options BBO to become 1.00 x 
1.20. Therefore, upon receipt of that order, the exposure period 
terminates and the exposed AON order will be process pursuant to Rule 
21.18(c) (as further discussed below, it will be routed or will enter 
the EDGX Options Book, subject to a User's instructions). In this case, 
if there is insufficient size at the away markets to execute the AON 
order at 1.20 (and assuming the AON order is eligible for routing), the 
AON order will enter the EDGX Options Book and rest at a bid of 1.15 
(pursuant to the Price Adjust process described above, an AON order 
will be ranked at one minimum price variation (in this case, 0.05) 
below the opposite side BBO).
---------------------------------------------------------------------------

    \35\ See proposed Rule 21.18(d)(3). While not explicitly stated 
in Rule 21.18(c), pursuant to Rule 21.9(a)(1), any order that does 
not execute in full after routing away may be posted (the unfilled 
balance) to the EDGX Options Book.
    \36\ This is because the incoming AON order would not be 
displayed at a price at or better than the NBBO.
---------------------------------------------------------------------------

    Except as noted above, an exposed AON order will be processed in 
the same manner as any other order exposed through a SUM auction. If at 
the end of the exposure period there is sufficient size to satisfy the 
AON order, it will execute. If there is insufficient size, then the 
Exchange would route the AON order if there was sufficient size at an 
away market to satisfy the AON order (unless otherwise instructed by 
the User), as it would any remaining portion of any other exposed order 
(in the case of an AON order, the entire size would be remaining).\37\ 
Like any AON order that routes to another options exchange, if there is 
sufficient size at the away market to satisfy the AON order once the 
AON reaches that market, the AON will execute. If there is no longer 
sufficient size when routed, the AON will return and rest on the EDGX 
Options Book. Similarly, if an AON order is not eligible to route, it 
will enter the EDGX Options Book (subject to the User's instructions).
---------------------------------------------------------------------------

    \37\ See Rule 21.18(c)(4) and (5).
---------------------------------------------------------------------------

    The proposed reason to terminate the exposure period for an AON 
order early similarly will cause an exposure period to end, because if 
an order on the opposite side of the exposed order were displayed on 
the EDGX Options Book prior to the exposure period, the AON order would 
not have been exposed. For example, if the BBO and the NBBO was 1.00 x 
1.20, and there was a non-AON order for 5 contracts resting at the 1.20 
offer, an incoming AON order to buy 10 at 1.20 would not be exposed 
pursuant to SUM, because neither of the conditions in Rule 21.18(a) 
would be present). In this case, the AON order would enter the EDGX 
Options Book at a price of 1.15 (pursuant to the Price Adjust process 
as proposed above). Similar to the current reasons that would cause an 
exposure period to terminate early (see current Rule 21.18(d)), the 
proposed early termination provision will prevent an exposure period 
from continuing while conditions exist that would have prevented an 
exposure period from beginning if those conditions existed prior to the 
exposure period.
    The proposed rule change amends Rule 21.19(e) to provide that AON 
orders will have last priority at price levels better than the stop 
price following the conclusion of an

[[Page 16125]]

Automated Improvement Mechanism (``AIM'') auction if there is 
sufficient size to satisfy the size of the AON order (with Priority 
Customer AON order trading ahead of non-Priority Customer AON orders). 
AON orders resting at the stop price will not trade against the Agency 
Order, even if the Initiating Member of an AIM auction selects last 
priority.\38\ As discussed above, AON orders will have last priority at 
each price level. The Exchange notes there would be significant 
technical complexities associated with reprogramming priority within 
the System to provide AON orders with second to last priority in a 
specific (and likely uncommon situation), as would be required to 
permit AON orders to execute at the stop price, even if the Initiating 
Member selects last priority. The Exchange believes it would be rare 
for there to be a resting AON order at the stop price of an AIM Auction 
that could be satisfied by the remaining contracts of an Agency Order 
at that stop price, and thus the Exchange believes the proposed rule 
change will have a de minimis impact, if any, on the execution 
opportunities for resting AON orders.
---------------------------------------------------------------------------

