On January 30, 2026, the Securities and Exchange Commission published a notice in the Federal Register detailing a proposed rule change by Cboe EDGX Exchange, Inc. The exchange seeks to amend Rule 11.10(d), which governs EdgeRisk Self Trade Prevention (ERSTP) Modifiers, by revising the definition of Unique Identifier. This filing, submitted on January 28, 2026, and designated as non-controversial under Section 19(b)(3)(A)(iii) of the Securities Exchange Act of 1934, became immediately effective. The change responds to user feedback on implementation difficulties with the current rule, aiming to provide greater flexibility in preventing self-trades without altering the core functionality of ERSTP. This development is significant as it could enhance risk management tools for market participants, potentially reducing unintended executions in a high-speed trading environment.
Background and Purpose of the Proposed Change
The ERSTP mechanism is an optional tool designed to prevent executions between orders from the same entity that could result in self-trades or wash sales, which are transactions with no change in beneficial ownership. Under the current Rule 11.10(d), ERSTP applies when both incoming and resting orders share a Unique Identifier, such as a market participant identifier (MPID), Exchange Member identifier, ERSTP Group identifier, affiliate identifier, or Multiple Access identifier. These identifiers help the exchange block trades that might violate rules against manipulative practices, drawing from federal securities laws like Section 9(a)(1) of the Exchange Act and FINRA Rule 5210 on self-trades.
Cboe EDGX's filing states that the proposal stems from user feedback and practical challenges in applying ERSTP under the existing definitions. Users have reported scenarios where legitimate needs for self-trade prevention do not fit neatly into current identifier categories. For example, firms with complex structures, such as those using multiple Sponsored Participants through different Sponsoring Members, struggle to enable ERSTP across affiliated desks. The exchange emphasizes that ERSTP remains voluntary and does not replace users' own risk management obligations, as noted in prior SEC guidance like the 2010 Risk Management Controls release.
Key Elements of the Revised Definition
The proposed amendment replaces the specific list of Unique Identifier types with a more flexible framework. Under the new rule, a Unique Identifier can be created at: (i) the MPID level, (ii) the firm level, such as an Exchange Member or ERSTP Group identifier, or (iii) where a user demonstrates that ERSTP is needed to prevent transactions with no change in beneficial ownership. For the third category, users must submit an exchange-provided attestation to ensure the request is not frivolous.
This revision eliminates the need for rigid criteria like the 50% ownership threshold for affiliate identifiers or specific Sponsored Access arrangements for Multiple Access identifiers. Instead, it focuses on the underlying goal of avoiding wash sales, aligning with FINRA's supplementary material on self-trades, which requires firms to have policies preventing patterns of such activity. The filing includes examples, such as a firm with U.S. and European broker-dealers submitting orders through different channels, where the current rule would not allow a shared identifier despite common ownership.
Cboe EDGX asserts that the change does not alter how ERSTP operates operationally. Both orders must still carry an ERSTP modifier, and the incoming order's modifier determines the action, such as canceling one or both orders or decrementing the larger one. The exchange plans to implement this in the first quarter of 2026, with notice via a Trade Desk announcement.
Statutory Basis and Regulatory Context
In its filing, Cboe EDGX argues the proposal complies with Section 6(b)(5) of the Exchange Act, which requires exchange rules to promote just and equitable principles of trade, prevent fraudulent practices, and protect investors. The exchange highlights that the revision removes impediments to a free and open market by allowing users to better manage order flow and avoid self-trades in diverse setups. It cites user feedback as evidence that the current rule limits effective risk management, potentially leading to unintended executions.
This proposal fits into broader regulatory efforts to enhance market integrity amid automated trading. Precedents include the SEC's 2010 Market Access Rule (Rule 15c3-5), which mandates risk controls for broker-dealers, and similar self-trade prevention tools on other exchanges like NYSE and Nasdaq. However, Cboe EDGX notes that ERSTP is not a complete solution for compliance, echoing SEC statements that firms cannot solely rely on exchange tools for due diligence.
Perspectives on the change vary. Proponents, including affected users, may view it as a practical update that reduces barriers to entry and supports compliance without overcomplicating operations. Critics could argue it introduces subjectivity through the attestation process, potentially risking misuse if not rigorously enforced. Regulators like the SEC, by allowing immediate effectiveness, appear to see it as a minor, non-controversial adjustment that maintains investor protections.
Implications for Market Participants
Short-term effects include easier access to ERSTP for firms with non-traditional structures, potentially increasing adoption and reducing self-trade incidents. Users already employing affiliate or Multiple Access identifiers will see no disruption, as the new definition encompasses those concepts. Long-term, this could influence how firms organize order flow, encouraging more Sponsored Access arrangements if self-trade risks are better managed.
The proposal underscores ongoing tensions between innovation in trading technology and regulatory oversight. By broadening Unique Identifiers, Cboe EDGX addresses real-world complexities, but it also highlights the need for users to maintain robust internal controls, as the exchange disclaims responsibility for comprehensive risk management.
In summary, this rule change refines an existing tool to better align with user needs while upholding market integrity standards. Potential next steps include monitoring implementation feedback and possible SEC comments during the 60-day review period. Ongoing debates may focus on balancing flexibility with safeguards against manipulation, as trading environments evolve. Challenges could arise if attestations lead to disputes or if similar updates are needed across other exchanges for consistency.
