Notice2023-20168
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
September 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 180 (Tuesday, September 19, 2023)</title>
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[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Notices]
[Pages 64480-64482]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20168]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98376; File No. CboeBZX-2023-065]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
September 13, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on September 1, 2023, Cboe BZX Exchange, Inc. (the ``Exchange''
or ``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule, effective
September 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 (August 28, 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
$0.25 per contract for Customer orders that add liquidity in Penny
Securities, yielding fee code PY. The Fee Codes and Associated Fees
section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates.
Currently, Customer orders in Penny Securities, excluding SPY, that
remove liquidity are assessed a standard transaction fee of $0.48 per
contract and yield fee code ``PC''. Customer SPY orders that remove
liquidity are assessed a standard transaction fee of $0.45 per contract
and yield fee code ``PR''.
Currently, IWM Customer orders that remove liquidity yield fee code
PC and are assessed $0.48 per contract. The Exchange proposes to reduce
the fee assessed for IWM orders that remove liquidity to $0.45 per
contract. The Exchange therefore proposes to amend current fee code PR
to include Customer IWM orders that remove liquidity. The standard
transaction fee assessed for orders that yield fee code PR remains the
same under the proposed rule change (i.e., $0.45 per contract).
The Exchange also proposes to amend the definition of fee code PC
to clarify that such fee code (and corresponding transaction fee)
applies to all customer orders in Penny securities that remove
liquidity, except Customer orders in SPY and IWM.
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.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between
[[Page 64481]]
customers, issuers, brokers, or dealers. The Exchange also believes the
proposed rule change is consistent with section 6(b)(4) of the Act,\7\
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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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ Id.
\7\ 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.
Additionally, the Exchange believes that the proposed amendment to
reduce the transaction fee for Customer IWM orders that remove
liquidity (and therefore apply fee code PR to include such orders) 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 the proposed change is reasonable as Members will pay lower
fees for liquidity removing IWM Customer orders. The Exchange believes
its proposed change is also reasonable as the proposed rate continues
to be competitive and in line with IWM-specific pricing at other
exchanges.\8\ The Exchange believes the proposed amendment will also
encourage market participants to increase retail IWM 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 the proposed change will apply uniformly to all Customer IWM orders
that remove liquidity.
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\8\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for fees ranging between $0.45 and
$0.48 per contract for priority customer IWM orders that remove
liquidity.
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The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to adopt IWM-specific pricing as the Exchange
already maintains product-specific pricing for other products, such as
SPY. Additionally, as noted above, other exchanges similarly provide
for IWM-specific pricing.\9\ The Exchange also believes that it is
equitable and not unfairly discriminatory to assess a lower fee for
Customer IWM 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.\10\
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\9\ Id.
\10\ See BZX Options Fee Schedule, Fee Codes and Associated
Fees; see also Cboe C2 Options Exchange Fees Schedule, Transaction
Fees.
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Finally, the Exchange believes the change to the description of fee
code PC is reasonable as such fee code does not currently apply to SPY
Customer orders that remove liquidity, and as proposed will no longer
apply to IWM Customer orders that remove liquidity. The Exchange
believes explicitly referencing that SPY and IWM are excluded from fee
code PC in the fee code description will reduce potential confusion and
maintain clarity in the Fees Schedule.
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. The proposed change to reduce
the transaction fee for Customer IWM orders that remove liquidity will
apply to all Members. As discussed above, the Exchange believes the
proposed change to reduce the transaction fee would attract additional
IWM Customer orders that remove liquidity, thereby promoting market
depth, price discovery and transparency and enhancing order execution
opportunities for all Members. As a result, the Exchange believes that
the proposed change furthers the Securities and Exchange Commission's
(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
[[Page 64482]]
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 \11\ and paragraph (f) of Rule 19b-4 \12\
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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0a787f666f27696567676f647e794a796f69246d657c"><span class="__cf_email__" data-cfemail="6e1c1b020b430d0103030b001a1d2e1d0b0d40090118">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-065 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-2023-065. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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-2023-065 and should
be submitted on or before October 10, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20168 Filed 9-18-23; 8:45 am]
BILLING CODE 8011-01-P
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