    \38\ See Rule 21.19(e)(1) and (5). The proposed rule change 
amends Rule 21.19(e)(1), which sets forth the priority of resting 
orders at the stop price, to state that AON orders will be excluded 
when the Agency Order executes against contra-side interest (after 
Priority Customer Orders, the specified percentage of the Initiating 
Order, and Priority Orders). Therefore, AON orders at the stop price 
will not execute at the stop price in any situation. While not 
specified in Cboe Options rules, the Exchange understands this 
proposed change is the same as Cboe Options functionality.
---------------------------------------------------------------------------

    The proposed rule change also provides that the System will exclude 
the size of any AON orders when determining the number of contracts the 
Initiating Order will execute against at each price level better than 
the stop price when the Initiating Member selects auto-match.\39\ Due 
to the size contingency of an AON order, the System cannot determine 
whether there will be sufficient contracts remaining in the Agency 
Order to execute against any AON order at a price level until after 
execution of the applicable number of contracts against the Initiating 
Order and other contra-side interest. However, after those auto-match 
executions at that price level, the System will execute the Agency 
Order against any AON orders at that price level for which the size can 
be satisfied by the remaining contracts in the Agency Order.\40\
---------------------------------------------------------------------------

    \39\ See proposed Rule 21.19(e)(3). While not specified in Cboe 
Options rules, the Exchange understands this proposed change is the 
same as Cboe Options functionality.
    \40\ See proposed Rule 21.19(e)(3). After executions at price 
levels better than the stop price, including against AON orders for 
which the size can be satisfied at those price levels, if there are 
remaining contracts from the Agency Order at the stop price, those 
contracts will execute against contra-side interest as set forth in 
subparagraph (e)(1). While not specified in Cboe Options rules, the 
Exchange understands this proposed change is the same as Cboe 
Options functionality.
---------------------------------------------------------------------------

    The Exchange proposes to make the AON instruction available for 
complex orders.\41\ An AON complex order is a complex order that (like 
an AON simple order) is to be executed in its entirety or not at 
all.\42\ An AON complex order may only execute following a complex 
order auction (``COA''),\43\ and will not be eligible to rest in the 
complex order book (``COB'').\44\ An incoming AON complex order will 
initiate a COA. If a Member marks an AON complex order to not initiate 
a COA (i.e., as a do-no-COA order), or an AON complex order does not 
satisfy the COA eligibility criteria in Rule 21.20(d)(1), the System 
cancels the AON complex order.\45\ The Exchange believes that, like AON 
simple orders, AON complex orders that would rest on the COB would have 
last priority, and would have even fewer execution opportunities 
because they would not be able to execute at the same price as resting 
interest until after both simple and complex order interest executed. 
Therefore, an AON complex order resting on the COB would have minimal 
execution opportunities given its size contingency. The Exchange 
believes there would be little value, in terms of executing 
opportunities, in permitting AON complex orders to rest in the COB.
---------------------------------------------------------------------------

    \41\ See Cboe Options Rule 6.53C(b); see also Phlx Rule 
1098(b)(v); and ISE Rule 722(b)(3). The proposed rule change amends 
Rule 21.20(b) to change references to the term ``User'' to 
``Member'' to be consistent with the remainder of Rule 21.20, which 
only uses the term ``Member.''
    \42\ See proposed Rule 21.20(b)(6).
    \43\ See Rule 21.20(d).
    \44\ While not specified in Cboe Options rules, the Exchange 
understands AON complex orders on Cboe Options may only initiate a 
COA and will be cancelled if not executed following a COA (and thus 
are not eligible to rest in the Cboe Options COB). This is set forth 
in Cboe Options Regulatory Circular RG17-042 (March 24, 2017), 
available at https://www.cboe.com/publish/RegCir/RG17-042.pdf. Other 
options exchanges require AON complex orders to be IOC, and thus 
similarly do not permit AON complex orders to rest in a complex 
order book. It is not clear from their rules whether such orders may 
enter a complex order auction on those exchanges. See, e.g., ISE 
Rule 722(b)(3).
    \45\ See proposed Rule 21.20(b)(2) and (d)(1).
---------------------------------------------------------------------------

