Notice2021-13243
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
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Published
June 24, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 119 (Thursday, June 24, 2021)</title>
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[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33393-33395]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13243]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92201; File No. SR-CboeBZX-2021-045]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
June 17, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 9, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'' or ``BZX
Equities'') is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend its fee schedule. 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 (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), 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
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 its fee schedule to define the term
``Step-Up ADV'' and introduce a new Single Market Participant
Identifier (``MPID'') Investor Tier.\4\
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\4\ The Exchange initially filed the proposed fee changes June
1, 2021 (SRCboeBZX-2021-044). On June 9, 2021, the Exchange withdrew
that filing and submitted this proposal.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\5\ no single registered
equities exchange has more than 15% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Maker-Taker'' model
whereby it pays credits to Members that add liquidity and assesses fees
to those that remove liquidity. The Exchange's fee schedule sets forth
the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Particularly, for
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0018 per share for orders that add liquidity and assesses a fee
of $0.0030 per share for orders that remove liquidity. Additionally, in
response to the competitive environment, the Exchange also offers
tiered pricing which provides Members opportunities to qualify for
higher rebates or reduced fees where certain volume criteria and
thresholds are met. Tiered pricing provides an incremental incentive
for Members to strive for higher tier levels, which provides
increasingly higher benefits or discounts for satisfying increasingly
more stringent criteria.
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\5\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (May 26, 2021), available at <a href="https://markets.cboe.com/us/equities/market_statistics/">https://markets.cboe.com/us/equities/market_statistics/</a>.
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The ``definitions'' section of the Exchange's fee schedule defines
various terms used throughout the fee schedule. The Exchange proposes
to adopt a new definition for the term ``Step-Up ADV''. Specifically,
as proposed ``Step-up ADV'' means ADV \6\ in the relevant baseline
month subtracted from current day ADV. Such definition would be
referenced in Tiers designed to incentivize Members to grow their ADV
from the baseline month, such as the proposed Single MPID Investor
Tier, as discussed below.
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\6\ ADV means average daily volume calculated as the number of
shares added or removed, combined, per day. ADV is calculated on a
monthly basis.
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Pursuant to footnote 4 of the fee schedule, the Exchange currently
offers the Single MPID Investor Tiers that provide Members an
opportunity to receive an enhanced rebate from the standard rebate for
liquidity adding orders that yield fee codes B,\7\ V,\8\ and
[[Page 33394]]
Y \9\ and meet certain required volume-based criteria. Specifically,
Tier 1 of the Single MPID Investor Tiers provides an enhanced rebate of
$0.0031 per share when (1) an MPID has an ADAV \10\ as a percentage of
TCV \11\ greater than or equal to 0.30%; and (2) the MPID has an ADAV
as a percentage of ADV greater than or equal to 90%. Tier 2 of the
Single MPID Investor Tiers provides an enhanced rebate of $0.0032 per
share when (1) an MPID has an ADAV as a percentage of TCV greater than
or equal to 0.75%; and (2) the MPID has an ADAV as a percentage of ADV
greater than or equal to 80%.
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\7\ Fee code B is appended to displayed orders adding liquidity
to BZX (Tape B).
\8\ Fee code V is appended to displayed orders adding liquidity
to BZX (Tape A).
\9\ Fee code Y is appended to displayed orders adding liquidity
to BZX (Tape C).
\10\ ADAV means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
\11\ TCV means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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Now, the Exchange proposes to offer Tier 3 of the Single MPID
Investor Tiers. Proposed Tier 3 would provide a rebate of $0.0032 per
share in Tape B securities (i.e., orders yielding fee code B) and
$0.0033 per share in Tape A and C securities (i.e., orders yielding fee
codes V and Y, respectively) when (1) an MPID has a Step-Up ADV as a
percentage of TCV is greater than or equal to 0.10% from May 2021; or
an MPID has a Step-Up ADV greater than or equal to 8,000,000 from May
2021; and (2) the MPID has an ADAV as a percentage of TCV greater than
or equal to 0.55%; or the MPID has an ADAV greater than or equal to
50,000,000. Members that achieve the proposed Single MPID Investor Tier
must therefore increase the amount of liquidity that they provide on
BZX, thereby contributing to a deeper and more liquid market.
