Notice2023-08523
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
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Published
April 24, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 78 (Monday, April 24, 2023)</title>
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[Federal Register Volume 88, Number 78 (Monday, April 24, 2023)]
[Notices]
[Pages 24839-24842]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08523]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97319; File No. SR-CboeBZX-2023-023]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
April 18, 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 April 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 Options'')
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, effective April 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 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 17% of the market share and
currently the Exchange represents only approximately 5% 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.
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\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (March 28, 2023), available at <a href="https://www.cboe.com/us/options/market_statistics/">https://www.cboe.com/us/options/market_statistics/</a>.
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The Exchange's Fee Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides a rebate of
$0.29 per contract for Market Maker orders that add liquidity in Penny
Securities, yielding fee code PM. The Fee Codes and
[[Page 24840]]
Associated Fees section of the Fees Schedule also provide for certain
fee codes associated with certain order types and market participants
that provide for various other fees or rebates. Additionally, the Fee
Schedule offers tiered pricing which provides Members \4\ opportunities
to qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. 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.
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\4\ See Exchange Rule 1.5(n).
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The Exchange proposes to update the Market Maker Penny Add Volume
Tiers (i.e., applicable to orders yielding fee code PM) set forth in
footnote 6 of the Fee Schedule. The Exchange currently provides
opportunities for rebates per contract to add liquidity in Penny
Securities as follows:
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\5\ ``ADAV'' means average daily added volume calculated as the
number of contracts added.
\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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Rebate per
Tier contract to add Required criteria
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Tier 1.................. ($0.31) Member has an ADAV \5\ in
Market Maker orders
>=0.15% of average OCV.\6\
Tier 2.................. (0.38) Member has an ADAV in
Market Maker orders
>=0.25% of average OCV.
Tier 3.................. (0.39) Member has an ADAV in
Market Maker orders
>=0.40% of average OCV.
Tier 4.................. (0.40) (1) Member has an ADAV in
Market Maker orders
>=0.45% of average OCV;
and
(2) Member has a Step-Up
ADRV in Customer orders
>=0.05% of OCV from
December 2022.
Tier 5.................. (0.43) Member has an ADAV in
Market Maker orders
>=0.60% of average OCV.
Tier 6.................. (0.44) (1) Member has an ADAV in
Market Maker orders
>=0.75% of average OCV;
and
(2) Member has an ADRV in
Customer orders >=0.50% of
average OCV.
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The Exchange proposes to amend these tiers to add new Tier 5 to
provide a rebate of $0.41 per contract to add liquidity if a Member has
(1) an ADAV in Market Maker orders greater than or equal to 0.50% of
average OCV; and (2) a Step-Up ADAV in Market Maker orders in SPY
greater than or equal to 0.05% of average OCV from December 2022.\7\
The Exchange also proposes a corresponding non-substantive amendment to
update current Tiers 5 and 6 to Tiers 6 and 7, respectively.
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\7\ The Exchange proposes to add this tier as described in the
table in Footnote 6 and amend the amounts of the rebates in the
Standard Rates table.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) of the Act,\11\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Trading Permit
Holders and other persons using its facilities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
\11\ 15 U.S.C. 78f(b)(4).
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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. Additionally, competing exchanges offer similar tiered pricing
structures, including schedules of rebates and fees that apply based
upon similarly situated members achieving certain volume and/or growth
thresholds, as well as assess similar fees or rebates for similar types
of orders, to that of the Exchange.
The Exchange believes adding new Tier 5 to the Market Maker Penny
Add Volume Tiers is reasonable as it is designed to encourage Market
Makers to increase their order flow to the Exchange to achieve the
proposed tier. More specifically, the Exchange believes that adopting a
new tier may encourage Members to increase their ADAV in Market Makers
orders, including in SPY, over a modestly higher percentage of average
OCV, and that reducing the difficulty of achieving an existing tier
offers alternative criteria to the Market Maker Penny Add Volume Tiers,
as restructured, for Members to strive to achieve by submitting the
requisite add volume order flow. An increase in Market Maker add
volume, particularly, facilitates tighter spreads and an increase in
overall liquidity provider activity, both of which signal additional
corresponding increase in order flow from other market participants,
contributing towards a robust, well-balanced market ecosystem. Indeed,
increased overall order flow benefits investors by continuing to deepen
the Exchange's liquidity pool, potentially providing even 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 also believes that the proposed criteria and rebate in
new Tier 5 reasonably reflect the incremental difficulty in achieving
the remaining
[[Page 24841]]
Market Maker Penny Add Volume Tiers, and are in line with the criteria
and enhanced rebates offered under the remaining Market Maker Penny Add
Volume Tiers.
The Exchange believes the proposed change is also equitable and not
unfairly discriminatory because it applies uniformly to all Members,
who will have the opportunity to meet the new tier's criteria and
receive the corresponding rebate for the tier 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
proposed rebates. While the Exchange has no way of predicting with
certainty how the proposed changes will impact Member activity, based
on trading activity from the prior months, the Exchange anticipates
that up to two Members will achieve new Tier 5. Additionally, all
Members are able to increase their Market Maker order flow to attempt
to achieve the new tier. Should a Member not meet the proposed new
criteria, the Member will merely not receive that corresponding
enhanced rebate.
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
proposal to amend the Market Maker Penny Add Volume Tiers does not
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as they will
apply to all Members and all Members will continue to have an
opportunity to receive rebates through the program. All Market Maker
Volume Add Tiers are generally designed to increase the competitiveness
of BZX and incentivize participants to increase their order flow on the
Exchange, providing for additional execution opportunities for market
participants and improved price transparency. An overall increase in
add activity may provide for deeper, more liquid markets and execution
opportunities at improved prices. Furthermore, 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.
The Exchange also 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 they may participate on and
direct their order flow, including 15 other options exchanges.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no single options
exchange has more than 17% of the market share. Therefore, no exchange
possesses significant pricing power in the execution of order flow.
Indeed, participants can readily choose to send their orders to other
exchanges 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.'' 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'. . . .''. 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.
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)(ii) of the Act \12\ and Rule 19b-4(f)(2) \13\ thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 17 CFR 240.19b-4(f)(2).
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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 shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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#2e5c5b424b034d4143434b405a5d6e5d4b4d00494158"><span class="__cf_email__" data-cfemail="6b191e070e46080406060e051f182b180e08450c041d">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2023-023 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-2023-023. 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
[[Page 24842]]
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-2023-023 and should
be submitted on or before May 15, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08523 Filed 4-21-23; 8:45 am]
BILLING CODE 8011-01-P
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