    At the conclusion of a COA of an AON complex order, the AON complex 
order may only execute against COA responses and unrelated complex 
orders on the COB in price-time priority if there is sufficient size to 
satisfy the AON complex order. If there is insufficient size to satisfy 
the AON complex order at the conclusion of the COA, the System cancels 
the order.\46\ AON complex orders may not Leg into the Simple Book to 
execute against individual orders in the legs because of the manner in 
which complex orders on EDGX execute following a COA.\47\ Pursuant to 
current EDGX Rules for execution following a COA, a complex order will 
be allocated first in price priority and then at the same price to 
Priority Customer orders resting on the Simple Book, COA responses and 
unrelated complex orders on the COB in time priority, and remaining 
individual orders in the Simple Book (i.e., non-Priority Customer), 
which will be allocated pursuant to Rule 21.8.\48\
---------------------------------------------------------------------------

    \46\ See proposed Rule 21.20(d)(7). Currently, after a COA, a 
complex order will execute first against Priority Customer orders 
resting on the Simple Book, then against COA responses and unrelated 
orders on the COB, and finally against remaining individual orders 
in the Simple Book. See Rule 21.20(d)(7).
    \47\ See proposed Rule 21.20(c)(2)(F) and (d)(7).
    \48\ See Rule 21.20(d)(7).
---------------------------------------------------------------------------

    The Simple Book and the COB are separate, and orders on each do not 
interact unless a complex order Legs into the Simple Book. As a result, 
the System is not able to calculate the aggregate size of COA responses 
and complex orders on the COB and the size of simple orders in the legs 
that comprise the complex strategy at each potential execution price 
(as executions may occur at multiple prices) prior to execution of an 
order following a COA. Following a COA, the System first looks to 
determine whether there are Priority Customer orders resting in the 
Simple Book at the final auction price (and in the applicable ratio). 
If there are, the System executes the complex order against those 
simple orders. Following that execution, the System then looks back at 
the COA responses and complex orders resting in the COB to determine 
whether there is interest against which the order can execute. If there 
is, the System executes the remaining portion of the complex order 
against that complex contra-side interest. Finally, if there is any 
size left, the System looks back at the Simple Book to determine 
whether any orders in the legs are able to trade against any remaining 
contracts in the complex order. If there is, the System executes the 
remaining portion of the complex order again against orders in the 
Simple Book. Because of this process, prior to execution against any 
Priority Customer orders, the System would not know whether there is 
sufficient aggregate interest in both the Simple book and COB to 
satisfy the entire size of the AON. Additionally, it is possible for a 
complex order to execute at multiple price levels. This

[[Page 16126]]

process would have to occur at each price level. Therefore, if the 
Exchange were to permit Legging of AON complex orders into the Simple 
Book, it would be possible for a partial execution to occur, which is 
inconsistent with the AON instruction. The Exchange notes there would 
be significant technical complexities associated with reprogramming 
priority within the System to permit AON complex orders to Leg into the 
Simple Book and provide AON orders with priority consistent with these 
standard priority principles. Only permitting an AON complex order to 
execute against COA responses and complex orders in the COB ensures the 
size contingency of the AON complex order can be satisfied.\49\
---------------------------------------------------------------------------

    \49\ Cboe Options does not restrict AON orders from legging into 
its simple book. The priority on Cboe Options differs from the 
priority on EDGX Options (on Cboe Options, all orders on the simple 
book have priority over the complex book). However, another options 
exchange restricts AON orders from legging into the simple book 
during the complex order opening process, from the complex order 
book, and following a complex order price improvement auction 
(similar to COA). See, e.g., Phlx Rule 1098(d)(ii)(C)(2), 
(e)(vi)(A), (e)(viii)(C)(3), and (f)(iii)(A). Phlx also only permits 
non-broker-dealer customers to submit AON complex orders. See Phlx 
Rule 1098(b)(v).
---------------------------------------------------------------------------

    To ensure protection of orders on the Simple Book given this 
restriction on Legging, an AON complex order may only execute following 
a COA if it improves the then-current (i.e., existing at the conclusion 
of the COA) synthetic Exchange best bid or offer (``SBBO'').\50\ If 
there is insufficient size among COA responses and unrelated complex 
orders to satisfy the AON complex order following a COA, the System 
cancels the order.\51\
---------------------------------------------------------------------------

    \50\ See proposed Rule 21.20(c)(2)(E) and (d)(6).
    \51\ See proposed Rule 21.20(d)(7).
---------------------------------------------------------------------------

