8011-01P
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93888; SR-CboeBZX-2021-086]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed
Rule Change to Amend the Opening Auction Process Provided Under Rule 11.23(b)(2)(B)
December 30, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),1 and
Rule 19b-4 thereunder,2 notice is hereby given that on December 21, 2021, Cboe BZX
Exchange, Inc. (the “Exchange” or “BZX”) filed with the Securities and Exchange Commission
(the “Commission”) the proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I.

Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed
Rule Change
The Exchange proposes a rule change to amend the Opening Auction process provided

under Rule 11.23(b)(2)(B) to better align the Opening Auction Process with current market
conditions, and, where certain market conditions are not optimal, to delay the Opening Auction
from occurring until those market conditions have improved.
The text of the proposed rule change is also available on the Exchange’s website
(http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange’s Office of
the Secretary, and at the Commission’s Public Reference Room.
II.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the Exchange included statements concerning the

purpose of and basis for the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at the places specified in

1
15 U.S.C. 78s(b)(1).
17 CFR 240.19b-4.

Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of
the most significant aspects of such statements.
A.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1.

Purpose

The Exchange proposes to amend Rule 11.23(b)(2)(B) to make the Opening Auction process
more dynamic by, under certain circumstances delaying the Opening Auction in order to incorporate
additional information into the determination of the Opening Auction price. Specifically, as proposed
the Rule would provide that when there is no Valid NBBO3 in a BZX-listed security and there is an
Indicative Price4 that is not within the Collar Price Range,5 the Opening Auction will be delayed until
there is a Valid NBBO or the delay period has lapsed, as further described below. The Exchange
believes that the proposal will make the Opening Auction price in less liquid securities more
representative of current market conditions making the Opening Auction process a more meaningful
price formation event in such BZX-listed securities.
Background
Rule 11.23(b)(2)(B) sets forth the process by which the BZX Official Opening Price6 is
determined for BZX-listed securities during the Opening Auction Process. Specifically, as provided
in Rule 11.23(b)(2)(B), the Opening Auction price will be the price level within the Collar Price

As provided in Rule 11.23(a)(23), an NBBO is a Valid NBBO where: (i) there is both a
NBB and NBO for the security; (ii) the NBBO is not crossed; and (iii) the midpoint of the
NBBO is less than the Maximum Percentage away from both the NBB and the NBO. See
Exchange Rule 11.23(a)(23).

The term “Indicative Price” shall mean the price at which the most shares from the
Auction Book and the Continuous Book would match. In the event of a volume based tie
at multiple price levels, the Indicative Price will be the price which results in the
minimum total imbalance. In the event of a volume based tie and a tie in minimum total
imbalance at multiple price levels, the Indicative Price will be the price closest to the
Volume Based Tie Breaker. See Exchange Rule 11.23(a)(10).

See Exchange Rule 11.23(a)(6).

See Exchange Rule 11.23(a)(5).

Range that maximizes the number of shares executed between the Continuous Book7 and Auction
Book8 in the Opening Auction. In the event of a volume based tie at multiple price levels, the
Opening Auction price will be the price which results in the minimum total imbalance. In the event
of a volume based tie and a tie in minimum total imbalance at multiple price levels, the Opening
Auction price will be the price closest to the Volume Based Tie Breaker.9
The Volume Based Tie Breaker for an Opening Auction will be the midpoint of the NBBO
where there is a Valid NBBO. Where there is no Valid NBBO, the FLSET will be used as the
Volume Based Tie Breaker. Because the FLSET is typically based on the most recent execution in a
security during Regular Trading Hours, its value may be significantly away from the Indicative
Price at the time of the Opening Auction process, especially in more thinly traded securities. As a
result, the Exchange has observed instances where auction eligible orders priced in-line with the
Indicative Price were not executed in the Opening Auction because they were outside the Collar
Price Range established using the FLSET. Based on analysis by the Exchange and feedback from
market participants, certain of these instances resulted in orders not receiving executions in the
Opening Auction that would have otherwise occurred at prices that would have been acceptable to
both parties to the execution. To illustrate this point, the Exchange presents the following example:
consider a security with a prevailing NBBO at 9:30:00 a.m. of $27.10 x $29.54 and an Indicative
Price of $27.90. Because the midpoint of the NBBO (i.e., $28.32) is more than the Maximum
Percentage away from both the NBB and NBO, the NBBO is not a Valid NBBO. Accordingly, the
FLSET would be used as the Volume Based Tie Breaker, which would by definition be the BZX
Official Closing Price from the previous business day. For purposes of this example, that price is

See Exchange Rule 11.23(a)(7).

See Exchange Rule 11.23(a)(1).

