Notice2023-01118
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fee Schedule
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Published
January 23, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 14 (Monday, January 23, 2023)</title>
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[Federal Register Volume 88, Number 14 (Monday, January 23, 2023)]
[Notices]
[Pages 4067-4070]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96678; File No. SR-CboeBZX-2023-002]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Its Fee Schedule
January 17, 2023.
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 January 3, 2023, 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>), 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 applicable to its
equities trading platform (``BZX Equities'') by modifying the existing
NBBO Setter Program and deleting a definition that is no longer
applicable, effective January 3, 2023.
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 Exchange Act of 1934 (the ``Act''), to which market
participants may direct their order flow. Based on publicly available
information,\3\ no single registered equities exchange has more than
15% 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 rebates to
members that add liquidity and assesses fees to those that remove
liquidity.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (December 15, 2022), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
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The Exchange's Fee Schedule sets forth the standard rebates and
rates applied per share for orders that provide and remove liquidity,
respectively. Currently, for orders in securities priced at or above
$1.00, the Exchange provides a standard rebate of $0.0016 per share for
orders that add liquidity and assesses a fee of $0.0030 per share for
orders that remove liquidity. For orders in securities priced below
$1.00, the Exchange does not provide a rebate or assess a fee for
orders that add liquidity and assesses a fee of 0.30% 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.
Under footnote 20 of the Fee Schedule, the Exchange offers the NBBO
Setter Program, which is designed to improve market quality on the
Exchange in certain securities. Specifically, qualifying orders in
specific securities that yield fee codes B,\4\ V,\5\ and Y \6\ are
eligible for an additive rebate under Tier 1 of the NBBO Setter Program
(the ``NBBO Setter Tier''). Currently, the Exchange provides an
additional rebate of $0.0003 per share to Market Participant
Identifiers (``MPIDs'') that have a Step-Up Setter ADAV \7\ from May
2022 that is equal to or greater than 350,000 for orders in NBBO Setter
Securities \8\ that establish a new Setter NBBO.\9\
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\4\ Orders yielding Fee Code ``B'' are displayed orders adding
liquidity to BZX (Tape B).
\5\ Orders yielding Fee Code ``V'' are displayed orders adding
liquidity to BZX (Tape A).
\6\ Orders yielding Fee Code ``Y'' are displayed orders adding
liquidity to BZX (Tape C).
\7\ ``Step-Up Setter ADAV'' means Baseline Setter ADAV in the
relevant baseline month subtracted from Current Setter ADAV.
\8\ ``NBBO Setter Securities'' means a list of securities
included in the NBBO Setter Program, the universe of which will be
determined by the Exchange and published in a Notice distributed to
Members and on the Exchange's website. The Exchange will not remove
a security from the list of NBBO Setter Securities without 30 days
prior notice (unless the security is no longer eligible for trading
on the Exchange).
\9\ ``Setter NBBO'' means a quotation of at least 100 shares
that is better than the NBBO or a quotation of a notional size of at
least $10,000 that is better than the NBBO.
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[[Page 4068]]
Now, the Exchange proposes to increase the applicable additional
rebate of the NBBO Setter Tier to $0.0007 per share and to modify the
criteria as follows:
(1) MPID has a Step-Up ADAV \10\ from November 2022 greater than or
equal to 5,000,000; and
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\10\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
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(2) MPID has a Current Setter ADAV \11\ greater than or equal to
3,000,000.
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\11\ ``Current Setter ADAV'' means ADAV calculated as the number
of displayed shares added per day that establish a new Setter NBBO
in NBBO Setter Securities.
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Based on the above proposed change, the Exchange also proposes to
delete the definition of Step-Up Setter ADAV from the Fee Schedule as
it is no longer applicable.