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.\52\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \53\ 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) \54\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78f(b).
    \53\ 15 U.S.C. 78f(b)(5).
    \54\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change protects investors because 
it provides them with an additional order instruction that may be 
applied to both simple and complex orders. This provides investors with 
additional flexibility and more control over their executions of both 
simple and complex orders on the Exchange. The proposed rule change 
also benefits investors by providing transparency regarding how the 
System will handle and execute AON orders, which handling and execution 
are consistent with the size contingency of AON orders. As noted above 
and below, the proposed definition and several other portions of the 
proposed rules are based on rules and current functionality of Cboe 
Options.\55\
---------------------------------------------------------------------------

    \55\ See Cboe Options Rules 6.53(i) and 6.44, Interpretations 
.02 and .03; see also ISE Rule 715(c); and NOM Chapter VI, section 
1(e)(10).
---------------------------------------------------------------------------

    The Exchange believes not permitting Users to apply the Post Only 
instruction to AON orders will protect investors, because it will 
maximize execution opportunities for AON orders. An AON order's size 
contingency, and the fact that AON orders will have last priority while 
resting in the EDGX Options Book, will provide AON orders resting on 
the EDGX Options Book with few opportunities for AON orders to receive 
an execution. For this reason, the Exchange believes there will be 
minimal investor demand for Post Only AON orders. This ensures that an 
AON order may execute upon entry if there is sufficient size resting on 
the EDGX Options Book. Additionally, as noted above, other exchanges do 
not permit AON orders to rest in the book at all (as they are required 
to be IOC).\56\ Unlike those exchanges, the Exchange will permit AON 
orders to rest in the EDGX Options Book, and will merely not permit AON 
orders to only rest in the book. Cboe Options does not offer a Post 
Only instruction, and therefore, an AON order submitted to EDGX Options 
will be handled in the same manner as it would be handled on Cboe 
Options, as such an order would execute upon entry (if possible), route 
(if eligible), or enter the EDGX Options Book (subject to any User 
instructions).
---------------------------------------------------------------------------

    \56\ See, e.g., ISE Rule 715(c); NOM Chapter VI, section 
1(e)(10); and Phlx Rule 1066(c)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change to offer use of the 
MCN Modifier (and not the other MTP Modifiers) for AON orders protects 
investors, because it provides all investors with the option to apply 
match-trade prevention functionality to AON orders. The Exchange 
believes there will be little demand for the use of any MTP Modifiers 
on AON orders given that primarily retail investors submit AONs, and 
retail investors are unlikely to have interest on both sides of the 
market. Given this expected minimal demand, the Exchange believes 
offering one MTP Modifier for AON orders is sufficient. Additionally, 
the Exchange believes that MCN is the most appropriate MTP modifier for 
AON orders because an offering of other MTP modifier for investors 
would present significant technical complexities given the size 
contingency of AON orders and that MCN is the simplest modifier to 
implement from a System perspective.\57\ The proposed rules provide 
investors with sufficient transparency regarding how the System will 
handle AON orders with MTP Modifiers, and Users may achieve other 
results manually if so desired. For example, if a User were to prefer 
to have a resting order with an MTP Modifier cancel and let the newer 
AON order rest, it could manually cancel the resting order and then 
resubmit the AON order. The Exchange has determined to handle an AON 
order with any other MTP Modifier as an MCN rather than cancel the AON, 
and the Exchange believes the proposed rules will protect investors 
because they provide investors with sufficient transparency regarding 
how the System will handle AON orders with MTP Modifiers. Additionally, 
Users may achieve other results manually if so desired.
---------------------------------------------------------------------------

    \57\ Additionally, the Decrement and Cancel MTP Modifier is 
inconsistent with an AON order, because it may result in partial 
execution of an order.
---------------------------------------------------------------------------

    Cboe Options offers match trade prevention only for market-makers, 
and thus the Cboe Options rules regarding AON orders contains no 
restrictions on the use of match trade prevention instructions, as it 
would only be available to market-makers that submit AON orders. 
Because the Exchange has match-trade prevention functionality available 
for all Users and not just Market-Makers, the Exchange believes it is 
appropriate to provide this functionality to all Users that submit AON 
orders and want match trade prevention functionality. The Exchange