The Volume Based Tie Breaker is the midpoint of the NBBO for a particular security
where the NBBO is a Valid NBBO. Where the NBBO is not a Valid NBBO, the price of
the FLSET is used as the Volume Based Tie Breaker, which for the Opening Auction
process is the previous BZX Official Closing Price. See Exchange Rule 11.23(a)(23).

$26.52. Using the FLSET as the Collar Midpoint, the Collar Price Range would be $25.19 x $27.85.
Because the Indicative Price is outside of the Collar Price Range, the auction would occur at the
upper most price that is included in the Collar Price Range (i.e., $27.85) even though more shares
could have executed at $27.90. Because the Opening Auction was forced into the Collar Price
Range and occurred at $27.85, a contingent of auction eligible orders that would have executed at
$27.90 that were priced equally to or more aggressive than the Indicative Price and within the
NBBO (i.e., sell orders priced between $27.86 and $27.90) would be canceled without execution.10
Proposal
Based on the scenario described above, the Exchange is proposing to amend its Opening
Auction process such that rather than immediately forcing the Opening Auction to occur at either
the lowest or highest end of the Collar Price Range and cancelling auction eligible orders that were
willing to execute at the Indicative Price but outside of the Collar Price Range, the System would
instead wait for the first of a Valid NBBO, the Indicative Price to be within the Collar Price Range,
or the passage of a certain amount of time before initiating the Opening Auction process, as
described in additional detail below. Proposed Rule 11.23(b)(2)(B)(i) would set forth the “Standard
Opening Process”, which mirrors the current process described in Rule 11.23(b)(2)(B). Proposed
Rule 11.23(b)(2)(B)(ii) would provide that if there is no Valid NBBO and the Indicative Price is
within the Collar Price Range, the Opening Auction price will be established pursuant to the
Standard Opening Process. Proposed Rule 11.23(b)(2)(B)(iii) would delay and set forth an
alternative Opening Auction Process in the event there is no Valid NBBO and the Indicative Price is
not within the Collar Price Range. The proposal is designed to prevent the cancellation of auction
eligible orders priced equally or more aggressively than the Indicative Price which the Exchange
believes will facilitate the presence of sufficient liquidity and information to make the Opening
Auction a meaningful price formation event in BZX-listed securities.

See Exchange Rule 11.23(b)(3)(C)

Proposed Rule 11.23(b)(2)(B)(iii) would provide that the Opening Auction price will be
delayed as set forth in subparagraphs (a) and (b) as follows:
(a)

If after the one-second delay there is a Valid NBBO or the Indicative Price is within
the Collar Price Range, the Opening Auction price will be established pursuant to
the Standard Opening Auction Process. If there is no Valid NBBO and the Indicative
Price is not within the Collar Price Range after the one-second delay, the Opening
Auction will be delayed by one additional second, at which point if there is a Valid
NBBO or the Indicative Price is within the Collar Price Range, the Opening Auction
price will be established pursuant to the Standard Opening Process. If after the
additional one-second delay there is a Valid NBBO or the Indicative Price is not
within the Collar Price Range, the process described in this paragraph (a) will
continue to be applied in one-second increments until either the Opening Auction
occurs or until five seconds has lapsed (i.e., 9:30:05 a.m.).

(b)

If the Opening Auction has not occurred by 9:30:05, the System will widen the
Collar Price Range in the direction of the auction imbalance by 5% of the Final Last
Sale Eligible Trade as of 9:30:05 a.m. (the “Widening Amount”). If the Indicative
Price is within the widened Collar Price Range, the Opening Auction price will be
established pursuant to the Standard Opening Auction Process. If the Indicative
Price is not within the widened Collar Price Range, the Opening Auction will be
further delayed, as discussed below.

Proposed Rules 11.23(b)(2)(B)(iii)(b)(1) through (4) would set forth the delay of the
Opening Auction if no auction has occurred between 9:30:05 and 9:34:30. Specifically, the
proposed Rules would provide:
(1) The System will check to see whether the Indicative Price is inside the widened Collar Price
Range every second between 9:30:05 and 9:30:30 a.m. If an Indicative Price is inside the

