Notice2021-15343
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Eliminate the Opt-In Functionality Offered Under the Lead Market Maker Pricing
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Published
July 20, 2021
Issuing agencies
Securities and Exchange Commission
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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 38364-38366]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15343]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92408; File No. SR-CboeBZX-2021-050]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule To Eliminate the Opt-In Functionality Offered Under
the Lead Market Maker Pricing
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 12, 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'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the 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 the Fee Schedule applicable to its
equities trading platform (``BZX Equities'') to eliminate the opt-in
functionality offered under the Lead Market Maker (``LMM'') Pricing
provided under footnote 14. Specifically, the Exchange is proposing to
automatically provide an LMM with the greater of the LMM Liquidity
Provision Rates or the LMM Add Liquidity Rebate instead of requiring an
LMM to opt-in.\3\
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\3\ The Exchange initially filed the proposed fee changes July
1, 2021 (SR-CboeBZX-2021-049). On July 12, 2021, the Exchange
withdrew that filing and submitted this proposal.
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The Exchange currently offers a comprehensive liquidity provision
program to incentivize LMMs to provide enhanced market quality across
all BZX-listed securities. Specifically, as provided in paragraph (A)
of footnote 14, the Exchange offers the LMM Liquidity Provision Rates
which provide LMMs daily incentives that are based on whether the LMM
meets certain performance based criteria (i.e., the applicable Minimum
Performance Standard <SUP>4</SUP>).<SUP>5</SUP> The Exchange provides
each LMM with a daily incentive based on how many Qualified Securities
or Enhanced Securities \6\ the LMM has and the average aggregate daily
auction volume in the BZX-listed securities for which it is an LMM
(``LMM Securities''). The LMM Liquidity Provision Rates were
implemented to incentivize LMMs to meet the Minimum Performance
Standards across all of their LMM Securities, especially for newly
listed and other lower volume securities. The Exchange also currently
offers, as provided in paragraph (B) of footnote 14, the LMM Add
Liquidity Rebate which is available to LMMs in BZX-listed securities
that have a consolidated average daily volume (``CADV'') \7\ equal to
or greater than 1,000,000 (an ``ALR Security''). The LMM Add Liquidity
Rebate allows the Exchange to offer LMM pricing comparable to other
traditional LMM programs available on other listing
[[Page 38365]]
venues. Specifically, the LMM Add Liquidity Rebate encourages LMMs to
meet the Minimum Performance Standards for Qualified Securities, but
also provides the potential for additional incentives for higher volume
securities.
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\4\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum
Performance Standards'' means a set of standards applicable to an
LMM that may be determined from time to time by the Exchange. Such
standards will vary between LMM Securities depending on the price,
liquidity, and volatility of the LMM Security in which the LMM is
registered. The performance measurements will include: (A) Percent
of time at the NBBO; (B) percent of executions better than the NBBO;
(C) average displayed size; and (D) average quoted spread..[sic].
\5\ The current Minimum Performance Standards include: (i)
Registration as a market maker in good standing with the Exchange;
(ii) time at the inside requirements (generally between 3% and 15%
of Regular Trading Hours for Qualified Securities and between 5% to
50% for Enhanced Securities, depending on the average daily volume
of the applicable LMM Security); (iii) auction participation
requirements (generally requiring that the auction price is between
3% and 5% of the last Reference Price, as defined in Rule
11.23(a)(19), for a Qualified Security and 1%-3% for an Enhanced
Security (the ``Enhanced Auction Range''); (iv) market-wide NBB and
NBO spread and size requirements (generally requiring between 200
and 750 shares at both the NBB and NBO for both Qualified Securities
and Enhanced Securities with an NBBO spread between 1% and 10% for a
Qualified Security and .25% to 4% for Enhanced Securities, depending
on price of the security and underlying asset class); and (v) depth
of book requirements (generally requiring between $25,000 and
$250,000 of displayed posted liquidity for both Qualified Securities
and Enhanced Securities within 1% to 10% of both the NBB and NBO for
Qualified Securities and 0.25% and 5% for Enhanced Securities,
depending on price of the security and underlying asset class). See
Securities Exchange Act No. 86213 (June 27, 2019) 84 FR 31951 (July
3, 2019) (SR-CboeBZX-2019-058) (the ``Original Filing''). The
Exchange notes that as of February 1, 2021, the Enhanced Auction
Range will be .50%-3%. The Original Filing provides that ``[b]efore
diverging significantly from the ranges described above, the
Exchange will submit a rule filing to the Commission describing such
proposed changes.'' The Exchange does not believe that this change
represents a ``significant divergence'' but is instead noting the
change in order to provide transparency regarding the current state
of the Minimum Performance Standards.
\6\ An ``Enhanced Security'' refers to a BZX-listed security
which meets certain enhanced qualifying market quality standards.
\7\ ``CADV'' means consolidated average daily volume calculated
as the average daily volume reported for a security by all exchanges
and trade reporting facilities to a consolidated transaction
reporting plan for the three calendar months preceding the month for
which the fees apply and excludes volume on days when the market
closes early and on the Russell Reconstitution Day.
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As currently constructed, an LMM in an ALR Security that wants to
participate must proactively opt-in to the program using the Exchange's
ETP Portal. Further, an LMM that opts in to the LMM Add Liquidity
Rebate program will receive the LMM Add Liquidity Rebate regardless of
whether they would have been better off receiving the LMM Liquidity
Provision Rates.
