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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES2

promote just and equitable principles of trade, and protect investors and the public interest by ensuring that BSTX
Participants comply with additional regulatory requirements, such as Rule 203 of Regulation SHO 161 as provided in proposed Rule 22010 Failure to Deliver and Failure to Receive, in connection with their participation on BSTX. For example, proposed Rule 22030 Commissions prohibits BSTX
Participants from charging fixed rates of commissions for transactions on the Exchange consistent with Section 6e1
of the Exchange Act.162 Similarly, proposed Rule 22050 Transactions involving Exchange Employees sets forth certain requirements and prohibitions relating to a BSTX
Participant providing certain financial services to an Exchange employee, which the Exchange believes helps prevent potentially fraudulent and manipulative acts and practices and furthers the protection of investors and the public interest.
Trading Practice Rules Rule 23000
Series The Exchange proposes to adopt as its Rule 23000 Series Trading Practice Rules, 14 rules relating to trading practice requirements for BSTX
Participants that are substantially similar to trading practice rules of other exchanges.163 The proposed Rule 23000
Series would specify trading practice requirements related to: i Market manipulation; ii fictitious transactions;
iii excessive sales by a BSTX
Participant; iv manipulative transactions; v dissemination of false information; vi prohibition against trading ahead of customer orders; vii joint activity; viii influencing data feeds; ix trade shredding; x best execution; xi publication of transactions and changes; xii trading ahead of research reports; xiii front running of block transactions; and xiv a prohibition against disruptive quoting and trading activity. The purpose of the trading practice rules is to set forth standards and rules relating to the trading conduct of BSTX Participants, primarily with respect to prohibiting forms of market manipulation and specifying certain obligations brokerdealers have to their customers, such as the duty of best execution. For example, proposed Rule 23000 Market Manipulation sets forth a general prohibition against a BSTX Participant purchasing a security at successively higher prices or sales of a security at 161 17

CFR 242.203.
U.S.C. 78fe1.
163 See Cboe BZX Chapter 12 rules.
162 15

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successively lower prices, or to otherwise engage in activity for the purpose of creating or inducing a false, misleading or artificial appearance of activity in such security.164 Proposed Rule 23010 Fictitious Transactions similarly prohibits BSTX Participants from fictitious transaction activity, such as executing a transaction which involves no beneficial change in ownership, and proposed Rule 23020
Excessive Sales by a BSTX Participant prohibits a BSTX Participant from executing purchases or sales in any security trading on the Exchange for any account in which it has an interest, which are excessive in view of the BSTX Participants financial resources or in view of the market for such security.165 Proposed Rule 23060 Joint Activity prohibits a BSTX Participant from directly or indirectly holding any interest or participation in any joint account for buying or selling a security traded on the Exchange unless reported to the Exchange with certain information provided and proposed Rule 23090 Best Execution reaffirms BSTX Participants best execution obligations to their customers.166
Proposed Rule 23050 Prohibition against Trading Ahead of Customer Orders is substantially similar to FINRA 5320 and rules adopted by other 164 Proposed Rule 23030 Manipulative Transactions specifies further prohibitions relating to potential manipulation by prohibiting BSTX
Participants from, among other things, participating or having any direct or indirect interest in the profits of a manipulative operation or knowingly managing or financing a manipulative operation.
165 Other proposed rules relating to potential manipulation include: i Rule 23040
Dissemination of False Information, which generally prohibits, consistent with Exchange Rule 3080, BSTX Participants from spreading information that is false or misleading; ii Rule 23070 Influencing Data Feeds, which generally prohibits transactions to influence data feeds; iii Rule 23080 Trade Shredding, which generally prohibits conduct that has the intent or effect of splitting any order into multiple smaller orders for the primary purpose of maximizing remuneration to the BSTX Participant; iv Rule 23110 Trading Ahead of Research Reports, which generally prohibits BSTX Participants from trading based on non-public advance knowledge of a research report and requires BSTX Participants to enforce policies and procedures to limit information flow from research personnel to trading personnel that might trade on such information; v Rule 23120 Front Running Block Transactions, which incorporates FINRA Rule 5270 as though it were part of the Exchanges Rules; and vi Rule 23130 Disruptive Quoting and Trading Activity Prohibited, which incorporates Exchange Rule 3220 by reference.
166 In addition, proposed Rule 23100 Publication of Transactions and Changes provides that the Exchange will disseminate transaction information to appropriate data feeds, BSTX participants must provide information necessary to facilitate the dissemination of such information, and that an Exchange official shall be responsible for approving corrections to any reports transmitted over data feeds.

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exchanges,167 and generally prohibits BSTX Participants from trading ahead of customer orders unless certain enumerated exceptions are available and requires BSTX Participants to have a written methodology in place governing execution priority to ensure compliance with the Rule. The Exchange proposes to adopt each of the exceptions to the prohibition against trading ahead of customer orders as provided in FINRA Rule 5320 other than the exception related to trading outside of normal market hours, since trading on the Exchange would be limited to regular trading hours.
The Exchange proposes to adopt the order handling procedures requirement in proposed Rule 23050i consistent with the rules of other exchanges.168
Specifically, proposed Rule 23050i would provide that a BSTX Participant must make every effort to execute a marketable customer order that it receives fully and promptly and must cross customer orders when they are marketable against each other consistent with the proposed Rule.
The Exchange proposes to adopt a modified version of the exception set forth in FINRA Rule 5320.06 relating to minimum price improvement standards as proposed in Rule 23050h. Under proposed Rule 23050h, BSTX
Participants would be permitted to execute an order on a proprietary basis when holding an unexecuted limit order in that same security without being required to execute the held limit order provided that they give price improvement of $0.01 to the unexecuted held limit order. While FINRA Rule 5320.06 sets forth alternate, lower price improvement standards for securities priced below $1, the Exchange proposes to adopt a uniform price improvement requirement of $0.01 for Securities traded on the BSTX System consistent with the Exchanges proposed uniform minimum price variant of $0.01 set forth in proposed Rule 25030.
In addition, the Exchange proposes to adopt an exception for bona fide error transactions as proposed in Rule 25030g which would allow a BSTX
Participant to trade ahead of a customer order if the trade is to correct a bona fide error, as defined in the rule. This proposed exception is nearly identical to similar exceptions of other exchanges 169 except that other exchange rules also provide an exception whereby firms may submit a proprietary order ahead of a customer order to offset a customer order that is 167 See
e.g., Cboe BZX Rule 12.6.
e.g., Cboe BZX Rule 12.6.07.
169 See e.g., Cboe BZX Rule 12.5.05.
168 See
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