widened Collar Price Range during a check, the Opening Auction price will be established
pursuant to the Standard Opening Auction Process.
(2) If by 9:30:30 a.m. the Indicative Price is not within the widened Collar Price Range, the
Collar Price Range will again widen by the Widening Amount. The System will check to
see whether the Indicative Price is inside the widened Collar Price Range every second
between 9:30:30 and 9:31:30 a.m. If an Indicative Price is inside the widened Collar Price
Range during a check, the Opening Auction price will be established pursuant to the
Standard Opening Auction Process.
(3) If by 9:31:30 a.m. the Indicative Price is not within the widened Collar Price Range, the
System will check to see whether the Indicative Price is inside the widened Collar Price
Range every second between 9:31:30 and 9:34:30 a.m. If an Indicative Price is inside the
widened Collar Price Range during a check, the Opening Auction price will be established
pursuant to the Standard Opening Auction Process. Unless the Opening Auction has
occurred, the Collar Price Range will widen in the direction of the auction imbalance by the
Widening Amount each minute from 9:31:30 to 9:34:30.
(4) If no Opening Auction has occurred by 9:34:30 a.m., the Opening Auction will occur
pursuant to the Standard Opening Auction Process using the expanded Collar Price Range
as of 9:34:30.
The Exchange also proposes to move the last two sentences of existing Rule 11.23(b)(2)(B)
to proposed Rules 11.23(b)(2)(B)(iv) and (v), respectively. Specifically, proposed Rule
11.23(b)(2)(B)(iv) would provide that the Opening Auction Price will be the BZX Official Opening
Price. Proposed Rule 11.23(b)(2)(B)(v) would provide that in the event that there is no Opening
Auction for an issue, the BZX Official Opening Price will be the price of the FLSET.
Based on the above proposed amendments, the Exchange proposes to amend Rules
11.23(b)(1)(A) and (B) to reflect that the Opening Auction may occur at a time other than 9:30 a.m.
Specifically, the Exchange proposes to amend paragraph (A) to provide the following: Users may

submit orders to the Exchange as set forth in Rule 11.1. Any Eligible Auction Orders11 designated
for the Opening Auction will be queued for participation in the Opening Auction. Users may submit
limit-on-open (“LOO”) and market-on-open (“MOO”) orders until 9:28 a.m., at which point any
additional LOO and MOO orders submitted to the Exchange will be rejected. Regular Hours Only12
(“RHO”) market orders will also be rejected from 9:28 a.m. until the Opening Auction has
concluded. Users may submit late-limit-on-open13 (“LLOO”) orders from 9:28 a.m. until the
Opening Auction has concluded. Any LLOO orders submitted before 9:28 a.m. or after the Opening
Auction has concluded will be rejected. RHO limit orders submitted from 9:28 a.m. until the
Opening Auction has concluded will be treated as LLOO orders.
The Exchange proposes to amend Rule 11.23(b)(1)(B) to provide that Eligible Auction
Orders designated for the Opening Auction may not be cancelled or modified from 9:28 a.m. until
the Opening Auction has concluded except that RHO limit orders designated for the Opening
Auction may be modified, but not cancelled, from 9:28 a.m. until the time the Opening Auction has
concluded. Any such RHO limit orders modified from 9:28 a.m. until the Opening Auction has
concluded will be treated as LLOO orders.
Applying the example discussed above, the Opening Auction would be delayed at
9:30:00 as there was no Valid NBBO and the Indicative Price was outside of the Collar Price
Range. Under the proposal, the Opening Auction would be delayed until either 1) the NBBO
becomes a Valid NBBO, 2) the Indicative Price is within the Collar Price Range (i.e., if the
Opening Auction occurred between 9:30:01 and 9:30:05) or within the widened Collar Price
Range (i.e., if the Opening Auction occurred between 9:30:06 and 9:34:30), or 3) the delay
period of four minutes and 30 seconds lapsed. While the proposal does not guarantee that certain
order priced equally or more aggressive to the Indicative Price will execute in the Opening

See Exchange Rule 11.23(a)(8).

See Exchange Rule 11.9(b)(7).

See Exchange Rule 11.23(a)(12).

Auction, it provides for additional time for the market to develop at the beginning of the trading
day before conducting the Opening Auction.
2.

Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of
the Act.14 Specifically, the proposed change is consistent with Section 6(b)(5) of the Act,15
because it would promote just and equitable principles of trade, remove impediments to and
perfect the mechanism of a free and open market and a national market system, and, in general,
protect investors and the public interest. Generally, the Exchange believes that the proposed
changes will improve the price discovery process in the Opening Auction for securities listed on
the Exchange along with additional benefits set forth below.
First, the Exchange believes proposed Rules 11.23(b)(2)(B)(i) and (ii) will contribute to
the protection of investors and the public interest by memorializing the circumstances under
which the Exchange will continue to operate the Opening Auction in the same way that it does
today. Second, the Exchange believes proposed Rule 11.23(b)(2)(B)(iii) would promote just and
equitable principles of trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, protect investors and the public
interest. The proposal is designed to increase the likelihood that auction eligible orders that are
priced equally or more aggressive than the Indicative Value of the security are able to participate
in the Opening Auction instead of being canceled because they are priced outside the Collar
Price Range established using the FLSET. As stated above, current Rule 11.23(b)(2)(B) provides
that in the event there is no Valid NBBO, the FLSET will be used as the Volume Based Tie
Breaker and basis for calculating the Collar Price Range. Because the current Opening Auction
process occurs at 9:30:00 a.m., such a Collar Price Range is based on an FLSET that may not
have occurred recently or may not otherwise be reflective of current market conditions. As a