Now, the Exchange proposes to eliminate the opt-in requirement, and
instead proposes to automatically apply either the LMM Add Liquidity
Rebate or LMM Liquidity Provision Rates for each ALR Security based on
whichever would result in a greater total rebate in a particular
calendar month. In determining the applicable rebate on a monthly basis
for each ALR Security, the Exchange will choose the greater of: (i) The
monthly total LMM Liquidity Provision Rates + (the applicable per share
rebate that the LMM would receive for adding liquidity in the ALR
Security x the number of shares for which the LMM added liquidity in
the ALR Security); and (ii) $0.0039 x the number of shares for which
the LMM added liquidity in the ALR Security. If an LMM Security does
not meet the CADV requirement to be an ALR Security and become eligible
to receive the LMM Add Liquidity Rebate, the LMM will continue to be
subject to the LMM Liquidity Provision Rates by default.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with the objectives of Section 6 of the Act,\8\ in general, and
furthers the objectives of Section 6(b)(4) and 6(b)(5),\9\ in
particular, as it is designed to provide for the equitable allocation
of reasonable dues, fees and other charges among its Members and other
persons using its facilities. The Exchange also notes that its listing
business operates in a highly competitive market in which market
participants, which includes both issuers and LMMs, can readily
transfer their listings or opt not to participate, respectively, if
they deem fee levels, liquidity provision incentive programs, or any
other factor at a particular venue to be insufficient or excessive. The
LMM pricing as a whole reflects a competitive pricing structure
designed to incentivize issuers to list new products and transfer
existing products to the Exchange and market participants to enroll and
participate as LMMs on the Exchange, which the Exchange believes will
enhance market quality in all securities listed on the Exchange. The
proposed amendment to the program is designed to provide an automated
value-add service to LMMs without changing the pricing structure of the
program.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposal is reasonable because it
provides a value-added service to LMMs without changing the fees and
rebates applicable to LMMs under footnote 14 of the fee schedule.
Specifically, the proposal will streamline the LMM pricing process by
eliminating the requirement that an LMM opt-in to the LMM Add Liquidity
Rebate. As described above, under the proposal an LMM would also no
longer have to consider whether it would receive higher incentives
under the LMM Liquidity Provision Rates or the LMM Add Liquidity Rebate
on a per security and per month basis. Instead, the Exchange will
automatically apply whichever rate is greater in that ALR Security for
the month. Further, as noted above, the marketplace for listings is
extremely competitive and there are several other national securities
exchanges that offer listings. Transfers between listing venues occur
frequently for numerous reasons, including market quality. The proposal
is designed to enhance the existing LMM program and is intended to help
the Exchange compete as a listing venue by streamlining the process for
LMMs to maximize their incentives. Further, the proposal does not
change any of the existing LMM fees or incentives provided under
footnote 14.
The Exchange believes the LMM Add Liquidity Rates coupled with the
LMM Liquidity Provision Rates will continue to create a comprehensive
incentive structure that encourages participation and, further,
competition among LMMs. The proposal is intended to enhance the
existing incentive structure, and encourage participation among LMMs.
The Exchange believes that increased participation among LMMs will
result in better market quality across all of its listings, resulting
in greater market quality to the benefit of investors and other market
participants.
The Exchange believes that the proposal represents an equitable
allocation of payments and is not unfairly discriminatory because,
while the LMM pricing is currently and will continue to apply only to
LMMs, such LMMs must meet rigorous Minimum Performance Standards \10\
in order to receive the rebates provided under footnote 14. Where an
LMM does not meet the Minimum Performance Standards for the applicable
LMM Security, they will not be eligible for those rebates. Further,
registration as an LMM is available equally to all Members and
allocation of listed securities between LMMs is governed by Exchange
Rule 11.8(e)(2). If an LMM does not meet the Minimum Performance
Standards for three out of the past four months, the LMM is subject to
forfeiture of LMM status for that LMM Security, at the Exchange's
discretion. As discussed above, the proposed changed merely eliminates
the requirement that an LMM opt-in to the LMM Add Liquidity Rebate and
instead will automatically provide an LMM with the greater of the LMM
Liquidity Provision Rates or the LMM Add Liquidity Rebate.
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\10\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum
Performance Standards'' means a set of standards applicable to an
LMM that may be determined from time to time by the Exchange. Such
standards will vary between LMM Securities depending on the price,
liquidity, and volatility of the LMM Security in which the LMM is
registered. The performance measurements will include: (A) Percent
of time at the NBBO; (B) percent of executions better than the NBBO;
(C) average displayed size; and (D) average quoted spread..[sic]
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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. The Exchange does not believe
the proposed change burdens competition, but rather, enhances
competition as it is intended to increase the competitiveness of BZX
both among Members by incentivizing Members to become LMMs in BZX-
listed securities and as a listing venue by enhancing market quality in
BZX-listed securities. The marketplace for listings is extremely
competitive and there are several other national securities exchanges
that offer listings. Transfers between listing venues occur frequently
for numerous reasons, including market quality. This proposal is
intended to help the Exchange compete as a listing venue. Accordingly,
the Exchange does not believe that the proposed change will impair the
ability of issuers, LMMs, or competing listing venues to maintain their
competitive standing. The Exchange does not believe the proposed
amendment would burden intra-market competition as it would be
available to all Members uniformly. Registration as an LMM is available
[[Page 38366]]
equally to all Members and allocation of listed securities between LMMs
is governed by Exchange Rule 11.8(e)(2). Further, if an LMM does not
meet the Minimum Performance Standards for three out of the past four
months, the LMM is subject to forfeiture of LMM status for that LMM
Security, at the Exchange's discretion.
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 \11\ and paragraph (f) of Rule 19b-4 \12\
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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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#2250574e470f414d4f4f474c5651625147410c454d54"><span class="__cf_email__" data-cfemail="3341465f561e505c5e5e565d4740734056501d545c45">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-050 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-2021-050. 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-2021-050 and should be submitted
on or before August 10, 2021.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15343 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P
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