Notice2024-02753
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Minimum Performance Standards Applicable to Primary Equity Securities Under the Lead Market Maker Program as Set forth in Rule 11.8(e)(1)(E), and To Make Corresponding Changes to Its Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 12, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 29 (Monday, February 12, 2024)</title>
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[Federal Register Volume 89, Number 29 (Monday, February 12, 2024)]
[Notices]
[Pages 9875-9880]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-02753]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99480; File No. SR-CboeBZX-2024-013]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
the Minimum Performance Standards Applicable to Primary Equity
Securities Under the Lead Market Maker Program as Set forth in Rule
11.8(e)(1)(E), and To Make Corresponding Changes to Its Fee Schedule
February 6, 2024.
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 February 2, 2024, 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 and
II 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. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to modify the Minimum Performance Standards
applicable to Primary Equity Securities under the Lead Market Maker
program (``LMM Program'') as set forth in Rule 11.8(e)(1)(E), and to
make corresponding changes to its Fee Schedule. The text of the
proposed rule change is provided in Exhibit 5 below.
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 modify the Minimum Performance Standards
\3\ under the LMM Program as set forth in Rule 11.8(e)(1)(E) applicable
to Primary Equity Securities \4\ (also referred to as ``Corporate
Securities'') listed on the Exchange. The Exchange is not proposing any
substantive changes to the LMM Program as it relates to Exchange-Traded
Products (``ETPs'') or Closed-End Funds, but is merely proposing to
make changes in its Rulebook to clearly delineate the LMM Program
applicable to Corporate Securities. The Exchange also proposes to make
corresponding changes to its Fee Schedule. The Exchange proposes to
implement these changes on February 2, 2024.\5\
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\3\ ``Minimum Performance Standards'' means a set of standards
applicable to an LMM that may be determined from time to time by the
Exchange. See Exchange Rule 11.8(e)(1)(E).
\4\ As defined in Rule 14.1(a), the term ``Primary Equity
Security'' means a Company's first class of Common Stock, Ordinary
Shares, Shares or Certificates of Beneficial Interest of Trust,
Limited Partnership Interests or American Depositary Receipts
(``ADRs'') or Shares (``ADSs'').
\5\ The Exchange initially filed the proposed fee change on
February 1, 2024 (SR-Cboe-BZX-2024-012). On February 2, 2024, the
Exchange withdrew that filing and submitted this proposal.
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On June 2, 2014,\6\ the Exchange implemented the LMM Program on the
Exchange, which provided enhanced rebates to market makers registered
with the Exchange (``Market Makers'') that were also registered as a
lead market maker (``LMM'') in an LMM Security and met the Minimum
Performance Standards in Exchange-listed exchange-traded products
(``ETPs'').\7\ On April 8, 2020, the Exchange amended the LMM Program
to include Cboe-listed Primary Equity Securities and Closed-End
Funds,\8\ and made corresponding changes to its Fee Schedule.\9\ Now,
the Exchange proposes to modify the Minimum Performance Standards
applicable to only Primary Equity Securities listed on the Exchange,
and separate those Minimum Performance Standards from those applicable
to Closed-End Funds in the Exchange's rulebook.
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\6\ See the Securities Exchange Act Release Nos. 72020 (April
25, 2014) 79 FR 24807 (May 1, 2014) (SR-BATS-2014-015) (the ``LMM
Program filing''); 72333 (June 5, 2014) 79 FR 33630 (June 11, 2014)
(SR-BATS-2014-019) (the ``LMM Fee filing'').
\7\ See Rule 11.8(e)(1)(A).
\8\ As provided in Rule 14.8(a), the term ``Closed-End Funds''
means closed-end management investment companies registered under
the Investment Company Act of 1940.
\9\ See Securities Exchange Act Release No. 88617 (April 10,
2020) 85 FR 21056 (April 15, 2020) (SR-CboeBZX-2020-032).
