Notice2023-22437
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Regarding Rebate Tiers
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Published
October 11, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 195 (Wednesday, October 11, 2023)</title>
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[Federal Register Volume 88, Number 195 (Wednesday, October 11, 2023)]
[Notices]
[Pages 70428-70431]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22437]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98684; File No. SR-CboeBZX-2023-075]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule Regarding Rebate Tiers
October 4, 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 29, 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 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 (1) discontinuing Step-
Up Tier 1; and (2) adopting a new Cross Asset Tier. The Exchange
proposes to implement these changes effective October 2, 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
14% 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. 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 $0.00160 per
share for orders that add liquidity and assesses a fee of $0.0030 per
share for orders that remove liquidity.\4\ For orders in securities
priced below $1.00, the Exchange provides a standard rebate of $0.00009
per share for orders that add liquidity and assesses a fee of 0.30% of
the total dollar value for orders that remove liquidity.\5\
Additionally, in response to the competitive environment, the Exchange
also offers tiered pricing which provides Members 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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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (September 22, 2023), available at <a href="https://www.cboe.com/us/equities/_statistics/">https://www.cboe.com/us/equities/_statistics/</a>.
\4\ See BZX Equities Fee Schedule, Standard Rates.
\5\ Id.
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Under footnote 2 of the Fee Schedule, the Exchange currently offers
various Step-Up Tiers that provide enhanced rebates for orders yielding
fee codes B,\6\ V \7\ and Y \8\ where a Member reaches certain add
volume-based criteria, including ``growing'' its volume over a certain
baseline month. The Exchange now proposes to discontinue Step-Up Tier 1
as the Exchange no longer wishes to, nor is required to, maintain such
tier. More specifically, the proposed change removes this tier as the
Exchange would rather redirect future resources and funding into other
programs and tiers intended to incentivize increased order flow.
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\6\ Fee code B is appended to orders that add liquidity to BZX
in Tape B securities.
\7\ Fee code V is appended to orders that add liquidity to BZX
in Tape A securities.
\8\ Fee code Y is appended to orders that add liquidity to BZX
in Tape C securities.
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The Exchange also proposes to introduce a new Cross Asset Tier
under footnote 2, which is designed to incentivize Members to achieve
certain levels of participation on both the Exchange's equities and
options platform (``BZX Options''). The proposed criteria is as
follows:
<bullet> Cross Asset Tier 1 provides a rebate of $0.0033 per share
for securities priced above $1.00 for qualifying orders (i.e., orders
yielding fee codes B, V or Y) where (1) Member has a Step-Up ADAV \9\
from June 2023 >= 7,000,000; and (2) Member has a Customer ADAV \10\ on
BZX Options >= 10,000.
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\9\ Step-Up ADAV means ADAV in the relevant baseline month
subtracted from current ADAV. ADAV means average daily volume
calculated as the number of shares added per day. ADAV is calculated
on a monthly basis.
\10\ Customer ADAV means average daily volume calculated as the
number of contracts added for the account of a Priority Customer as
defined in BZX Rule 16.1. ADAV is calculated on a monthly basis. See
BZX Options Fee Schedule, Definitions.
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The proposed Cross Asset Tier is intended to provide an additional
manner to incentive Members to add displayed liquidity on the Exchange
while also increasing participation on BZX Options. The Exchange
believes the addition of the Cross Asset Tier will incentivize Members
to grow their volume on the Exchange, thereby contributing to a deeper
and more liquid market, which benefits all market participants and
provides greater execution opportunities on the Exchange.
Additionally, the Exchange notes that the proposed Cross Asset Tier
will
[[Page 70429]]
expire no later than December 31, 2023, which the Exchange will
indicate on the Exchange's fee schedule. Step-Up Tiers in general are
designed to provide Members with additional opportunities to receive
enhanced rebates by increasing their order flow to the Exchange, which
further contributes to a deeper, more liquid market and provides even
more execution opportunities for active market participants. Like other
Step-Up Tiers on the Exchange,\11\ the proposed Cross Asset Tier is
designed to give members an additional opportunity to receive an
enhanced rebate for orders meeting the applicable criteria. Increased
overall order flow benefits all Members by contributing towards a
robust and well-balanced market ecosystem.
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\11\ See BZX Equities Fee Schedule, Footnote 2, Step-Up Tiers.
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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 as well as section 6(b)(4) \15\
as it is designed to 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
\15\ 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 Exchange believes that
its proposal to introduce a Cross Asset Tier 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, the
Exchange notes that relative volume-based incentives and discounts have
been widely adopted by exchanges,\16\ including the Exchange,\17\ 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 of liquidity provision and/or growth patterns.