The Exchange notes that the NBBO Setter Program will continue to be
available to all Members and MPIDs and will provide Members and MPIDs
an opportunity to receive an additional enhanced rebate (i.e., in
addition to the applicable standard rebate and any other applicable
tier). Moreover, the proposed change is designed to encourage Members
that provide displayed liquidity on the Exchange to increase their
overall add volume order flow, not just volume in NBBO Setter
Securities that establish the NBBO, which would benefit all Members by
providing greater execution opportunities on the Exchange and
contribute to a deeper, more liquid market, to the benefit of all
investors.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of section 6(b) of the
Act.\12\ Specifically, the Exchange believes the proposed rule change
is consistent with the section 6(b)(5) \13\ 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) \14\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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In particular, the Exchange believes that the proposed modified
NBBO Setter Tier is reasonable, equitable, and not unfairly
discriminatory. The proposed NBBO Setter Tier reflects a competitive
pricing structure designed to incentivize participants to direct their
order flow to the Exchange and enhance market quality in NBBO Setter
Securities. Particularly, the Exchange believes the NBBO Setter Program
tier, which provides an additional rebate to qualifying orders,
continues to provide a reasonable means to encourage overall growth in
Members' MPID order flow that establishes a Setter NBBO in NBBO Setter
Securities. The Exchange believes the proposed first prong of the
criteria under the NBBO Setter Program Tier 1 is also reasonably
designed to incentivize overall growth in Members' MPID liquidity
adding order flow in all securities. An overall increase in activity
would deepen the Exchange's liquidity pool, offer more narrow spreads,
support the quality of price discovery, promote market transparency,
and improve market quality for all investors.
The Exchange believes that allowing MPIDs to qualify for the
additive rebate under the NBBO Setter Tier by meeting the proposed
criteria will promote price discovery and market quality in NBBO Setter
Securities and, further, that the tightened spreads and increased
liquidity from the proposal will benefit all investors by deepening the
Exchange's liquidity pool, offering the potential for execution at more
aggressive prices, supporting the quality of price discovery, enhancing
quoting competition across exchanges, promoting market transparency,
and improving investor protection.
The Exchange notes that the NBBO Setter Tier, even as amended, is
not dissimilar from other volume-based rebates and fees (``Volume
Tiers'') that have been widely adopted by exchanges, including the
Exchange, and are equitable and not unfairly discriminatory because it
is open to all Members on an equal basis and provides a rebate that is
reasonably related to the value of an Exchange's market quality. Much
like Volume Tiers are generally designed to incentivize higher levels
of liquidity on the Exchange, the NBBO Setter Tier is designed to
incentivize enhanced market quality on the Exchange through tighter
spreads, greater size at the inside, and greater quoting depth in NBBO
Setter Securities by offering an additive rebate in NBBO Setter
Securities. As such, the Exchange believes the proposed additive rebate
in qualifying orders for NBBO Setter Securities will act to enhance
liquidity and competition across exchanges in NBBO Setter Securities by
providing a rebate reasonably related to such enhanced market quality
to the benefit of all investors, thereby promoting the principles
discussed in section 6(b)(5) of the Act. Additionally, the Exchange
notes that the tier, even as amended, is comparable to other pricing
tiers adopted by the Exchange and other exchanges that provide an
enhanced rebate or supplemental incentive for firms that achieve a
specified volume threshold in a specified group of securities.\15\
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\15\ See Exchange Fee Schedule, Footnote 13, Tape B Volume and
Quoting Tiers. See also MEMX Fee Schedule, Displayed Liquidity
Incentive Tiers and Nasdaq Fee Schedule, NBBO Program.
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The Exchange also believes that the proposal represents an
equitable allocation of reasonable dues, fees, and other charges
because the criteria necessary to achieve the tier encourages Members
to add liquidity on the Exchange. Further, the Exchange believes the
proposed criteria, while more stringent than the current criteria, is
commensurate with the proposed rebate, which is higher than the current
rebate.\16\ Moreover, the Exchange notes that it plans to add 223
symbols to the NBBO Setter Securities list (which would increase the
number of NBBO Setter Securities to a total of 776 symbols) in tandem
with this proposal, thereby providing additional opportunities for
MPIDs to meet the proposed NBBO Setter Tier's criteria.