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Currently, the Minimum Performance Standards for Primary Equity
Securities and Closed-End Funds include the following under Rule
11.8(e)(1)(E)(i)-(v):
(i) Registration as a market maker in good standing with the
Exchange;
(ii) Time at the inside requirements, which, for Qualified
Securities,\10\ require that an LMM maintain quotes at the NBB and the
NBO at least 5% of Regular Trading Hours where the security has a
consolidated average daily volume equal to or greater than 500,000
shares and at least 15% of Regular Trading Hours where the security has
a consolidated average daily volume of less than 500,000 shares. For
Enhanced Securities,\11\ an LMM must quote at the NBB and the NBO at
least 5% of Regular Trading Hours where the security has a consolidated
average daily volume
[[Page 9876]]
equal to or greater than 500,000 shares and at least 40% of Regular
Trading Hours where the security has a consolidated average daily
volume of less than 500,000 shares;
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\10\ Qualified Securities are BZX-listed primary equity
securities and closed-end funds for which LMMs are eligible to
receive certain incentives, as set forth in the Exchange's Fee
Schedule, if the Minimum Performance Standards applicable to
Qualified Securities are met.
\11\ Enhanced Securities are BZX-listed primary equity
securities and closed-end funds securities for which LMMs are
eligible to certain incentives that are higher than those available
for Qualified Securities, if the more stringent Minimum Performance
Standards applicable to Enhanced Securities are met.
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(iii) Auction participation requirements, which, for a Qualified
Security, require that the Opening Auction price is within 4% of the
last Reference Price, as defined in Rule 11.23(a)(19), and 2% for an
Enhanced Security. For a Qualified Security, such requirements provide
that the Closing Auction price must be within 3% of the last Reference
Price and 1% for an Enhanced Security;
(iv) Market-wide NBB and NBO spread and size requirements, which
require 300 shares at both the NBB and NBO during at least 50% of
Regular Trading Hours for both Qualified Securities and Enhanced
Securities. For Qualified Securities, the NBBO spread of such shares
must be no wider than 2% for a security priced equal to or greater than
$5 and no wider than 7% for a security priced less than $5. For
Enhanced Securities, the NBBO spread of such shares must be no wider
than 1% for securities priced equal to or greater than $5 and no wider
than 2% for securities priced less than $5; and
(v) Depth of book requirements, which, for securities priced equal
to or greater than $5 requires at least $150,000 of displayed posted
liquidity on both the buy and the sell side within the percentages
described below during at least 90% of Regular Trading Hours and, for
securities priced less than $5, at least $50,000 of displayed posted
liquidity on both the buy and the sell side within the percentages
described below during at least 90% of Regular Trading Hours. For
Qualified Securities, such liquidity must be within 2% of both the NBB
and NBO for securities priced equal to or greater than $5 and within 7%
of both the NBB and NBO for securities priced less than $5. For
Enhanced Securities, such liquidity must be within 1% of both the NBB
and NBO for securities priced equal to or greater than $5 and within 2%
of both the NBB and NBO for securities priced less than $5.
Now, the Exchange proposes to adopt similar Minimum Performance
Standards applicable to Primary Equity Securities under proposed Rule
11.8(e)(1)(E)(i) and move the existing Minimum Performance Standards,
which would be applicable only to Closed-End Funds, to proposed Rule
11.8(e)(1)(E)(ii). Specifically, the Minimum Performance Standards
applicable to Primary Equity Securities would be set forth in Rule
11.8(e)(1)(E)(i)(a)-(e), as discussed below.
Proposed subparagraph (a) would require that the LMM is registered
as a market maker in good standing with the Exchange and is identical
to the existing requirement under Rule 11.8(e)(1)(E)(i).
Proposed subparagraph (b) would set forth the time at the inside
requirements identical to existing Rule 11.8(e)(1)(E)(ii), except for
the percentage of time the LMM must have quotes at the NBB and NBO.
