Notice2021-17538
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 17, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 156 (Tuesday, August 17, 2021)</title>
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[Federal Register Volume 86, Number 156 (Tuesday, August 17, 2021)]
[Notices]
[Pages 46028-46033]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17538]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92635; File No. SR-CboeBZX-2021-055]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
August 11, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 2, 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\ 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'') 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>) [sic], at the Exchange's Office of the Secretary,
and at the Commission's Public Reference Room.
[[Page 46029]]
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 for its equity
options platform (``BZX Options'') in connection with its Customer
Penny Add Volume Tiers, Market Maker, Away Market Maker, and
Professional Penny Take Volume Tiers, and Customer Non-Penny Add Volume
Tiers, effective August 2, 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 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 16% of the market share and
currently the Exchange represents only approximately 8% of the market
share.\3\ Thus, in such a low-concentrated and highly competitive
market, no single options exchange, including the Exchange, possesses
significant pricing power in the execution of option order flow. 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. The Exchange's Fee Schedule sets
forth standard rebates and rates applied per contract, which varies
depending on the Member's capacity (Customer, Firm, Market Maker,
etc.), whether the order adds or removes liquidity, and whether the
order is in Penny or Non-Penny Program Securities.
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\3\ See Cboe Global Markets U.S. Options Market Month-to-Date
Volume Summary (July 23, 2021), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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Additionally, in response to the competitive environment, the
Exchange also offers tiered pricing which provides Members with
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. Among other volume tiers, the
Exchange currently offers Customer Penny Add Volume Tiers, Market
Maker, Away Market Maker, and Professional Penny Take Volume Tiers, and
Customer Non-Penny Add Volume Tiers, to which it proposes to make the
following changes.
Customer Penny Add Volume Tiers
The Exchange currently offers seven Customer Penny Add Volume Tiers
under footnote 1 of the Fee Schedule that provide enhanced rebates
between $0.35 and $0.53 per contract for qualifying Customer orders
(i.e., that yield fee code PY or XY) \4\ where a Member meets certain
liquidity thresholds. The Exchange proposes to update Tier 6, which
currently offers an enhanced rebate of $0.53 per contract for
qualifying orders (i.e., that yield fee code PY or XY) where a Member
has an ADAV \5\ in Customer orders greater than or equal to 1.70% of
average OCV.\6\ Specifically, the proposed rule change updates the
percentage of Customer orders over average OCV from 1.70% to 2.00% and
adds an additional prong of criteria that a Member must achieve in
order to receive the current enhanced rebate. The proposed second prong
of criteria requires a Member, in addition to meeting the existing
criteria (as updated), to reach an ADAV in Customer Non-Penny orders
greater than or equal to 0.50% of average OCV. The proposed rule change
does not alter the existing enhanced rebate amount offered in Tier 6.
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\4\ Orders yielding fee code PY are Customer orders that add
liquidity in Penny Program Securities and are offered a rebate of
$0.25, and orders yielding fee code XY are Customer orders in XSP
options that add liquidity and are offered a rebate of $0.25.
\5\ ``ADAV'' means average daily added volume calculated as the
number of contracts added. ADAV is calculated on a monthly basis.
\6\ ``OCC Customer Volume'' or ``OCV'' means the total equity
and ETF options volume that clears in the Customer range at the
Options Clearing Corporation (``OCC'') for the month for which the
fees apply, excluding volume on any day that the Exchange
experiences an Exchange System Disruption and on any day with a
scheduled early market close.
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The proposed rule change also eliminates Tier 5 \7\ and Tier 7.
Tier 5 currently offers an enhanced rebate of $0.53 per contract for
qualifying orders where a Member has (1) an ADAV in Customer orders
greater than or equal to 0.80% of average OCV, (2) an ADAV in Market
Maker orders greater than or equal to 0.35% of average OCV, and (3) on
BZX Equities an ADAV greater than or equal to 0.30% of average TCV.
Tier 7 currently offers the same enhanced rebate ($0.53) per contract
for qualifying orders where a Member has (1) an ADAV in Customer orders
greater than or equal to 0.50% of average OCV, (2) an ADAV in Market
Maker orders greater than or equal to 2.75% of average OCV, and (3) an
ADAV in Firm Non-Penny orders greater than or equal to 0.05% of average
OCV.
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\7\ As a result of eliminating Tier 5, the proposed rule change
also amends current Tier 6 to be Tier 5.