[[Page 16127]]

believes offering one MTP Modifier is sufficient given that non-market-
makers on Cboe Options currently have no match-trade prevention 
functionality available for AON orders.
    The Exchange believes the proposed Price Adjust process with 
respect to AON orders will protect investors, because it will rest an 
AON order on the EDGX Options Book at an executable price (i.e., a 
price that locks or is one minimum price variation away from the new 
Protected Quotation or AON resting on the EDGX Options Book at or 
better than the Exchange's BBO) while preventing trade-throughs as the 
market changes and protecting non-AON orders resting on the opposite 
side of the EDGX Options Book. The proposed process will generally re-
price the incoming (and thus later arriving order), which is consistent 
with the current Price Adjust process. However, the proposed rule 
change will reprice a resting AON order rather than an incoming non-AON 
order, because AON orders have last priority (as discussed below) and 
are not displayed, and thus should not cause the price of a non-AON 
order to reprice. Repricing an AON order one minimum price variation 
away from the price of a resting non-AON order is consistent with the 
repricing that applies to non-AON orders that lock or cross the 
opposite side NBBO.
    The Exchange believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with linkage rules. 
AON orders will not be part of the EDGX BBO, and repricing an AON order 
to lock the Protected Quotation of an away market or a resting (and 
nondisplayed) AON order on the EDGX Options Book at a price at or 
better than the Exchange's BBO will, therefore, not result in a 
displayed locked market in accordance with linkage rules.\58\ The 
Exchange believes the proposed rule change is a reasonable application 
of the current Price Adjust process to avoid displaying a locked or 
crossed market and to prevent trade-throughs while making AON orders 
resting on the EDGX Options Book available for execution at executable 
prices (i.e., a price that locks (but not crosses) a Protected 
Quotation of another options exchange or another AON resting on the 
EDGX Options Book, but not a price that locks or crosses a Protected 
Quotation on the EDGX Options Book. The proposed process will generally 
re-price the incoming (and thus later arriving order), which is 
consistent with the current Price Adjust process. However, the proposed 
rule change will reprice a resting AON order rather than an incoming 
non-AON order, because AON orders have last priority (as discussed 
above) and are not displayed or protected, and thus should not cause 
the price of an incoming non-AON order to reprice.
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    \58\ See Rule 27.3(a).
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    Cboe Options does not have functionality that corresponds to the 
Price Adjust process. Therefore, an AON order that enters the Cboe 
Options book may rest at a price that locks or crosses the Cboe Options 
market or an away market (and thus, it is not novel or unique to permit 
an AON order to rest at a price that locks or crosses the Exchange's 
market or an away market, as the proposed rule change permits). As 
demonstrated above, even though the proposed rule change does not 
permit an AON order to rest at a price that crosses an away market or 
an AON order on the EDGX Options Book, or that locks or crosses a 
Protected Quotation on the EDGX Options Book, the Price Adjust process 
as proposed will ultimately create the same potential execution for an 
AON order resting on the EDGX Options Book that would otherwise occur 
for an AON order resting on the Cboe Options Book, and in some cases 
may result in price improvement for an AON.
    Additionally, while the current Price Adjust process does not 
permit an incoming order to rest at a price that locks a Protected 
Quotation on the Exchange or an away options exchange, the display-
price sliding process on BZX Options does permit an incoming order to 
be ranked and eligible for execution at a locking price.\59\ Pursuant 
to the BZX display-price sliding process, an order that, at the time of 
entry, would lock or cross a Protected Quotation of another options 
exchange will be ranked at the locking price in the BZX Options Book 
and displayed by the System at one minimum price variation below [sic] 
the current opposite-side NBBO. While an AON order, as proposed, will 
not be displayed at any price on the Exchange (as an AON order is never 
displayed), it will be ranked at a price that locks a Protected 
Quotation of an away market (and a resting AON order on the Exchange).
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    \59\ See BZX Options Rule 21.1(h).
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    Recently, NYSE Arca, Inc. (``Arca'') adopted order types called the 
Repricing Liquidity Adding Order (``RALO'') and the Repricing Post No 
Preference Order (``RPNP'').\60\ While these are different order types 
than an AON, pursuant to the repricing process, if either of these 
orders would not be able to trade upon entry (for example, because the 
RALO would take liquidity or display at a price that locks or crosses 
any interest on the Exchange or the NBBO), it would be displayed at one 
minimum price variation below (above) such sell (buy) interest. 
However, it would have an undisplayed price at which it is eligible to 
trade. The displayed and nondisplayed prices would move as the market 
moves. Like these order types, an AON order will rest at an undisplayed 
price (which price will move as the market moves) at which it is 
eligible for execution (in accordance with linkage rules). However, an 
AON order will not have a displayed price, as it is never displayed 
(unlike an RALO or RPNP).
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    \60\ See Securities Exchange Act Release No. 84737 (December 6, 
2018), 83 FR 63919 (December 12, 2018) (SR-NYSEArca-2018-74) (order 
approving the proposed order types).
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    Therefore, it is not novel or unique to permit an order to be 
ranked at an undisplayed price on an exchange at a price that locks the 
best-priced quote of that exchange or an away exchange, at which price 
it is eligible for execution, and which price may be adjusted in 
response to changes in the market.
    The proposed rule change to only route an AON order as a FOK to 
options exchanges with sufficient size to satisfy the AON order will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, because it is consistent with 
linkage rules and current Cboe Options functionality.
    The proposed rule change to not permit use of the Super Aggressive 
Re-Route instruction to AON orders is consistent with the proposed 
Price Adjust process, which provides that an AON order may rest at a 
price that locks the price of an away options exchange. This proposed 
change will remove impediments to and perfect the mechanism of a free 
and open market and a national market system, because it is consistent 
with linkage rules. The Super Aggressive Re-Route instruction provides 
that an order on the EDGX Options Book that subsequently locks or 
crosses the price of another options exchange, the System will route 
the order to that exchange to an AON order. This instruction conflicts 
with the proposed Price Adjust process for an AON order, which may 
enter the EDGX Options Book at a price that locks the price of another 
options exchange, which price is executable if subsequent contra-side 
interest is submitted to the Exchange.