Competing equity exchanges offer similar tiered pricing structures,
including schedules of rebates and fees that apply based upon 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.\18\
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\16\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
\17\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\18\ See e.g., MIAX Pearl Options Fee Schedule, Transaction
Rebates/Fees; The Nasdaq Options Market LLC (``NOM'') Pricing
Schedule, Options 7, Section 2.
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In particular, the Exchange believes its proposal to introduce a
Cross Asset Tier is reasonable because the revised tier will be
available to all Members and provide all Members with an additional
opportunity to receive an enhanced rebate. The Exchange further
believes the proposed Cross Asset Tier will provide a reasonable means
to encourage liquidity adding displayed orders in Members' order flow
to the Exchange and to incentivize Members to continue to provide
liquidity adding volume to the Exchange by offering them an additional
opportunity to receive an enhanced rebate on qualifying orders. An
overall increase in activity would deepen the Exchange's liquidity
pool, offers additional cost savings, support the quality of price
discovery, promote market transparency and improve market quality, for
all investors.
The Exchange believes that the proposed Cross Asset Tier represents
an equitable allocation of fees and rebates and is not unfairly
discriminatory because all Members will be eligible for the proposed
tier and have the opportunity to meet the tier's criteria and receive
the corresponding enhanced rebate if such criteria is met. To the
extent a Member participates on BZX Equities but not on BZX Options,
the Exchange continues to believe that its proposal represents an
equitable allocation of fees and rebates and is not unfairly
discriminatory with respect to such Member based on the overall benefit
to the Exchange resulting from the success of its options platform.
Particularly, the Exchange believes that additional such success allows
the Exchange to continue to provide and potentially expand its existing
incentive programs to the benefit of all participants on the Exchange,
regardless of whether they participate on BZX Options or not. Without
having a view of activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
definitely result in any Members qualifying the new proposed tiers.
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 that at least one Member will be able
to satisfy the proposed criteria for the proposed Cross Asset Tier. The
Exchange also notes that proposed changes will not adversely impact any
Member's ability to qualify for enhanced rebates or reduced fees
offered under other tiers. Should a Member not meet the proposed new
criteria for the proposed Cross Asset Tier, the Member will merely not
receive that corresponding enhanced rebate.
Additionally, the Exchange believes that its proposal to eliminate
Step-Up Tier 1 is reasonable because the Exchange is not required to
maintain this tier or provide Members an opportunity to receive
enhanced rebates. The Exchange believes the proposal to eliminate this
tier is also equitable and not unfairly discriminatory because it
applies to all Members (i.e., the tier will not be available for any
Member). The Exchange also notes that the proposed rule change to
remove this tier merely results in Members not receiving an enhanced
rebate, which, as noted above, the Exchange is not required to offer or
maintain. Furthermore, the proposed rule change to eliminate Step-Up
Tier 1 enables the Exchange to redirect resources and funding into
other programs and tiers intended to incentivize increased order flow.
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
[[Page 70430]]
of the purposes of the Act. Rather, as discussed above, the Exchange
believes that the proposed changes 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 changes do not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
Cross Asset Tier will apply to all Members equally in that all Members
are eligible for the tier, have a reasonable opportunity to meet the
tier's criteria and will receive the enhanced rebate on their
qualifying orders if such criteria is met. The Exchange does not
believe the proposed changes burden competition, but rather, enhances
competition as it is intended to increase the competitiveness of BZX by
adopting 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. Additionally, the
Exchange believes that the proposed criteria based on total options
volume applicable to BZX Options Priority Customers will provide an
additional incentive to those Priority Customers to send additional
orders to BZX Options, which in turn provides additional liquidity in
the market. Greater overall order flow, trading opportunities, and
pricing transparency benefits all market participants on the Exchange,
as well as its affiliate options exchange, by enhancing market quality
and continuing to encourage Members to send orders, thereby
contributing towards a robust and well-balanced market ecosystem. The
proposed change to discontinue Step-Up Tier 1 will not impose any
burden on intramarket competition because the changes apply to all
Members uniformly, as in, the tier will not longer be available to any
Member.
Next, the Exchange believes the proposed rule changes 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 14% of the market share.\19\ 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.'' \20\ 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' . . . .''.\21\ 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.
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\19\ Supra note 3.
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\
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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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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#b7c5c2dbd29ad4d8dadad2d9c3c4f7c4d2d499d0d8c1"><span class="__cf_email__" data-cfemail="c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-075 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-2023-075. 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
[[Page 70431]]
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-2023-075 and should be submitted on or before November 1,
2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22437 Filed 10-10-23; 8:45 am]
BILLING CODE 8011-01-P
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