Furthermore, the Exchange proposes to offer a higher rebate for Tape A
and C securities to further incentivize Members to increase their
liquidity on the Exchange in those securities.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\12\ in general, and
furthers the objectives of Section 6(b)(4) and 6(b)(5),\13\ in
particular, as it is designed to provide for the equitable allocation
of reasonable dues, fees and other charges among its Members, issuers
and other persons using its facilities. The Exchange operates in a
highly competitive market in which market participants can readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive or incentives to be insufficient. The
proposed rule changes reflect a competitive pricing structure designed
to incentivize market participants to direct their order flow to the
Exchange, which the Exchange believes would enhance market quality to
the benefit of all Members.
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\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4) and (5).
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In particular, the Exchange notes that volume-based rebates such as
that proposed herein have been widely adopted by exchanges, including
the Exchange, and are equitable because they are open to all Members on
an equal basis and provide additional benefits or discounts that are
reasonably related to: (i) The value to an exchange's market quality;
(ii) associated higher levels of market activity, such as higher levels
of liquidity provision and/or growth patterns; and (iii) introduction
of higher volumes of orders into the price and volume discovery
processes. The Exchange believes that the proposed Single MPID Investor
Tier 3 is a reasonable, fair and equitable, and not unfairly
discriminatory allocation of fees and rebates because it will continue
to provide Members with an incentive to reach certain volume thresholds
on the Exchange.
More specifically, the Exchange believes the proposed additional
Single MPID Investor Tier is a reasonable means to encourage Members to
increase their liquidity on the Exchange in order to meet the proposed
criteria to receive the proposed enhanced rebates. The Exchange further
believes that the proposed tier represents an equitable allocation of
reasonable dues, fees, and other charges because the threshold
necessary to achieve the tier encourages Members to add increased
liquidity to the BZX and the Exchange believes the proposed enhanced
rebates are commensurate with the proposed thresholds. The Exchange
also believes that it is an equitable allocation of reasonable fees to
offer a different enhanced rebate for Tape B securities as compared to
Tape A and C securities under proposed Tier 3 of the Single MPID
Investor Tiers. As described above, enhanced rebates are designed to
incentivize increased liquidity on the Exchange, and the Exchange
believes that the proposal to offer a higher enhanced rebate for Tape A
and C securities will incentivize increased liquidity in Tape A and C
securities specifically. Furthermore, the Exchange believes the
proposed rebate for Tape B is sufficient to incentivize increased
liquidity in those securities. The increased liquidity benefits all
investors by deepening the Exchange's liquidity pool, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection. The Exchange also
believes that the proposed rebates are reasonable based on the
difficulty of satisfying the tier's proposed criteria as compared to
the existing Single MPID Investor Tiers, which provide equal or lower
rebates for less stringent criteria. Furthermore, the Exchange believes
that the proposed tier is not unfairly discriminatory as it applies to
all Members that meet the required criteria.
Additionally, a number of Members have a reasonable opportunity to
satisfy proposed Single MPID Investor Tier 3, which the Exchange
believes is more stringent than existing Tier 1 and Tier 2. While the
Exchange has no way of knowing whether this proposed rule change would
definitively result in any particular Member qualifying for the
proposed tier, the Exchange anticipates at least two Members to compete
for and reasonably achieve the proposed tier; however, the proposed
tier is open to any Member that satisfies the tier's criteria. The
Exchange believes the proposed tier could provide an incentive for
other Members to submit additional liquidity on the Exchange to qualify
for the proposed enhanced rebate.
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 intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. The
Exchange does not believe the proposed change to adopt a new Single
MPID Investor Tier burdens competition, but rather, enhances
competition as it is intended to increase the competitiveness of BZX by
adopting an additional pricing incentive in order to attract order flow
and incentivize participants to increase their participation on the
Exchange.
As previously discussed, the Exchange operates in a highly
competitive market. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and rebates to
remain competitive with other exchanges. Members have numerous
alternative venues that they may participate on and direct their order
flow, including other equities exchanges, off-exchange venues, and
alternative trading systems. Additionally, the Exchange represents a
[[Page 33395]]
small percentage of the overall market. Based on publicly available
information, no single equities exchange has more than 15% of the
market share.\14\ Therefore, no exchange possesses significant pricing
power in the execution of order flow. Indeed, participants can readily
choose to send their orders to other exchange and off-exchange venues
if they deem fee levels at those other venues to be more favorable.
Moreover, the Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \15\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . . .''.\16\
Accordingly, the Exchange does not believe its proposed fee changes
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\14\ Supra note 3[sic].
\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\16\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 \18\
thereunder. 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8ffdfae3eaa2ece0e2e2eae1fbfccffceaeca1e8e0f9"><span class="__cf_email__" data-cfemail="d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-045 on the subject line.
Paper Comments
<bullet> 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-2021-045. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-045, and should be
submitted on or before July 15, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13243 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P
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