Notice2021-15341
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule by Adopting a New Single Market Participant Identifier Investor Tier
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Published
July 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 136 (Tuesday, July 20, 2021)</title>
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[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38372-38375]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15341]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92406; File No. SR-CboeBZX-2021-048]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule by Adopting a New Single Market Participant Identifier
Investor Tier
July 14, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2021, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``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\ 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'') proposes 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
[[Page 38373]]
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 by adopting a new
Single Market Participant Identifier (``MPID'') Investor Tier under
footnote 4 of the Fee Schedule, effective July 1, 2021.
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,\3\ no single registered
equities exchange has more than 16% 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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\3\ 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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Pursuant to footnote 4 of the Fee Schedule, the Exchange currently
offers three Single MPID Investor Tiers that provide Members an
opportunity to receive incrementally greater enhanced rebates from the
standard rebate for liquidity adding orders that yield fee codes B, V
and Y \4\ where Members (by MPID) meet certain incrementally more
difficult volume-based criteria. For example, Single MPID Investor Tier
1 currently provides an enhanced rebate of $0.0031 per share for
qualifying orders (i.e., yield fee code B, V and Y) where an MPID has
(1) an ADAV \5\ as a percentage of TCV \6\ greater than or equal to
0.30%, and (2) an ADAV as a percentage of ADV \7\ greater than or equal
to 90%. Single MPID Investor Tier 2 provides an enhanced rebate of
$0.0032 per share for qualifying orders where an MPID has (1) an ADAV
as a percentage of TCV greater than or equal to 0.75%, and (2) an ADAV
as a percentage of ADV greater than or equal to 80% and Single MPID
Investor Tier 3 provides an enhanced rebate of $0.0032 per share for
Tape B securities or $0.00033 [sic] per share for Tapes A and C
securities for qualifying orders where an MPID has (1) a Step-Up ADV
\8\ as a percentage of TCV greater than or equal to 0.10% from May
2021; or MPID has a Step-Up ADV>=8,000,000 from May 2021, and (2) an
ADAV as a percentage of TCV greater than or equal to 0.55%; or an ADAV
greater than or equal to 50,000,000.
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\4\ Fee code B is appended to displayed orders adding liquidity
to BZX (Tape B), fee code V is appended to displayed orders adding
liquidity to BZX (Tape A), and fee code V [sic] is appended to
displayed orders adding liquidity to BZX (Tape C). Each is provided
a rebate of $ 0.00180.
\5\ ADAV means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
\6\ 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.
\7\ ADV means average daily volume calculated as the number of
shares added or removed, combined, per day. ADV is calculated on a
monthly basis.
\8\ ``Step-up ADV'' means ADV in the relevant baseline month
subtracted from current day ADV.
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The Exchange proposes to offer a new Single MPID Investor Tier 1
(and, subsequently update the titles of current Tier 1 to Tier 2,
current Tier 2 to Tier 3 and current Tier 3 to Tier 4). New Tier 1
provides a proposed enhanced rebate $0.0030 for a Member's qualifying
orders where an MPID has (1) a Step-Up ADV from May 2021 greater than
or equal to 0.10% of TCV, or a Step-Up ADV greater than or equal to
8,000,000 from May 2021, and (2) adds a Step-Up ADAV from May 2021
greater than or equal to 0.05% of TCV. Members that achieve the
proposed Single MPID Investor Tier 1 must therefore increase the amount
of overall liquidity, both add and remove volume, that they provide on
BZX over a baseline amount, thereby contributing to a deeper and more
liquid market. More specifically, incentivizing an increase in both
liquidity adding volume and in liquidity removing volume, through
additional criteria and enhanced rebate opportunities, encourages
liquidity adding Members on the Exchange to contribute to a deeper,
more liquid market, and to increase transactions and take execution
opportunities provided by such increased liquidity, together providing
for overall enhanced price discovery and price improvement
opportunities on the Exchange. As such, increased overall order flow
benefits all Members by contributing towards a robust and well-balanced
market ecosystem.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4) and 6(b)(5),\10\ 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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\9\ 15 U.S.C. 78f.