[[Page 16128]]

    The proposed rule change will further remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, because it will handle resting AON orders that become 
subsequently locked by an away market in the same manner as Cboe 
Options handles resting AON orders that become subsequently locked by 
an away market. In both cases, AON orders will remain on the local 
respective book. However, the proposed rule change will benefit 
investors, because it provides a resting AON order that becomes 
subsequently crossed by an away market with an opportunity (if a User 
designated the order with the Aggressive Re-Route instruction) to route 
to the away market for execution. This execution opportunity is not 
currently available on Cboe Options, and thus a similar AON order would 
remain on the Cboe Options book.
    The proposed rule change to exclude AON orders from participating 
in the Exchange's opening process will protect investors and promote 
just and equitable principles of trade, because it will provide for the 
opening of a series for trading as soon as possible and not delay the 
opening of a series to attempt to execute AON orders (which ultimately 
may not be able to execute). The Exchange believes not attempting to 
execute AON orders until after the Opening Process would have a de 
minimis impact, if any, on the time of execution of an AON order that 
is able to execute at the opening. The proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because excluding AON orders from 
participating during the Opening Process is equivalent to Cboe Options 
excluding AON orders from participating in its opening process in 
classes in which it has not activated HAL, because the Exchange has not 
activated SUM during the Opening Process.\61\
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    \61\ See Cboe Options Rule 6.2(c)(1)(B). Additionally, Cboe 
Options' opening process is an auction and thus significantly 
different than the Exchange's Opening Process, which is a cross at a 
valid price as set forth in Rule 21.7.
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    The Exchange believes the proposed rule change regarding the 
priority and allocation of AON orders promotes just and equitable 
principles of trade, as it is reasonable for orders not displayed in 
the book to not receive priority over orders that are displayed, as 
this encourages market participants to display their best bids and 
offers, which may lead to enhanced liquidity and tighter markets. The 
Exchange believes an AON order must always be last in priority at each 
price level to ensure there is sufficient size to satisfy the condition 
of that order to trade in its entirety after all other orders at the 
same price have executed. The proposed priority for AON orders will 
remove impediments to and perfect the mechanism of a free and open 
market and national market system, because it is the same as the 
priority of AON orders on Cboe Options.\62\
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    \62\ See Cboe Options Rules 6.44, Interpretation and Policy .01 
and 6.45(a)(v)(D); see also Cboe Options Rule 6.44, Interpretation 
and Policy .02.
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    The Exchange believes the proposed rule change regarding the 
handling of AON orders exposed pursuant to SUM will protect investor, 
because it will provide AON orders with execution opportunities when 
the Exchange is not at the NBBO in a manner consistent with the current 
SUM process. The proposed rule change modifies the SUM process only to 
address an AON order's size contingency. The proposed rule change that 
the exposure period for an AON order will terminate when there is 
sufficient aggregate contra-side interest to satisfy the exposed AON 
order is consistent with the current SUM process, except it will not 
execute any incoming contra-side interest immediately against the 
exposed AON order, unless it has sufficient size (as occurs for an 
exposed non-AON order). This will prevent a partial execution in 
conflict with the AON size contingency. This proposed rule change is 