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(5).

result, the Exchange has observed instances where auction eligible orders priced equally or more
aggressive than the Indicative Price were canceled without execution because they were outside
the Collar Price Range established using the FLSET. The Exchange believes that the proposed
approach would maximize the execution of auction eligible orders priced equally or more
aggressive than the Indicative Price of the security while still [sic]. As such, the Exchange
believes that the proposal would promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and a national market
system and, in general, protect investors and the public interest by allowing the execution of
orders in the Opening Auction with limit prices reflect current market conditions.
The Exchange notes that the concept of delaying an auction and widening the Collar Price
Range is similar to the Twelfth Amendment of the Plan to Address Extraordinary Market
Volatility16 (the “Plan”). Specifically, Amendment 12 was created to improve re-openings following
a trading pause,17 with an eye towards carefully balancing halt auction price quality and the speed
with which continuous trading can be resumed. Amendment 12 provided that auction halt periods
would be extended if either the auction price at which the most shares would be traded is outside the
range of the pre-defined price threshold collars (the “price threshold collars”) or there is a market
order share imbalance. Further, Amendment 12 provided that the price threshold collars would be
widened in the event that the auction’s halt period is extended. In its approval of Amendment 12,
the Commission stated that it is appropriate in the public interest, for the protection of investors and
the maintenance of a fair and orderly market to provide that a trading pause continue until the
primary listing exchange has reopened trading using its established reopening procedures, even if

See Securities and Exchange Act no. 79410 (November 28, 2016) 81 FR 87114
(December 2, 2016) (Notice of Filing of the Twelfth Amendment to the National Market
System Plan To Address Extraordinary Market Volatility (“Amendment 12”)).

A “trading pause” refers to a function of the Limit Up-Limit Down (“LULD”)
mechanism provided under the Plan. Specifically, the Plan sets for procedures that
provide for market-wide LULD requirements that prevent trades in individual NMS
stocks from occurring outside of the specified price bands and provides for trading pauses
to accommodate more fundamental price moves.

such reopening is more than 10 minutes after the beginning of a trading pause, and to require that
trading centers may not resume trading in an NMS Stock following a trading pause without Price
Bands in such NMS Stock. The Commission believes that these two provisions together support a
more standardized process for reopening trading after a trading pause has been declared. Further,
these provisions ensure that trading would not resume after a trading pause without Price Bands.
Given the similarity of the proposal to Amendment 12, the Exchange believes the proposal is
appropriate, in the public interest, for the protection of investors and the maintenance of a fair and
orderly market
Finally, the Exchange believes its proposed clarifications to Rules 11.23(b)(1)(A) and (B)
to reflect that the Opening Auction may occur at a time other than 9:30 a.m. will contribute to the
protection of investors and the public interest. Specifically, the Exchange believes the proposed
amendments to Rules 11.23(b)(1)(A) and (B) will add clarity, transparency and internal
consistency to Exchange rules making them easier to navigate, in light of the other proposed
Rule changes described herein.
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 not necessary or appropriate in furtherance of the purposes of the Act. To the
contrary, allowing the Exchange to make the above proposed modifications will allow the
Exchange to better compete with other exchanges as a listing venue by improving the
Exchange’s auction process by allowing more executions to occur at more reasonable prices that
are based on the current value of the security. As mentioned above, the Exchange has received
feedback from market participants regarding the issue under the current process, and the
proposed amendments will both address this feedback and improve the Exchange’s auction
process, allowing it to better compete as both a listing and execution venue.
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 up to 90 days (i) as the Commission may designate if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents,
the Commission will:
A.

by order approve or disapprove such proposed rule change, or

B.

institute proceedings to determine whether the proposed rule change should be

disapproved.
IV.

Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning

the foregoing, including whether the proposed rule change is consistent with the Act. Comments
may be submitted by any of the following methods:
Electronic comments:


Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or



Send an e-mail to rule-comments@sec.gov. Please include File Number SR-CboeBZX2021-086 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-CboeBZX-2021-086. This file number

should be included on the subject line if e-mail 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-CboeBZX-2021-086 and should be
submitted on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.18

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-28572 Filed: 1/4/2022 8:45 am; Publication Date: 1/5/2022]

17 CFR 200.30-3(a)(12).