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The Exchange proposes to eliminate Tiers 5 and 7 as no Members are
currently satisfying the criteria under these tiers, nor have recently
satisfied such criteria. The Exchange no longer wishes to, nor is it
required to, maintain such tiers. More specifically, the proposed rule
change removes these tiers as the Exchange would like to provide more
consolidated, streamlined Customer Penny Add Volume Tiers by offering a
single tier that provides an enhanced rebate of $0.53 (current Tier 6/
new Tier 5) and would also rather redirect future resources and funding
into other programs and tiers intended to incentivize increased order
flow. The Exchange believes that the proposed updated criteria in
current Tier 6 (new Tier 5) is designed to provide a different
opportunity for Members to achieve the tier to receive the same
enhanced rebate.
Market Maker, Away Market Maker, and Professional Penny Take Volume
Tiers
The Exchange currently offers three Market Maker, Away Market
Maker, and Professional Take Volume Tiers under footnote 3 of the Fee
Schedule that provide a reduced fee between $0.45 and $0.47 per
contract for qualifying orders (i.e., that yield fee code PP) \8\ where
a Member meets certain liquidity thresholds. The Exchange proposes to
update each of the three Market Maker, Away Market Maker, and
Professional
[[Page 46030]]
Take Volume Tiers. The three tiers currently offer the following:
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\8\ Orders yielding fee code PP are Market Maker, Away Market
Maker, or Professional orders that remove liquidity in Penny Program
Securities and are assessed a fee of $0.50.
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<bullet> Tier 1 currently offers a reduced fee of $0.45 per
contract for qualifying orders (i.e., that yield fee code PP) where a
Member has (1) an ADAV in Customer orders greater than or equal to
0.80% of average OCV, (2) an ADAV in Market Maker orders greater than
or equal to 0.35% of average OCV, (3) on BZX Equities an ADAV greater
than or equal to 1.00% of average TCV, and (4) an ADAV in Customer Non-
Penny orders greater than or equal to 0.10% of average OCV.
<bullet> Tier 2 currently offers a reduced fee of $0.47 per
contract for qualifying orders where a Member has an ADAV in Customer
orders greater than or equal to 1.30% of average OCV.
<bullet> Tier 3 currently offers a reduced fee of $0.45 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 2.00% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.40% of
average OCV.
The proposed rule change updates the three tiers to offer the
following:
<bullet> As proposed, Tier 1 offers a new reduced fee of $0.49 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 1.00% of average OCV, and (2)
Member has an ADRV \9\ in Market Maker/Away Market Maker orders greater
than or equal to 1.00% of average OCV. The proposed rule change
eliminates the criteria in current prong 3 and 4.
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\9\ ``ADRV'' means average daily removed volume calculated as
the number of contracts removed. ADRV is calculated on a monthly
basis.
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<bullet> As proposed, Tier 2 offers a new reduced fee of $0.48 per
contract for qualifying orders where a Member achieves the existing
criteria plus proposed additional criteria in new prong two--a Member
also has an ADRV in Market Maker/Away Market Maker orders greater than
or equal to 1.00% of average OCV.
<bullet> As proposed, Tier 3 offers a new reduced fee of $0.47 per
contract for qualifying orders where a Member achieves the existing
criteria plus proposed additional criteria in new prong three--a Member
also has an ADRV in Market Maker/Away Market Maker orders greater than
or equal to 2.00% of average OCV.
The Exchange believes that the proposed updates to the Market
Maker, Away Market Maker, and Professional Penny Take Volume Tiers will
provide different and additional opportunities for such Members to
achieve the corresponding reduced fees, encouraging these liquidity
providing market participants to increase their overall order flow,
both add (ADAV) and remove (ADRV) volume, to the Exchange. This, in
turn, may facilitate tighter spreads and more price improvement
opportunities, signaling increased activity from other market
participants, and thus may ultimately contribute to deeper and more
liquid markets and a more robust and well-balanced market ecosystem on
the Exchange, to the benefit of all market participants.
Customer Non-Penny Add Volume Tiers
The Exchange currently offers five Customer Non-Penny Add Volume
Tiers \10\ under footnote 12 of the Fee Schedule, which provide
enhanced rebates between $0.92 and $1.06 per contract for qualifying
Customer orders (i.e., that yield fee code NY) \11\ where a Member
meets certain liquidity thresholds. The Exchange proposes to update
Tier 1, Tier 4 and Tier 5. These tiers currently offer the following:
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\10\ The proposed rule change also makes a nonsubstantive edit
by making ``Customer Non-Penny Add Volume Tier'' plural.