also the same as current Cboe Options HAL functionality. The proposed 
rule change regarding an early termination of the exposure period of an 
AON order is consistent with current reasons that will cause an 
exposure period to terminate, as it will prevent an exposure period 
from continuing while conditions exist that would have prevented an 
exposure period from beginning if those conditions existed prior to the 
exposure period. Except for these two proposed changes, an exposed AON 
order will be processed in the same manner as any other order exposed 
through SUM. The proposed rule change will remove impediments to and 
perfect the mechanism of free and open market and a national market 
system, because it ensures the entire AON order will trade at a price 
equal to or better than the NBBO in accordance with linkage rules.
    The proposed allocation of AON orders following an AIM auction will 
protect investors, because it will provide Priority Customers and other 
displayed interest with priority over non-displayed orders and is 
consistent with the proposed general priority of AON orders described 
above. As noted above, the Exchange believes this encourages market 
participants to display their best bids and offers, which may lead to 
enhanced liquidity and tighter markets. While AON orders will not be 
eligible for execution at the stop price, the Exchange believes it 
would be rare for there to be a resting AON order at the stop price of 
an AIM Auction that could be satisfied by the remaining contracts of an 
Agency Order at that stop price. The Exchange notes there would be 
significant technical complexities associated with reprogramming 
priority within the System to provide AON orders with second to last 
priority in a specific (and likely uncommon situation), as would be 
required to permit AON orders to execute at the stop price, even if the 
Initiating Member selects last priority. The Exchange believes the 
proposed rule change will have a de minimis impact, if any, on the 
execution opportunities for resting AON orders. Similarly, due to the 
size contingency of an AON order, the System cannot determine whether 
there will be sufficient contracts remaining in the Agency Order to 
execute against any AON order at a price level until after execution of 
the applicable number of contracts against the Initiating Order and 
other contra-side interest. However, AON orders at each price level 
better than the stop price for which the size can be satisfied by the 
remaining contracts in the Agency Order will execute. The Exchange also 
believes the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, because it is the same as the allocation of AON orders 
following an AIM auction on Cboe Options.
    The proposed rule change to require AON complex orders to COA and 
not permit them to rest in the COB or Leg into the Simple Book will 
protect investors, because it will provide AON complex orders with 
opportunities for execution and continue to protect orders on the 
Simple Book. As the Exchange noted above, there would be significant 
technical complexities associated with reprogramming priority within 
the System to permit AON complex orders to Leg into the Simple Book and 
provide AON orders with priority consistent with the standard priority 
principles described above. The Exchange notes that other options 
exchange do not permit AON complex orders to rest in the complex order 
book \63\ or to leg into

[[Page 16129]]

the simple book.\64\ In addition, as described above, the proposed rule 
change protects resting Leg market interest because AON complex orders 
may not execute unless they improve the SBBO at the conclusion of a 
COA.
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    \63\ See, e.g., ISE Rule 722(b)(3) (which requires AON complex 
orders to be submitted as IOC orders). While not specified in Cboe 
Options rules, the Exchange understands this proposed change is the 
same as Cboe Options functionality.
    \64\ See, e.g., Phlx Rule 1098(e)(vi)(A).
---------------------------------------------------------------------------

