Notice2022-17319
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
August 12, 2022
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 87 Issue 155 (Friday, August 12, 2022)</title>
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[Federal Register Volume 87, Number 155 (Friday, August 12, 2022)]
[Notices]
[Pages 49907-49910]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17319]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95444; File No. SR-CboeBYX-2022-018]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
August 8, 2022.
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 1, 2022 Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') 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 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.
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 (i) introducing
a Non-Displayed Add Volume Tier under Footnote 1 (Add/Remove Volume
Tiers) and (ii) amending the criteria of the Step-Up Tier under
Footnote 2. The Exchange proposes to implement these changes effective
August 1, 2022.
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
Securities
[[Page 49908]]
Exchange Act of 1934 (the ``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.
Additionally, in response to the competitive environment, the Exchange
also offers tiered pricing, which provides Members with opportunities
to qualify for higher rebates or lower 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 more stringent
criteria.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (July 26, 2022), 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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Add/Remove Volume Tiers
Currently, the Exchange 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. These tiers are available to
Members whose orders yield fee codes B,\4\ V,\5\ and Y,\6\ [sic]where a
Member meets certain required volume-based criteria. The Exchange now
proposes to adopt a Non-Displayed Add Volume Tier under Footnote 1,
which will provide a reduced fee of $0.00050 for orders yielding fee
codes MM \7\ or AH \8\. Currently, orders yielding fee codes MM or AH
pay a fee of $0.00100 for orders in securities priced at or above
$1.00. Under the proposed Non-Displayed Add Volume Tier, Members with
an eligible order type (e.g., orders yielding fee codes MM or AH) that
have a combined Auction ADV \9\ and ADAV \10\ greater than or equal to
5,000,000 would be eligible for the reduced fee.
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\4\ Orders yielding Fee Code B are displayed orders that add
liquidity to BYX (Tape B) and are assessed a standard fee of
$0.00200.
\5\ Orders yielding Fee Code V are displayed orders that add
liquidity to BYX (Tape A) and are assessed a standard fee of
$0.00200.
\6\ Orders yielding Fee Code Y are displayed orders that add
liquidity to BYX (Tape C) and are assessed a standard fee of
$0.00200.
\7\ Orders yielding Fee Code MM are non-displayed orders that
add liquidity using Mid-Point Peg. Mid-Point Peg is an order type
defined in Exchange Rule 11.9(c)(9) as ``[a] limit order that after
entry into the System, the price of the order is automatically
adjusted by the System in response to changes in the NBBO to be
pegged to the mid-point of the NBBO, or, alternatively, pegged to
the less aggressive of the midpoint of the NBBO or one minimum price
variation inside the same side of the NBBO as the order.''
\8\ Orders yielding Fee Code AH are non-displayed orders that
execute in a Periodic Auction.
\9\ ``Auction ADV'' means average daily auction volume
calculated as the number of shares executed in an auction per day.
ADV means average daily volume calculated as the number of shares
added or removed, combined, per day, and is calculated on a monthly
basis.
\10\ ``ADAV'' means average daily volume calculated as the
number of shares added per day and is calculated on a monthly basis.
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The proposed Non-Displayed Add Volume Tier is designed to
incentivize overall order flow, particularly by offering a reduced fee
for non-displayed orders that achieve the volume-based criteria. The
Exchange also believes that the proposed fee associated with the
proposed Non-Displayed Add Volume Tier is commensurate with the tier's
criteria. Further, the proposed Non-Displayed Add Volume Tier will
provide non-displayed liquidity providing Members on the Exchange
incentives to contribute to a deeper, more liquid market, which in
turn, provides additional execution opportunities for all Members. The
Exchange believes that this benefits all Members by enhancing overall
market quality and contributing towards a robust and well-balanced
market ecosystem. The Exchange notes that the proposed Non-Displayed
Add Volume Tier will be available to all Members.
Step-Up Tier
The Exchange also proposes to revise the criteria of the Step-Up
Tier under Footnote 2 of the Fee Schedule. Currently, the Step-Up Tier
offers a reduced fee of $0.0014 to Members whose orders yield fee
codes, B,\11\ V,\12\ Y,\13\ and AD \14\ and increase their relative
add-volume order flow each month over a predetermined baseline as well
as add liquidity over an established threshold. Specifically, the
current Step-Up Tier provides a reduced fee for eligible orders (e.g.,
those orders yielding fee codes B, V, Y, and AD) where a Member (i) has
a combined Step-Up Auction ADV \15\ and Step-Up ADAV \16\ from June
2021 greater than or equal to 0.05% of TCV \17\ or Member has a
combined Step-Up Auction ADV and Step-Up ADAV from June 2021 greater
than or equal to 2,000,000; and (ii) Member has a combined Auction ADV
and ADAV greater than or equal to 0.25% of TCV. The Exchange now
proposes to lower the reduced fee to $0.0012 (instead of $0.0014) and
amend the criteria to read as follows:
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\11\ Supra note 4.
\12\ Supra note 5.
\13\ Supra note 6.
\14\ Orders yielding Fee Code AD are displayed orders that
execute in a Periodic Auction.
\15\ ``Step-Up Auction ADV'' means Auction ADV in the relevant
baseline month subtracted from current Auction ADV.