Specifically, subparagraph (b) would provide that the time at the
inside requirements, which, for Qualified Securities, require that an
LMM maintain quotes at the NBB and the NBO at least 10% of Regular
Trading Hours where the security has a consolidated average daily
volume equal to or greater than 500,000 shares and at least 20% of
Regular Trading Hours where the security has a consolidated average
daily volume of less than 500,000 shares. For Enhanced Securities, an
LMM must quote at the NBB and the NBO at least 10% of Regular Trading
Hours where the security has a consolidated average daily volume equal
to or greater than 500,000 shares and at least 20% of Regular Trading
Hours where the security has a consolidated average daily volume of
less than 500,000 shares. Under the current structure, LMMs in
Corporate Securities and Closed-End Funds that meet the Enhanced
Security Minimum Performance Standards are eligible to receive higher
incentives than such LMMs that meet the Qualified Security Minimum
Performance Standards because such Enhanced Security Minimum
Performance Standards are more stringent. As proposed, the Qualified
Security Minimum Performance Standards and Enhanced Security Minimum
Performance Standards for Corporate Securities are identical, as are
the proposed incentives which are discussed in further detail below.
Nonetheless, the Exchange is proposing to keep the concept of Qualified
Security Minimum Performance Standards and Enhanced Security Minimum
Performance Standards in the Exchange's Rulebook as the Exchange
expects to modify those Minimum Performance Standards (at a later date
through another proposal) so that they are not identical.
Proposed subparagraph (c) would set forth the auction participation
requirements identical to existing Rule 11.8(e)(1)(E)(iii), except for
the percentage requirements as it relates to Enhanced Securities for
both the Opening and Closing Auction. Specifically, subparagraph (c)
would require that for a Qualified Security, the Opening Auction price
is within 4% of the last Reference Price, as defined in Rule
11.23(a)(19), and 4% for an Enhanced Security. For a Qualified
Security, such requirements provide that the Closing Auction price must
be within 3% of the last Reference Price and 3% for an Enhanced
Security. As described above, while the Exchange acknowledges that the
proposed quoting requirements for Qualified Security Minimum
Performance Standards and Enhanced Security Minimum Performance
Standards are identical, the Exchange expects to modify these
requirements at a later date through another proposal.
Proposed subparagraph (d) would set forth the market-wide NBB and
NBO spread and size requirements identical to existing Rule
11.8(e)(1)(E)(iv), except that the requirements would not consider the
price of the security, and that the applicable percentage requirements
for both Qualified and Enhanced Securities could be different.
Specifically, proposed Rule 11.8(e)(1)(E)(i)(d) would require 300
shares at both the NBB and NBO during at least 50% of Regular Trading
Hours for both Qualified Securities and Enhanced Securities. For
Qualified Securities, the NBBO spread of such shares must be no wider
than 5%. For Enhanced Securities, the NBBO spread of such shares must
be no wider than 5%. As described above, while the Exchange
acknowledges that the proposed spread requirements for Qualified
Security Minimum Performance Standards and Enhanced Security Minimum
Performance Standards are identical, the Exchange expects to modify
these requirements at a later date through another proposal.
Proposed subparagraph (e) would set forth the depth of book
requirements identical to existing Rule 11.8(e)(1)(E)(v), except that
the requirements would not consider the price of the security, and the
applicable percentage requirements for both Qualified and Enhanced
Securities could be different. Specifically, proposed Rule
11.8(e)(1)(E)(i)(E) would require at least $50,000 of displayed posted
liquidity on both the buy and the sell side within the percentages
described below during at least 90% of Regular Trading Hours. For
Qualified Securities, such liquidity must be within 5% of both the NBB
and NBO. For Enhanced Securities, such liquidity must be within 5% of
both the NBB and NBO. As described above, while the Exchange
acknowledges that the proposed depth of book requirements
[[Page 9877]]
for Qualified Security Minimum Performance Standards and Enhanced
Security Minimum Performance Standards are identical, the Exchange
expects to modify these requirements at a later date through another
rule filing.