\11\ Orders yielding fee code NY are Customer orders that add
liquidity in Non-Penny Program Securities and are offered a rebate
of $0.85.
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<bullet> Tier 1 currently offers an enhanced rebate of $0.92 per
contract for qualifying orders (i.e., that yield fee code NY) where a
Member has (1) ADAV in Customer orders greater than or equal to 0.50%
of average OCV, and (2) an ADAV in Market Maker orders greater than or
equal to 2.75% of average OCV.
<bullet> Tier 4 currently offers an enhanced rebate of $1.05 per
contract for qualifying orders where a Member has an ADAV in Customer
orders greater than or equal to 2.10% of average OCV.
<bullet> Tier 5 currently offers an enhanced rebate of $1.06 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 2.00% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 1.00% of
average OCV.
The proposed rule change updates Tier 1, Tier 4 and Tier 5 as
follows:
<bullet> As proposed, Tier 1 offers a new enhanced rebate of $0.90
per contract for qualifying orders where a Member has an ADAV in
Customer Non-Penny orders greater than or equal to 0.25% of average
OCV. The proposed rule change eliminates the second prong of criteria.
<bullet> As proposed, Tier 4 offers a new enhanced rebate of $1.01
per contract for qualifying orders where a Member has an ADAV in
Customer orders greater than or equal to 0.85% of average OCV plus
proposed additional criteria in new prong two--where a Member also has
an ADAV in Customer Non-Penny orders greater than or equal to 0.25% of
average OCV.
<bullet> As proposed, Tier 5 offers a new enhanced rebate of $1.02
per contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 0.90% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.40% of
average OCV.
The proposed rule change also adopts new Tier 2,\12\ new Tier 6,
new Tier 7 and new Tier 8, which, as proposed, offer the following:
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\12\ As a result of new Tier 2, the proposed rule change also
amends current Tier 2 to be Tier 3.
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<bullet> As proposed, Tier 2 offers an enhanced rebate of $0.95 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 0.50% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.25% of
average OCV.
<bullet> As proposed, Tier 6 offers an enhanced rebate of $1.03 per
contract for qualifying orders where a Member has (1) has an ADAV in
Customer orders greater than or equal to 1.00% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.45% of
average OCV.
<bullet> As proposed, Tier 7 offers an enhanced rebate of $1.04 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 1.30% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.50% of
average OCV.
<bullet> As proposed, Tier 8 offers an enhanced rebate of $1.05 per
contract for qualifying orders where a Member has (1) an ADAV in
Customer orders greater than or equal to 1.30% of average OCV, and (2)
an ADAV in Customer Non-Penny orders greater than or equal to 0.60% of
average OCV.
Finally, the proposed rule change eliminates Tier 3, which
currently offers an enhanced rebate of $1.02 per contract for
qualifying orders where a Member has (1) an ADAV in Customer orders
greater than or equal to 0.50% of average OCV, (2) an ADAV in Market
Maker orders greater than or equal to 2.75% of average OCV, and (3) an
ADAV in Firm Non-Penny orders greater than or equal to 0.05% of average
OCV.
The proposed updates to and addition of tiers under the Customer
Non-Penny Add Volume Tiers are designed to encourage increased Customer
order
[[Page 46031]]
flow by providing different and additional opportunities to receive an
enhanced rebate. The Exchange believes that an increase in Customer
order flow may attract an additional corresponding increase in order
flow from other market participants, also contributing overall towards
a robust and well-balanced market ecosystem, to the benefit of all
market participants. Also, like the proposed elimination of certain
Customer Penny Add Volume Tiers above, the Exchange proposes to
eliminate Customer Non-Penny Add Volume Tier 3 as no Members are
currently satisfying the criteria under this tier, nor have recently
satisfied such criteria. The Exchange no longer wishes to, nor is it
required to, maintain this tier, and would rather redirect future
resources and funding into other programs and tiers intended to
incentivize increased order flow.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(4),\14\ 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) \15\
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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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
\15\ 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 change
reflects 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. The Exchange notes that volume-based incentives and discounts
have been widely adopted by exchanges,\16\ including the Exchange,\17\
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. Additionally, as noted above, the Exchange operates in a
highly competitive market. The Exchange is only one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer similar tiered pricing structures to that of the
Exchange, including schedules of rebates and fees that apply based upon
Members achieving certain volume and/or growth thresholds.