\16\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
\17\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchange and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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<bullet> Member has a combined Step-Up Auction ADV and Step-Up ADAV
from April 2022 (as compared to June 2021) greater than or equal to
3,000,000 (as compared to 2,000,000); and Member has a combined Auction
ADV and ADAV greater than or equal to 0.25% of TCV.
The Exchange believes the proposed change continues to incentivize
increased overall order flow to the Exchange, albeit with slightly
modified criteria, 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. Additionally, the Exchange believes the
proposed lower reduced fee of $0.0012 is commensurate with the revised
criteria as Members are still required to increase the amount of
liquidity they provide on the Exchange, thereby contributing to a
deeper and more liquid market, which benefits all market participants.
Furthermore, the proposed Step-Up Tier continues to be available to all
Members and provide Members an opportunity to receive a reduced fee,
albeit using a slightly modified criteria.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 and the rules and regulations
thereunder applicable to the Exchange and, in particular, the
requirements of Section 6(b) of the Act.\18\ Specifically, the
[[Page 49909]]
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \20\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
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The Exchange believes that the proposed Non-Displayed Add Volume
Tier and the proposed changes to the Step-Up Tier are reasonable,
equitable and not unfairly discriminatory because each tier, as
proposed, will be available to all Members and provide Members an
opportunity to receive a reduced fee. 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 taker-maker 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. Specifically, the Exchange
notes that relative volume-based incentives and discounts have been
widely adopted by exchanges,\21\ including the Exchange,\22\ 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 or liquidity provision and/or growth patterns.
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\21\ See Cboe BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\22\ See Cboe BYX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes the proposed Non-Displayed Add
Volume Tier is reasonable because it provides an additional opportunity
for Members to receive a discounted rate by reaching the proposed
threshold by means of liquidity adding non-displayed orders. The
Exchange believes that adopting a Non-Displayed Add Volume Tier based
on a Member's non-displayed liquidity adding orders will encourage non-
displayed liquidity providing Members to provide for a deeper, more
liquid market, and, as a result, increased execution opportunities at
improved price levels and, thus, overall order flow. The Exchange
similarly believes that the proposed revised Step-Up Tier is reasonable
because it continues to provide a discounted rate (albeit at a lower
amount), which is commensurate with the revised criteria. The Exchange
believes that removing the first requirement from the first prong of
criteria while simultaneously updating the baseline month from June
2021 to April 2022 and increasing the growth amount continues to
provide a reasonable means to achieve a reduced fee while contributing
towards a deeper and more liquid market. The Exchange believes that the
proposed Non-Displayed Add Volume Tier and proposed revised Step-Up
Tier continue to benefit all Members by contributing towards a robust
and well-balanced market ecosystem. Increased overall order flow
benefits all investors by deepening the Exchange's liquidity pool,
providing greater execution incentives and opportunities, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
The Exchange believes the proposed Non-Displayed Add Volume Tier
and the proposed revisions to the Step-Up Tier represent an equitable
allocation of fees and are not unfairly discriminatory because all
Members continue to be eligible for those tiers, would have the
opportunity to meet a tier's criteria, and would receive the proposed
reduced fee if such criteria is met. Without having a view of activity
on other market 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 tiers. While the Exchange has
no way of predicting with certainty how the proposed tiers will impact
Member activity, the Exchange anticipates that at least one Member will
be able to satisfy the criteria for the proposed Non-Displayed Add
Volume Tier and ten Members will be able to satisfy the proposed
criteria for the Step-Up Tier. The Exchange also notes that the
proposed changes 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 proposed or modified tier, the
Member will merely not receive that corresponding reduced fee. The
Exchange believes that the proposed addition of the Non-Displayed Add
Volume Tier and the proposed changes to the Step-Up Tier will benefit
all market participants by incentivizing additional hidden liquidity
and, thus, deeper more liquid markets as well as increased execution
opportunities. Particularly, the proposals are designed to incentivize
liquidity, which further contributes to a deeper, more liquid market
and provide even more execution opportunities for active market
participants at improved prices. 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.
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 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 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 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
tier changes will apply to all Members equally, in that all Members
will be eligible for the Non-Displayed Add Volume Tier and all Members
will continue to be eligible for the Step-Up Tier. In addition, all
Members will have a reasonable opportunity to meet the tiers' criteria
and will receive the reduced fee on their qualifying orders if such
criteria are met. The Exchange does not believe the proposed changes
burden competition, but rather, enhance competition as they
[[Page 49910]]
are intended to increase the competitiveness of BYX by amending
existing pricing incentives 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 benefit 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.
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 16% of the market share.\23\ 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.'' \24\ 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 states 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'. . .''.\25\
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\23\ Supra note 3.
\24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\25\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \26\ and paragraph (f) of Rule 19b-4 \27\
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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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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#156760797038767a7878707b6166556670763b727a63"><span class="__cf_email__" data-cfemail="7d0f081118501e1210101813090e3d0e181e531a120b">[email protected]</span></a>. Please include
File Number SR-CboeBYX-2022-018 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-2022-018. 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. 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-2022-018, and should
be submitted on or before September 2, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17319 Filed 8-11-22; 8:45 am]
BILLING CODE 8011-01-P
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