As noted above, to conform the proposal to the Exchange's rulebook,
the Exchange proposes to move the existing Minimum Performance
Standards for Closed-End Funds to proposed Rule 11.8(e)(1)(E)(ii)(a)-
(e). The Exchange is not proposing to modify any of the Minimum Price
Standards applicable to Closed-End Funds at this time.
The Exchange also proposes to modify the Exchange's Fee Schedule to
delineate the LMM program applicable to Primary Equity Securities from
the LMM program applicable to ETPs and Closed-End Funds, as provided in
footnote 14 of the Fee Schedule, and to adopt and amend definitions
included in the Fee Schedule to clarify the difference in the LMM
programs. The Exchange notes that it is not proposing any substantive
change to the LMM Pricing under footnote 14 of the Fee Schedule as it
relates to ETPs and Closed-End Funds, but is merely extricating
Corporate Securities from existing LMM Pricing and establishing new
applicable pricing to LMMs in Corporate Securities.
First, the Exchange proposes to modify the current definition of
Qualified LMM to apply only to Corporate Securities. Currently, the
definition of Qualified LMM applies to all BZX-listed securities,
including Corporate Securities, ETPs, and Closed-End Funds. Now, the
Exchange proposes to modify the definition of Qualified LMM to provide
that it meets the Minimum Performance Standards defined in proposed
Rule 11.8(e)(1)(E)(i), which are applicable to Corporate Securities.
The Exchange also proposes to adopt a new definition for ``Qualified
ETP LMM'', which would mean an LMM in a BZX-listed ETP or Closed-End
Fund security that meets Qualified ETP LMM performance standards set
forth in Rule 11.8(e)(1)(E).\12\ Such Minimum Performance Standards for
Closed-End Funds are defined in Rule 11.8(e)(1)(E)(ii). The Exchange is
not proposing any substantive change to the term Qualified LMM as it
pertains to ETPs or Closed-End Funds, but is simply proposing a new
definition in order to clearly delineate Qualified LMMs in Corporate
Securities from Qualified LMMs in ETPs and Closed-End Funds. Finally,
while not new in concept, the Exchange proposes to adopt a new
definition for ``LMM Securities'', which would mean BZX-listed
securities for which a Member is an LMM. Currently, the term ``LMM
Security'' is defined in footnote 14(A)(i) of the Fee Schedule, but, as
described below, the Exchange is proposing to modify the existing
definition so that it applies only to ETPs and Closed-End Funds. As the
term ``LMM Security'' is used as a defined term elsewhere in the Fee
Schedule, the Exchange is proposing to adopt a new definition under the
``Definitions'' section of the Fee Schedule that is substantively
identical to the existing term in footnote 14(A)(i).
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\12\ Such standards applicable to ETPs and Closed-End Funds will
vary between LMM Securities depending on the price, liquidity, and
volatility of the LMM Security in which the LMM is registered. The
performance measurements will include: (A) percent of time at the
NBBO; (B) percent of executions better than the NBBO; (C) average
displayed size; and (D) average quoted spread. For additional
detail, see LMM Program Filing.
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As noted above, footnote 14 of the Fee Schedule sets forth LMM
Pricing on the Exchange. The Exchange proposes to re-letter existing
paragraphs (A) through (D) under footnote 14, to (B) through (E),
respectively, to provide for new paragraph (A). Proposed paragraph (A)
would set forth the Liquidity Provision Rates applicable to Primary
Equity Securities (also referred to as ``Corporate Securities'') listed
on the Exchange. Specifically, paragraph (A) would provide that
Qualified LMMs in BZX-listed Primary Equity Securities are eligible to
receive the Corporate LMM Add Liquidity Rebate for such Corporate
Securities for a calendar month on a security-by-security basis. For
each calendar month the Qualified LMM will receive a rebate of $0.0030
per share (or the greater of any other applicable rebate). Qualified
LMMs in Corporate Securities will be subject to the standard remove fee
of $0.0030 per share in securities priced at or above $1.00, and 0.30%
of the total dollar value for securities priced below $1.00.
