SEC invites comments on Cboe EDGA Exchange proposal to expand Cboe Connect

Maria Nikolova

Cboe EDGA Exchange proposes to expand Cboe Connect to provide optional connectivity by which market participant may send orders to single-dealer trading platforms connected to the Exchange’s network.

The United States Securities and Exchange Commission (SEC) has earlier today published a notice to solicit comments from interested parties on rule changes proposed by Cboe EDGA Exchange, an equities exchange operated by Cboe Global Markets Inc (NASDAQ:CBOE).

In short, the Exchange has submitted a proposal to expand Cboe Connect to provide connectivity to single-dealer platforms connected to the Exchange’s network and to propose a per share executed fee for such service.

Cboe Connect is an optional communication service that provides Members an additional means to receive market data from and route orders to any destination connected to the Exchange’s network. Participants may also utilize Cboe Connect in case of a market disruption where other connection methods are unavailable.

At present, market participants are able to send orders directly to broker-dealers that operate single-dealer platforms, where broker-dealers would execute orders received on a principal basis or return the unexecuted order (or portion thereof) back to their customers. To connect to a single-dealer platform, the broker-dealer’s customer must purchase connectivity and perform the necessary infrastructure work to be able to send orders to that single-dealer platform. Cboe Connect allows participants to send orders to other exchanges and market centers that are connected to the Exchange’s network.

Market centers on the Exchange’s network include Alternative Trading Systems operated by broker-dealers, but do not currently include single-dealer platforms.

The Exchange proposes to expand Cboe Connect to provide optional connectivity by which market participant may send orders to these single-dealer trading platforms connected to the Exchange’s network. The exchange proposes to refer to this connectivity option under Cboe Connect as C-LNK.

Orders routed via Cboe Connect to a single-dealer platform would be treated the same as orders routed via Cboe Connect to an exchange or market center connected to the Exchange’s network. Cboe Connect does not effect trade executions and would not report trades to the relevant Securities Information Processor and the Exchange does not propose to do so for orders sent to single-dealer platforms.

The orders sent via the service to single-dealer platforms would be handled by the Exchange’s affiliated broker-dealer, Cboe Trading, Inc., and would bypass the EDGA Book before going to a market center outside of the Exchange. That is, a participant could choose to route an order directly to any single-dealer platform on the Exchange’s network.

The participant will be identifying the single-dealer platform for any orders sent through the service and will be ensuring that it had authority to access the selected destination, whereas the Exchange would provide the connectivity by which orders (and associated messages) could be sent by a participant to the single-dealer platform and from the destination back to the participant.

According to Cboe, C-LNK perfects the mechanism of a free and open market and a national market system as it offers users an optional connectivity method by which a market participant may send orders to these single-dealer trading platforms. The proposed connectivity to single-dealer platforms would operate in the same manner as connectively provided today to other exchanges and market centers via Cboe Connect.

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