Notice2021-22690
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fee Schedule
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Published
October 19, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 199 (Tuesday, October 19, 2021)</title>
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[Federal Register Volume 86, Number 199 (Tuesday, October 19, 2021)]
[Notices]
[Pages 57876-57879]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22690]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93308; File No. SR-CboeBZX-2021-067]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Fee Schedule
October 13, 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 September 30, 2021, Cboe BZX Exchange, Inc. (the ``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 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 (1) modifying
Tier 2 of the Step-Up Tiers as provided under footnote 2 of the Fee
Schedule; and (2) eliminating two existing tiers and introducing a new
tier of the Single Market Participant Identifier (``MPID'') Investor
Tiers, as provided under footnote 4 of the Fee Schedule, effective
October 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 17% 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 (September 27, 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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Step-Up Tiers
The Step-Up Tiers set forth in footnote 2 of the Fee Schedule
provides Members an opportunity to qualify for an enhanced rebate for
liquidity adding orders that yield fee codes B, V and Y \4\ where they
increase their relative liquidity each month over a predetermined
baseline. Tier 2 of the Step-Up Tiers provides an enhanced rebate of
$0.0032 per share to a Member that has a Step-Up Add TCV \5\ from April
2020 equal to or greater than 0.30%. The Exchange notes that step-up
tiers are designed to encourage Members that provide displayed
liquidity on the Exchange to increase their order flow, which would
benefit all Members by providing greater execution opportunities on the
Exchange. Now the Exchange proposes to replace the current criteria for
Step-Up Tier 2, with the following:
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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\ ``Step-Up Add TCV'' means ADAV as a percentage of TCV in the
relevant baseline month subtracted from current ADAV as a percentage
of TCV.
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<bullet> Member has a Step-Up ADAV \6\ from June 2021 equal to or
greater than 10,000,000; and
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\6\ ``Step-Up ADAV'' means ADAV (as defined below) in the
relevant baseline month subtracted from current ADAV.
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<bullet> Member has an ADV \7\ equal to or greater than 0.30% of
the TCV \8\ or Member has an ADV equal to or greater than 35,000,000.
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\7\ ``ADAV'' means average daily added volume calculated as the
number of shares added per day and ``ADV'' means average daily
volume calculated as the number of shares added or removed,
combined, per day. ADAV and ADV are calculated on a monthly basis.
\8\ ``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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The Exchange believes that the tier as proposed will further
incentivize increased order flow to the Exchange, which may contribute
to a deeper, more liquid market to the benefit of all market
participants by creating a more robust and well-balanced market
ecosystem. Step-Up Tier 2, as modified, continues to be available to
all Members and provide Members an opportunity to receive an enhanced
rebate.
[[Page 57877]]
Single MPID Investor Tiers
Pursuant to footnote 4 of the Fee Schedule, the Exchange currently
offers three [sic] 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 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 $0.0030 per share for
qualifying orders (i.e., yield fee code B, V and Y) where 1) an MPID
has an Step-Up ADV \9\ from May 2021 equal to or greater than 0.10% TCV
or the MPID has a Step-Up ADV from May 2021 equal to or greater than
8,000,000; and 2) an MPID adds a Step-Up ADAV from May 2021 equal to or
greater than 0.05% of TCV. The Exchange proposes to eliminate existing
Tiers 2 and 3 of the Single MPID Investor Tiers, and rename existing
Tier 4 to Tier 2. The Exchange notes that no Member has reached Tiers 2
or 3 in several months, and the Exchange no longer wishes to, nor is it
required to, maintain such tiers.
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\9\ ``Step-Up ADV'' means ADV in the relevant baseline month
subtracted from current day ADV.