Currently, LMMs in Corporate Securities are eligible to receive the
LMM Liquidity Provision Rates as provided under paragraph (A) of
footnote 14 in the Fee Schedule, which provides for a maximum stipend
for LMMs that meet the Minimum Performance Standards. As proposed, LMMs
in Corporate Securities will no longer be eligible for the LMM
Liquidity Provision Rates program but may have the potential to receive
higher incentives under the proposed program as the rebates are
transaction-based and therefore have no maximum incentive in a given
month.
Similarly, because the Exchange has proposed to modify the Minimum
Performance Standards applicable to Corporate Securities, the Exchange
is also proposing that LMMs in Corporate Securities will no longer be
eligible for the LMM Add Liquidity Rebate as provided under paragraph
(B) of footnote 14 in the Fee Schedule. As proposed, the LMM Add
Liquidity Rebates would continue to be available to LMMs in ETPs and
Closed-End Funds. The LMM Add Liquidity Rebate currently provides that
LMMs in BZX-listed securities that have a consolidated average daily
volume (``CADV'') greater than or equal to 1,000,000 (an ``ALR
Security'') are eligible to receive the LMM Add Liquidity Rebate for
such ALR Securities for a calendar month on a security-by-security
basis. For each calendar month in which an LMM is a Qualified LMM in an
ALR Security, the LMM will receive the greater of an enhanced rebate of
$0.0039 per share (instead of any other applicable rebate for
transactions in the ALR Security) or the LMM Liquidity Provision Rates
described above that would otherwise apply for the LMM in the
applicable ALR Security. While the proposed Corporate LMM Liquidity
Provision Rates provide a lower rebate than the current LMM Add
Liquidity Rebate, the Exchange believes that the proposed rebate is
commensurate with the difficulty of meeting the proposed Minimum
Performance Standards and transacting volume in Corporate Securities.
The Exchange proposes to modify the naming conventions in proposed
paragraph (B) under footnote 14 to make clear that the Liquidity
Provision Rates are only applicable to ETPs and Closed-End Funds, and
are not applicable to Corporate Securities. Specifically, proposed
paragraph (B)(i) under footnote 14 would provide that LMMs in BZX-
listed ETP and Closed-End Fund securities (``ETP LMMs'') will receive
the applicable rates on a daily basis per security for which the LMM is
a Qualified ETP LMM (a ``Qualified ETP Security'') based on the average
aggregate daily auction volume of the BZX-listed securities for which
the Member is the ETP LMM (``ETP LMM Securities''). Proposed paragraph
(B)(ii) under footnote 14 would provide that LMMs in BZX-listed ETP and
Closed-End Fund securities will receive the applicable rates on a daily
basis per Qualified ETP Security for which they also meet certain
enhanced market quality standards (an ``Enhanced ETP Security'') in
addition to the Standard Rates provided in paragraph (B)(i) under
footnote 14. The Exchange also proposes to modify the description of
the rates to
[[Page 9878]]
provide that the daily incentive is applicable to a Qualified ETP
Security or Enhanced ETP Security, as applicable. The Exchange is not
proposing any changes to the calculation of the ETP and Closed-End Fund
LMM Liquidity Provision Rates.
The Exchange proposes to modify proposed paragraph (C) under
footnote 14 to provide that the LMM Add Liquidity Rebate is only
applicable to ETP and Closed-End Fund securities listed on the
Exchange. Accordingly, proposed paragraph (C) would state that ETP
LMMs, as defined in paragraph (B)(i) of footnote 14, in BZX-listed
securities that have a CADV >=1,000,000 (an ``ALR Security'') are
eligible to receive the ETP LMM Add Liquidity Rebate for such ALR
Securities for a calendar month on a security-by-security basis. For
each calendar month in which an ETP LMM is a Qualified ETP LMM in an
ALR Security, the ETP LMM will receive the greater of an enhanced
rebate of $0.0039 per share (instead of any other applicable rebate for
transactions in the ALR Security) or the ETP LMM Liquidity Provision
Rates described above that would otherwise apply for the ETP LMM in the
applicable ALR Security. ETP LMMs in an ALR Security remain eligible to
achieve other incentives and tiers unless otherwise explicitly
excluded. The Exchange is not proposing to change how the LMM Add
Liquidity Rebate is calculated or the amount of the rebate, but is
merely modifying it to extricate Corporate Securities from the rebate
program.
