Notice2023-10473
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
May 17, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 95 (Wednesday, May 17, 2023)</title>
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[Federal Register Volume 88, Number 95 (Wednesday, May 17, 2023)]
[Notices]
[Pages 31529-31532]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10473]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97490; File No. SR-CboeBZX-2023-031]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
May 11, 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 May 1, 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.
[[Page 31530]]
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 May 1,
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 (April 24, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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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 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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Rebate per
Tier contract to Required criteria
add
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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.............................. (0.41) (1) Member has an ADAV in Market Maker orders >=0.50% of
average OCV; and
(2) Member has a Step-Up ADAV in Market Maker orders in
SPY >=0.05% of average OCV from December 2022.
Tier 6.............................. (0.43) Member has an ADAV in Market Maker orders >=0.60% of
average OCV.
Tier 7.............................. (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 remove Tiers 4, 5,
and 7.\7\ No Members are currently satisfying the criteria under these
tiers, and the Exchange no longer wishes to, nor is it required to,
maintain the tiers. The Exchange would rather redirect future resources
and funding into other programs and tiers intended to incentivize
increased order flow. The Exchange also proposes a corresponding non-
substantive amendment to update current Tier 6 to Tier 4. The criteria
and enhanced rebate offered under this tier remains the same.
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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.
\7\ The Exchange proposes to eliminate these tiers as described
in the table in Footnote 6 and eliminate the amounts of the rebates
in the Standard Rates table.
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Additionally, the Exchange proposes to amend the transaction fee
for Customer SPY orders that remove liquidity. Currently, customer
orders in all orders, including SPY, that remove liquidity are assessed
a standard transaction fee of $0.48 per contract and yield fee code
``PC''. The Exchange now proposes to reduce the fee assessed for
Customer SPY orders that remove liquidity to $0.45 per contract and
adopt new fee code ``PR'' for such orders (and remove SPY orders from
fee code ``PC'').
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
[[Page 31531]]
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 Members 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
market participants. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The proposed fee
changes reflect a competitive pricing structure designed to incentivize
market participants to direct their order flow, which the Exchange
believes would enhance market quality to the benefit of all Members.
The Exchange believes that it is reasonable and equitable to
eliminate Market Maker Penny Add Volume Tiers 4, 5 and 7, because the
Exchange is not required to maintain these tiers or provide Members an
opportunity to receive reduced fees or enhanced rebates. As stated, no
Members are currently satisfying the criteria under these tiers, and
the Exchange wishes to consolidate this tiered pricing program and
redirect resources and funding into other programs and tiers intended
to incentivize increased order flow. Further, Members still have other
opportunities to obtain reduced fees via the remaining Market Maker
Penny Add Volume Tiers 1 through 4, as amended.
The Exchange believes that eliminating Market Maker Penny Add
Volume Tiers 4, 5 and 7 is equitable and not unfairly discriminating
because it applies uniformly to all Members, in that, such tiers will
not be available for any Member. The Exchange also notes that the
proposed change will not adversely impact any Member's pricing or their
ability to qualify for other rebate tiers. Further, the Market Maker
Penny Add Volume Tiers 1 through 4, as amended, will continue to apply
uniformly to all qualifying Members, in that all Members that submit
the requisite order flow per each tier program have the opportunity to
compete for and achieve the available tiers.
Additionally, the Exchange believes that the proposed adoption of a
new fee code for Customer SPY orders that remove liquidity is
consistent with section 6(b)(4) of the Act in that the proposed fee is
reasonable, equitable, and not unfairly discriminatory. The Exchange
believes its proposed change is reasonable as it is competitive and in
line with SPY-specific pricing at other exchanges.\12\ The Exchange
believes the proposed amendment will also encourage market participants
to increase retail SPY order flow to the Exchange, which benefits all
market participants by providing additional trading opportunities.
This, in turn, attracts increased large-order flow from liquidity
providers which facilitates tighter spreads and potentially triggers a
corresponding increase in order flow originating from other market
participants. The Exchange believes that the proposed rule change is
equitable and not unfairly discriminatory as fee code PR applies
automatically and uniformly to all Customer SPY orders that remove
liquidity.
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\12\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for a fee of $0.46 per contract for
priority customer SPY orders that remove liquidity. See also Nasdaq
ISE Pricing Schedule, Section 3, Footnote 5, which provides for
tiered rebates for market-maker SPY orders that add liquidity
between $0.05-$0.26 per contract.
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The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to adopt SPY-specific pricing as the Exchange
already maintains product-specific pricing for other products, such as
RUT.\13\ Additionally, as noted above, other exchanges similarly
provide for SPY-specific pricing.\14\ The Exchange also believes that
it is equitable and not unfairly discriminatory to assess a lower fee
for Customer SPY orders as compared to other market participants
because customer order flow enhances liquidity on the Exchange for the
benefit of all market participants. Specifically, customer liquidity
benefits all market participants by providing more trading
opportunities, which attracts Market-Makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. Moreover, the options industry has
a long history of providing preferential pricing to customers, and the
Exchange's current Fee Schedule currently does so in many places, as do
the fees structures of multiple other exchanges.\15\
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\13\ See BZX Options Exchange Fees Schedule, Fees Codes and
Associated Fees.
\14\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for a fee range of $0.42 to $0.46 per
contract for priority customer SPY orders that remove liquidity,
based on volume criteria. See also Nasdaq ISE Pricing Schedule,
Section 3, Footnote 5, which provides for tiered rebates for market-
maker SPY orders that add liquidity between $0.10-$0.26 per
contract.
\15\ See BZX Options Fee Schedule, Fee Codes and Associated
Fees. See also Cboe C2 Options Exchange Fees Schedule, Transaction
Fees.
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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. In particular, 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 proposal to
eliminate Market Maker Penny Add Volume Tiers 4, 5 and 7 applies to all
Members, in that, such tiers will not be available for any Member. The
Exchange does not believe the proposed changes burden competition as
all Members will continue to have an opportunity receive enhanced
rebates or reduced fees offered under various tiers, including Market
Maker Penny Add Volume Tier 1 through 4, as amended, which tiers are
generally designed to increase the competitiveness of BZX and 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.
Furthermore, the proposed change to adopt a new fee code for
Customer SPY orders that remove liquidity will also apply to all
Members. As discussed above, the Exchange believes the proposed change
to adopt a new fee code for Customer SPY orders that remove liquidity
would attract additional SPY Customer orders that remove liquidity,
thereby promoting market depth, price discovery and transparency and
enhancing order execution opportunities for all
[[Page 31532]]
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
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) 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 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#7705021b125a14181a1a121903043704121459101801"><span class="__cf_email__" data-cfemail="4133342d246c222e2c2c242f3532013224226f262e37">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2023-031 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-2023-031. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CboeBZX-2023-031 and should be submitted
on or before June 7, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10473 Filed 5-16-23; 8:45 am]
BILLING CODE 8011-01-P
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