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\16\ See, e.g., NYSE Arca Options Fee Schedule, Trade-Related
charges for Standard Options, which similarly provide various ranges
of credits and discounts for volume-based tiers geared toward
different market participants in penny or non-penny classes, such as
Customer Penny Posting Credit Tiers, Firm and Broker-Dealer Penny
Posting Tiers, and Customer Posting Credit Tiers in Non-Penny
Issues; and Cboe EDGX U.S. Options Exchange Fee Schedule, Footnotes,
which provide for similar Customer Volume Tiers and Market Maker
Volume Tiers.
\17\ See generally BZX Options Fee Schedule, Footnotes.
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Overall, the Exchange believes that the proposed rule changes to
the Customer Penny Add Volume, Market Maker, Away Market Maker, and
Professional Take Volume, and Customer Non-Penny Add Volume Tiers are
reasonable in that they are reasonably designed to incentivize Members
to submit both add (ADAV) and remove (ADRV) order flow to the Exchange,
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.
Additionally, the Exchange believes that it is reasonable and equitable
to incentivize Market Maker (including Away Market Maker), Professional
and Customer order flow, as these market participants provide key
liquidity to the Exchange. For instance, Market Maker (including Away
Market Maker) activity facilitates tighter spreads and signals
additional corresponding increase in order flow from other market
participants. Increased overall order flow benefits all investors by
deepening the Exchange's liquidity pool, potentially providing even
greater execution incentives and opportunities. Professionals generally
provide a greater competitive stream of order flow (by definition, more
than 390 orders in listed options per day on average during a calendar
month), thus, providing increased competitive execution and improved
pricing opportunities for all market participants. Customer order flow
attracts additional liquidity to the Exchange, particularly in Non-
Penny classes, as proposed. Such additional liquidity provides more
trading opportunities and signals an increase in Market-Maker activity,
which facilitates tighter spreads. This may cause an additional
corresponding increase in order flow from other market participants,
contributing overall towards a robust and well-balanced market
ecosystem.
In particular, the Exchange believes that it is reasonable and
equitable to eliminate Customer Penny Add Volume Tiers 5 and 7, as well
as Customer Non-Penny Add Volume Tier 3, because the Exchange is not
required to maintain this tier or provide Members an opportunity to
receive reduced fees or enhanced rebates. As stated, no Members are
currently satisfying the criteria under these tiers, nor have recently
satisfied such criteria. Moreover, the Exchange believes it is
reasonable to provide more consolidated, streamlined Customer Penny Add
Volume Tiers by offering a single tier that provides an enhanced rebate
of $0.53 (current Tier 6/new Tier 5), and believes that the proposed
updated criteria in this single tier (current Tier 6/new Tier 5) is
reasonably designed to provide a different opportunity for Members to
achieve the tier to receive the same enhanced rebate.
Regarding the proposed rule change to the Market Maker, Away Market
Maker, and Professional Penny Take Volume Tiers, the Exchange believes
that it is reasonable and equitable to incrementally increase the
difficulty in meeting the tiers' criteria, by marginally increasing the
volume threshold over average OCV and by adding additional prongs of
criteria, as it is reasonably designed to incentivize Members to submit
additional requisite liquidity to
[[Page 46032]]
meet the updated criteria. The Exchange also believes that the
marginally increased reduced fees, as proposed, offered under each of
the Market Maker, Away Market Maker, and Professional Penny Take Volume
Tiers continue to be a reasonable distribution of reduced fees,
commensurate with the corresponding proposed criteria. The Exchange
notes that it offers similar reduced rates for criteria of comparable
difficulty in other volume-based tier programs. For example, Tier 2 of
the Non-Customer Non-Penny Take Volume Tiers in Footnote 13 of the Fee
Schedule offers a higher reduced fee ($1.07) than the proposed reduced
fees ($0.49, $0.48 and $0.47) where a Member must meet three different
prongs of criteria.