    As noted above, the proposed rule change will remove impediments to 
and perfect the mechanism of free and open market and a national market 
system, because other options exchanges offer similar 
functionality.\65\ Additionally, as discussed above, the proposed rule 
change will benefit investors, because it provides additional detail on 
which the rules of other exchanges are silent, such as detail regarding 
routing and handling during auctions. The Exchange believes the 
proposed application of Exchange functionality to AON orders (some of 
which is not available on other exchanges) is consistent with current 
Exchange functionality. Additionally, any differences with respect to 
how that functionality will apply to AON orders have been proposed only 
due to the size contingency of an AON order and the fact that an AON 
order is not displayed. The Exchange believes that the proposed rule 
change will provide Users with transparency regarding how the System 
will handle their AON orders.
---------------------------------------------------------------------------

    \65\ See, e.g., Cboe Options Rule 6.53(i); ISE Rule 715(c); PHLX 
Rule 1066(c)(4); NOM Chapter VI, Section 1(e)(10); and Arca Rule 
6.62-O(d)(4) (AON simple orders); see also Cboe Options Rule 
6.53C(b); Phlx Rule 1098(b)(v); and ISE Rule 722(b)(3) (AON complex 
orders).
---------------------------------------------------------------------------

    The proposed rule change will protect investors, because it will 
provide Users with additional flexibility to manage their orders on the 
Exchange, as well as increased functionality on the Exchange. This may 
encourage market participants to bring additional liquidity to the 
market, which benefits all investors. Additionally, this will provide 
Users with greater harmonization between the order handling 
instructions available among the Cboe Affiliated Exchanges. 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 proposed rule change would also provide Users 
with access to functionality that is generally available on options 
exchanges other than the Cboe Affiliated Exchanges,\66\ which will 
provide Users with additional flexibility and increased functionality 
on the Exchange's System.
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

    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 proposed rule change 
will not impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act, 
because use of the AON order instruction on simple and complex orders 
will be optional and available to all Users. All Users may determine 
whether to apply an AON order instruction to the simple or complex 
orders they submit to the Exchange. The System will handle all AON 
orders submitted to the Exchange in the same manner in accordance with 
the proposed rule change. The Exchange believes the proposed priority 
and allocation of AON orders is reasonable, as it is consistent with 
current allocation principles that provide for displayed interest to 
trade ahead of nondisplayed interest, and ensures an AON order will 
only execute if there is sufficient size to satisfy its size 
contingency.
    Additionally, the proposed rule change will not impose any burden 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, because other options exchanges 
offer similar functionality, as discussed above.\67\ The Exchange 
believes this proposed rule change is necessary to permit fair 
competition among the options exchanges. Additionally, the Exchange 
believes the proposed application of Exchange functionality (such as 
MTP Modifiers, SUM, routing instructions, and AIM) to AON orders is 
consistent with current Exchange functionality and modified such 
functionality only to account for the size contingency of an AON order 
and the fact that an AON order is not displayed, and believes that the 
proposed rule change will provide Users with additional transparency 
regarding how the System will handle their AON orders. The Exchange 
believes that the proposed rule change will relieve any burden on, or 
otherwise promote, competition, because it will permit the Exchange to 
offer Users similar functionality that is current available to market 
participants on other options exchanges.
---------------------------------------------------------------------------

    \67\ See, e.g., Cboe Options Rule 6.53(i); ISE Rule 715(c); PHLX 
Rule 1066(c)(4); NOM Chapter VI, Section 1(e)(10); and Arca Rule 
6.62-O(d)(4) (AON simple orders); see also Cboe Options Rule 
6.53C(b), Phlx Rule 1098(b)(v), and ISE Rule 722(b)(3) (AON complex 
orders).
---------------------------------------------------------------------------

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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \68\ and 
Rule 19b-4(f)(6) \69\ thereunder.\70\
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    \68\ 15 U.S.C. 78s(b)(3)(A).
    \69\ 17 CFR 240.19b-4(f)(6).
    \70\ 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.
---------------------------------------------------------------------------

    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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

[[Page 16130]]

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-2019-017 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-2019-017. 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-2019-017 and should be 
submitted on or before May 8, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\71\
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    \71\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07616 Filed 4-16-19; 8:45 am]
 BILLING CODE 8011-01-P