Notice2021-15342
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
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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 38397-38400]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15342]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92407; File No. SR-CboeBYX-2021-016]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
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 BYX Exchange, Inc. (``Exchange'' or ``BYX'')
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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') 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/byx/">http://markets.cboe.com/us/equities/regulation/rule_filings/byx/</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.
[[Page 38398]]
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 adopt a new
Step-Up Tier under footnote 2 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, no single registered equities
exchange has more than 16% of the market share.\3\ 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 ``Taker-Maker'' model whereby it pays
credits to members that remove liquidity and assesses fees to those
that add liquidity. The Exchange's Fee Schedule sets forth the standard
rebates and rates applied per share for orders that remove and provide
liquidity, respectively. Particularly, for securities at or above
$1.00, the Exchange provides a standard rebate of $0.00020 per share
for orders that remove liquidity and assesses a fee of $0.00200 per
share for orders that add liquidity. For orders priced below $1.00, the
Exchange does not assess a fee or provide a rebate for orders that add
liquidity and assesses a fee of 0.10% of total dollar value for orders
that remove liquidity. The Exchange believes that the ever-shifting
market share among the exchanges from month to month demonstrates that
market participants can shift order flow or discontinue to reduce use
of certain categories of products, in response to fee changes.
Accordingly, competitive forces constrain the Exchange's transaction
fees, and market participants can readily trade on competing venues if
they deem pricing levels at those other venues to be more favorable.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (June 29, 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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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. For example, the Exchange
currently offers various Add/Remove Volume Tiers under footnote 1 of
the Fee Schedule, which offer various enhanced rebates and reduced fees
for reaching certain, incrementally more challenging volume-based
thresholds.
The Exchange now proposes to adopt a new Step-Up Tier under
footnote 2 of the Fee Schedule, which offers a reduced fee to Members
that increase their relative add volume order flow each month over a
predetermined baseline as well as add liquidity over an established
threshold. Specifically, the new Step-Up Tier provides Members an
opportunity to qualify for a reduced fee of $0.0014 on their qualifying
orders that yield B, V, and Y,\4\ where a Member 1) adds a Step-Up ADAV
\5\ from June 2021 greater than or equal to 0.05% of TCV \6\ or adds a
Step-Up ADAV from June 2021 greater than or equal to 2,000,000, and 2)
has a total add ADAV greater than or equal to 0.25% of TCV. The
proposed Step-Up Tier is designed to encourage Members that provide
displayed liquidity on the Exchange to increase their overall add
volume order flow, which would benefit all Members by providing greater
execution opportunities on the Exchange and to contribute to a deeper,
more liquid market, to the benefit of all investors.
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\4\ Orders yielding Fee Code B are displayed orders that add
liquidity to BYX (Tape B), Orders yielding Fee Code V are displayed
orders that add liquidity to BYX (Tape A), and orders yielding Fee
Code Y are displayed orders that add liquidity to BYX (Tape C). Each
is assessed a standard fee of $0.00200.
\5\ ``ADAV'' means average daily volume calculated as the number
of shares added per day and is calculated on a monthly basis.
``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
\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.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\7\ in general, and
furthers the objectives of Section 6(b)(4),\8\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of Section 6(b)(5) \9\
requirements that the rules of an exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f.(b)(5).
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As described above, 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. Also, as described above, the Exchange notes that relative
volume-based incentives and discounts have been widely adopted by
exchanges,\10\ including the Exchange,\11\ and are reasonable,
equitable and non-discriminatory 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 and
(ii) associated higher levels of market activity, such as higher levels
of liquidity provision and/or growth patterns. Competing equity
exchanges offer similar tiered pricing structures, including schedules
of rebates and fees that apply based upon members achieving certain
volume and/or growth thresholds, as well as assess similar fees or
rebates for similar types of orders, to that of the Exchange.
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\10\ 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 BZX Equities Fee Schedule,
Footnote 2, Step-Up Tiers.
\11\ See BYX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes the proposed Step-Up Tier is a
[[Page 38399]]
reasonable means to encourage Members to increase their relative add
liquidity on the Exchange each month over a predetermined baseline as
well as over a set threshold by offering Members an additional
opportunity to meet criteria to receive a reduced fee. More
specifically, the Exchange notes that greater add volume order flow may
provide for deeper, more liquid markets and execution opportunities at
improved prices, which the Exchange believes signals an increase in
activity from other market participants. 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 the proposed Step-Up Tier is
reasonable as it does not represent a significant departure from the
criteria or corresponding rates currently offered under in the Fee
Schedule, and that the proposed reduced fee is commensurate with the
new criteria. For example, Remove Volume Tier 7 under footnote 1 of the
Fee Schedule provides an enhanced rebate of $0.0016 per share for
qualifying orders, where a Member increases certain order flow on the
Exchange each month over a predetermined baseline as well as over a set
threshold. The Exchange notes that this enhanced rebate ($0.0016) over
the standard rebate ($0.00020) is essentially equivalent to the
proposed $0.0014 reduced fee offer in the new Step-Up Tier.
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 the new Step-Up
Tier and have the opportunity to meet the tier's criteria and receive
the proposed reduced fee 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
three 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 reduced fee.
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 Step-Up 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 reduced fee on their qualifying
orders if such criteria is met. The Exchange does not believe the
proposed change to adopt a new Step-Up Tier burdens competition, but
rather, enhances competition as it is intended to increase the
competitiveness of BYX 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.\12\ 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.'' \13\ 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'. . . .''.\14\ 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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\12\ See supra note 3.
\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\14\ 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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[[Page 38400]]
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 \15\ and paragraph (f) of Rule 19b-4 \16\
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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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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#e391968f86ce808c8e8e868d9790a3908680cd848c95"><span class="__cf_email__" data-cfemail="90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6">[email protected]</span></a>. Please include
File Number SR-CboeBYX-2021-016 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-CboeBYX-2021-016. 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-CboeBYX-2021-016 and should be submitted
on or before August 10, 2021.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15342 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P
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