The Exchange also believes that it is reasonable and equitable to
update the Customer Non-Penny Add Volume Tiers to provide different
criteria (which the Exchange does not believe is necessarily more or
less difficult than the existing criteria) and to also provide new
criteria via new tiers because these modifications and additions are
reasonably designed to provide Members with increased supplementary
opportunities to receive corresponding enhanced rebates. The Exchange
also believes that the marginally decreased enhanced rebates, as
proposed, continue to be a reasonable distribution of enhanced rebates,
commensurate with the corresponding proposed criteria, as the Customer
Non-Penny Add Volume Tiers continue to offer a range of enhanced
rebates ($0.90 to $1.05, as proposed) within a comparable range as
offered today ($0.92 to $1.06). The proposed rule change just provides
additional opportunities within the proposed comparable range of
enhanced rebates for Members to meet criteria and receive an enhanced
rebate.
The Exchange believes that the proposed updated and new tiers
represent an equitable allocation of fees and are not unfairly
discriminatory because the Customer Penny Add Volume, Market Maker,
Away Market Maker, and Professional Penny Take Volume, and Customer
Non-Penny Add Volume Tiers Add Penny Tiers, as proposed, will continue
to apply uniformly to all qualifying Members, in that all Members that
submit the requisite order flow per each tier program have the
opportunity to compete for and achieve the proposed tiers. The proposed
changes to and additions of criteria in the Customer Penny Add Volume,
Market Maker, Away Market Maker, and Professional Penny Take Volume,
and Customer Non-Penny Add Volume Tiers are designed as an incentive to
any and all Members interested in meeting modified and new tier
criteria to submit additional, requisite order flow directly to the
Exchange's Book. 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 will definitely result in any Members qualifying
for the proposed tiers. While the Exchange has no way of predicting
with certainty how the proposed tiers will impact Member activity, the
Exchange anticipates that: Between five and six Members will be able to
compete for and potentially achieve the proposed criteria in Customer
Penny Add Volume Tier 5 (current Tier 6); at least two Members will be
able to compete for and potentially achieve the proposed criteria in
each of the updated Market Maker, Away Market Maker, and Professional
Penny Take [sic] Tiers 1, 2 and 3; and at least four Members will be
able to compete for and potentially achieve the proposed criteria in
across the updated Customer Non-Penny Add Volume Tiers 1, 4 and 5, and
new Tiers 6, 7 and 8. The Exchange also notes that the proposed tiers
will not adversely impact any Member's pricing or their ability to
qualify for other rebate tiers. Rather, should a Member not meet the
proposed criteria for a tier, the Member will merely not receive the
corresponding enhanced rebate or reduced fee, as applicable. Finally,
the Exchange believes the proposal to eliminate certain tiers is
equitable and not unfairly discriminatory because it applies to all
Members, in that, such tiers will not be available for any Member.
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.
Rather, as discussed above, the Exchange believes that the proposed
change would encourage the submission of additional liquidity to a
public exchange, thereby promoting market depth, price discovery and
transparency and enhancing order execution opportunities 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.'' \18\
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\18\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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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
tiers apply to all Members equally, in that, all Members that submit
the requisite order flow per each tier program are eligible to achieve
the tiers' proposed criteria, have a reasonable opportunity to meet the
tiers' proposed criteria and will all receive the corresponding reduced
fees or enhanced rebates (as existing and proposed) if such criteria is
met. Overall, the proposed rule change is designed to attract
additional overall Customer and liquidity provider order flow to the
Exchange, which, as described above, brings different, yet key,
liquidity and trading activity to the Exchange, resulting in overall
tighter spreads, more execution opportunities at improved prices, and/
or deeper levels of liquidity, which ultimately improves price
transparency, provides continuous trading opportunities and enhances
market quality on the Exchange, and generally continues to encourage
Members to send orders to the Exchange, thereby contributing towards a
robust and well-balanced market ecosystem to the benefit of all market
participants.
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.
Members have numerous alternative venues that they may participate on
and director their order flow, including 15 other options exchanges and
off-exchange venues. Additionally, the Exchange represents a small
percentage of the overall market. Based on publicly available
information, no single options exchange has more than 16% of the market
share.\19\ Therefore, no exchange possesses significant pricing power
in the execution of option 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
[[Page 46033]]
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.'' \20\ 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'. . . .''.\21\ Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\19\ See supra note 3.
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\
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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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="93e1e6fff6bef0fcfefef6fde7e0d3e0f6f0bdf4fce5">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-055 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-2021-055. 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-2021-055 and should be submitted
on or before September 7, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17538 Filed 8-16-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.