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\16\ The Exchange notes that it plans to add 223 symbols to the
NBBO Setter Securities list in tandem with this proposal, thereby
providing additional opportunities for MPIDs to meet the proposed
NBBO Setter Tier's criteria.
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The Exchange believes that the proposal is also not unfairly
discriminatory because all Members and MPIDs will continue to be
eligible for the NBBO Setter Tier rebates and have the opportunity to
meet the Tier's criteria and receive the corresponding additional
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 these proposed changes would definitely result in any
Members qualifying for the NBBO Setter Tier. While the Exchange has no
way of predicting with certainty how the proposed changes will impact
Member activity, based on the prior months volume the Exchange
anticipates
[[Page 4069]]
approximately two Members (one MPID each) will be able to compete for
and reach the criteria under the NBBO Setter Tier, as amended. The
Exchange also notes that proposed changes will not adversely impact any
Member's ability to qualify for reduced fees or enhanced rebates
offered under other tiers. Should a Member not meet the proposed new
criteria, the Member will simply not receive that additional rebate.
The Exchange also believes that the clarifying change to delete a
non-applicable definition (i.e., the ``Step-Up Setter ADAV''
definition) from the Definitions section of the Fee Schedule is
reasonable, fair and equitable and non-discriminatory because it is
nonsubstantive and is designed to make sure that the Fee Schedule is as
clear and understandable as possible. The Exchange notes the Step-Up
Setter ADAV definition was only applicable to the existing NBBO Setter
Tier, and as proposed is no longer applicable to the NBBO Setter Tier.
Further, it is not otherwise applicable to any fees, rebates, or other
incentive programs.
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.
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 NBBO
Setter Tier, as proposed, will continue to be eligible to all Members
and MPIDs equally in that all Members and MPIDs have the opportunity to
submit orders that could set the Setter NBBO and therefore qualify for
the proposed increased additive rebate in NBBO Setter Securities.
Furthermore, the Exchange believes that the proposed NBBO Setter Tier
would incentivize Members to submit additional aggressively priced
displayed liquidity to the Exchange, and to increase their order flow
on the Exchange generally, thereby contributing to a deeper and more
liquid market and promoting price discovery and market quality on the
Exchange to the benefit of all market participants and enhancing the
attractiveness of the Exchange as a trading venue, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The proposed non-substantive change to the Definitions
section of the Fee Schedule is similarly non-burdensome as it will be
available to all Members and provide a clear description of the terms
applicable to the Fee Schedule.
The Exchange notes that as proposed the NBBO Setter Program does
not impose a burden on intermarket competition as the proposal is
intended to increase competition in U.S. equity securities that the
Exchange believes will contribute to a deeper and more liquid market in
these securities, which would in turn promote price discovery and
market quality on the Exchange to the benefit of all market
participants and enhancing the attractiveness of the Exchange as a
trading venue, which the Exchange believes, in turn, would continue to
encourage market participants to direct additional order flow to the
Exchange. The Exchange does not believe that the proposed changes
represent a significant departure from pricing current offered by the
Exchange or pricing offered by other equities exchanges. Members may
opt to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, the Exchange does
not believe that the proposed changes will impair the ability of
Members or competing venues to maintain their competitive standing in
the financial markets. 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 15% of the
market share.\17\ 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.'' \18\ 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' . . .''.\19\
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\17\ Supra note 3.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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.
[[Page 4070]]
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#3e4c4b525b135d5153535b504a4d7e4d5b5d10595148"><span class="__cf_email__" data-cfemail="a6d4d3cac38bc5c9cbcbc3c8d2d5e6d5c3c588c1c9d0">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2023-002 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-2023-002. 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 such 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-2023-002 and should be submitted
on or before February 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01118 Filed 1-20-23; 8:45 am]
BILLING CODE 8011-01-P
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