\10\ 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,\11\
including the Exchange,\12\ 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
[[Page 38374]]
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.
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\11\ See generally NYSE Price List, Transaction Fees; Nasdaq
Equity 7, Section 118(a)(1), Fees for Execution and Routing of
Orders in Nasdaq-Listed Securities; and EDGX Equities Fee Schedule,
Footnote 1, Add/Remove Volume Tiers.
\12\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes the proposed Single MPID
Investor Tier 1 is a reasonable means to encourage Members to increase
their relative add and remove liquidity on the Exchange each month over
a predetermined baseline by offering Members' an additional opportunity
to meet criteria to receive an enhanced rebate. More specifically, the
Exchange notes that greater add volume order flow may provide for
deeper, more liquid markets and execution opportunities at improved
prices, and greater remove volume order flow may increase transactions
on the Exchange, which the Exchange believes incentivizes liquidity
providers to submit additional liquidity and execution opportunities.
This overall increase in activity deepens the Exchange's liquidity
pool, offers additional cost savings, supports the quality of price
discovery, promotes market transparency and improves market quality,
for all investors.
Further, the Exchange believes that proposed Tier 1 is reasonable
as it does not represent a significant departure from the criteria or
corresponding enhanced rebates currently offered in the Fee Schedule,
including other Single MPID Investor Tiers, and that the proposed
enhanced rebate is commensurate with the new criteria. Particularly,
the proposed rebate is reasonably based on the difficulty of satisfying
the tier's proposed criteria as compared to the existing Single MPID
Investor Tiers, which provide higher rebates for more stringent
criteria. Indeed, the proposed criteria in new Tier 1 includes smaller
volume threshold percentages that Members can achieve than Tier 2
(current Tier 1), and, as a result, a lesser enhanced rebate of
$0.0030, as proposed, than the enhanced rebate offered in Tier 2
($0.0031).
The Exchange also believes that the proposed rule change represents
an equitable allocation of fees and rebates and is not unfairly
discriminatory because all Members are eligible for new Single MPID
Investor Tier 1 and have the opportunity to meet the tier's criteria
and receive the applicable enhanced rebate if such criteria is met.
Without having a view of activity on other markets and off-exchange
venues, the Exchange has no way of knowing whether this proposed rule
change would definitely result in any Members qualifying for the
proposed tier. While the Exchange has no way of predicting with
certainty how the proposed tier will impact Member activity, the
Exchange anticipates that at least six Members will be able to satisfy
the criteria proposed under the new tier. The Exchange also notes that
the proposed tier will not adversely impact any Member's ability to
qualify for reduced fees or enhanced rebate offered under other tiers.
Should a Member not meet the proposed new criteria, the Member will
merely not receive the corresponding proposed enhanced rebate.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, as discussed above, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
The Exchange believes the proposed rule change does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
new Single MPID Investor Tier applies to all Members equally in that
all Members are eligible for these tiers, have a reasonable opportunity
to meet the tiers' criteria and will receive the enhanced rebate on
their qualifying orders if such criteria is met. 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, providing
for additional execution opportunities for market participants and
improved price transparency. Greater overall order flow, trading
opportunities, and pricing transparency benefits all market
participants on the Exchange by enhancing market quality and continuing
to encourage Members to send orders, thereby contributing towards a
robust and well-balanced market ecosystem.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. 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 small percentage of the overall
market. Based on publicly available information, no single equities
exchange has more than 15% of the market share.\13\ 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.'' \14\ 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
[[Page 38375]]
dealers'. . . .''.\15\ 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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\13\ See supra note 3.
\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\15\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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 \16\ and paragraph (f) of Rule 19b-4 \17\
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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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#97e5e2fbf2baf4f8fafaf2f9e3e4d7e4f2f4b9f0f8e1"><span class="__cf_email__" data-cfemail="dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-048 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-2021-048. 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-2021-048 and should be submitted
on or before August 10, 2021.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15341 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P
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