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The Exchange also proposes to adopt new Tier 3 of the Single MPID
Investor Tiers. New Tier 3 provides a proposed enhanced rebate $0.0034
for a Member's qualifying orders where an MPID has a Step-Up ADAV as a
percentage of TCV equal to or greater than 0.20% from September 2021 or
the MPID has a Step-Up ADAV from September 2021 equal to or greater
than 20,000,000. Members that achieve the proposed Single MPID Investor
Tier 3 must therefore increase the amount of liquidity added on BZX
over a baseline amount, thereby contributing to a deeper and more
liquid market. Incentivizing an increase in liquidity adding 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 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,\10\ in general, and
furthers the objectives of Section 6(b)(4) and 6(b)(5),\11\ 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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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes the proposed changes to the Step-Up Tier 2
are reasonable because the tier, as modified, continues to be available
to all Members and provide Members an opportunity to receive an
enhanced rebate. The Exchange next notes that relative volume-based
incentives and discounts have been widely adopted by exchanges,
including the Exchange, and are reasonable, equitable, and non-
discriminatory because they are open to all Members on an equal basis
and provide additional discounts that are reasonably related to (i) the
value to an exchange's market quality and (ii) associated with higher
levels of market activity, such as higher levels of liquidity provision
and/or growth patterns. The Exchange also believes that the current
enhanced rebates under the Step-Up Tier 2 continues to be commensurate
with the proposed criteria. That is, the rebate reasonably reflects the
difficulty in achieving the criteria as amended. The Exchange believes
the proposed changes to the Step-Up Tier 2 represents an equitable
allocation of rebates and is not unfairly discriminatory because all
Members are eligible for the Step-Up Tier 2 and would have the
opportunity to meet the tier's criteria and would receive the current
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 three Member
will be able to satisfy the criteria proposed under the new tier.\12\
The Exchange also notes that proposed tier/rebate will not adversely
impact any Member's ability to qualify for other reduced fee or
enhanced rebate tiers. Should a Member not meet the proposed criteria
under the modified tier, the Member will merely not receive that
corresponding enhanced rebate.
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\12\ The Exchange notes that no Members have met Step-Up Tier 2
in recent months.
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The Exchange believes the proposed amendment to remove the Single
MPID Investor Tiers 2 and 3 is reasonable because no Member has
achieved these tiers in several months. Furthermore, the Exchange is
not required to maintain these tiers and Members still have a number of
other opportunities and a variety of ways to receive enhanced rebates,
including the proposed Single MPID Investor Tier 3. The Exchange
believes the proposal to eliminate the Single MPID Investor Tiers 2 and
3 is also equitable and not unfairly discriminatory because it applies
to all Members.
The Exchange also believes proposed Single MPID Investor Tier 3 is
a reasonable means to encourage Members to increase their added
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, which the Exchange believes
incentivizes liquidity providers to submit additional liquidity
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 the proposed Single MPID
Investor Tier 3 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 lower rebates
for less stringent criteria. Indeed, the proposed criteria in new Tier
3 includes higher growth thresholds that Members can
[[Page 57878]]
achieve than other Single MPID Investor Tiers and, as a result, a
higher enhanced rebate of $0.0034, as proposed, than the enhanced
rebates offered in the other Single MPID Investor Tiers.
The Exchange also believes that the proposed Single MPID Investor
Tier 3 represents an equitable allocation of fees and rebates and is
not unfairly discriminatory because all Members are eligible for the
new Single MPID Investor Tier 3 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 one Member 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.
As noted above, the Exchange operates in a highly competitive
market. The Exchange is only one of 16 equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. It is also only one of several maker-
taker exchanges. Competing equity exchanges offer similar rates and
tiered pricing structures to that of the Exchange, including schedules
of rebates and fees that apply based upon members achieving certain
volume thresholds.
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 changes 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 changes
further the Securities and Exchange Commission's (the ``Commission's''
or the ``SEC'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 amended
Step-Up Tier 2 and proposed Single MPID Investor Tier 3 apply 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 changes 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 17% 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
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 (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 \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
[[Page 57879]]
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#9ceee9f0f9b1fff3f1f1f9f2e8efdceff9ffb2fbf3ea"><span class="__cf_email__" data-cfemail="641611080149070b0909010a1017241701074a030b12">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-067 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-2021-067. 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-2021-067, and should be
submitted on or before November 9, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22690 Filed 10-18-21; 8:45 am]
BILLING CODE 8011-01-P
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