The Exchange is proposing no changes to proposed paragraph (D)
under footnote 14. Closing Auction rates applicable to LMMs in ETP,
Closed-End Funds and Corporate BZX-Listed securities will continue to
transact for free in the Closing Auction in their LMM Securities.
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.\13\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \14\ 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.
Further, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4),\15\ in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
members and other persons using any facility or system which the
Exchange operates or controls and it does not unfairly discriminate
between customers, issuers, brokers or dealers. The Exchange also notes
that its listing business operates in a highly-competitive market in
which market participants, which includes both issuers of securities
and LMMs, can readily transfer their listings or opt not to
participate, respectively, if they deem fee levels, liquidity provision
incentive programs, or any other factor at a particular venue to be
insufficient or excessive. The LMM Program reflects a competitive
pricing structure designed to incentivize issuers to list new products
and transfer existing products to the Exchange and market participants
to enroll and participate as LMMs on the Exchange, which the Exchange
believes will enhance market quality in all ETPs, Primary Equity
Securities, and Closed-End Funds listed on the Exchange.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposal to adopt separate Minimum
Performance Standards applicable to Primary Equity Securities is
consistent with the Act because it will enhance market quality in those
securities. Under the current LMM Program, LMMs in Corporate Securities
are incentivized to provide tightened spreads, deeper liquidity, and
provide better execution opportunities. As proposed, LMMs in Corporate
Securities will continue to be incentivized to meet Minimum Performance
Standards, albeit with slightly less stringent standards than are
currently applicable. Nonetheless, the Exchange believes the proposed
Minimum Performance Standards are appropriate for Corporate Securities,
which are typically more liquid than other types of listed products.
Further, the Exchange believes Minimum Performance Standards tailored
specifically to Corporate Securities listed on the Exchange will be
more attractive to LMMs as they more closely align with quoting and
trading activity in those securities, while still generally aligning
with the existing Minimum Performance Standards on the Exchange, which
LMMs are already familiar with.
The Exchange believes that the proposed rebate under the Proposed
Corporate LMM Liquidity Provision Rates is reasonable as they are in-
line with other rebates available to Members on the Exchange. For
example, under the Add Volume Tiers of footnote 1 of the Fee Schedule,
Members are eligible for rebates ranging from $0.0020 up to $0.0031 per
share if they meet certain required criteria. Furthermore, as discussed
above, LMMs will continue to be eligible for other rebates, such as
those available under the Add Volume Tiers, and will receive the
greater among the rebates that it qualifies.
The Exchange believes it is reasonable to separate Corporate
Securities from ETP and Closed-End Fund securities in the LMM Program.
In particular, as the Exchange is proposing to adopt specific liquidity
rates applicable to LMMs in Corporate Securities, the Exchange believes
it follows to remove Corporate Securities from the existing liquidity
provisions of proposed sections (B) and (C) under footnote 14 of the
Fee Schedule.
The Exchange also believes that it is reasonable to provide
incentives to LMMs in Corporate Securities on a transaction basis
rather than solely achieving certain objective market quality metrics.
Unlike ETPs, Corporate Securities are valued on the trading price of
the security rather than derived from the underlying assets owned by
the ETP.\16\ Therefore, the Exchange believes it is important to
incentivize both transactions and market quality metrics in those
securities. The Exchange believes its proposed LMM Program for
Corporate Securities strikes an appropriate balance by requiring an LMM
to achieve certain Minimum Performance Standards in order to be
eligible to receive the Corporate LMM Liquidity Provision Rates on the
[[Page 9879]]
Exchange, as provided in proposed footnote 14(A) of the Fee Schedule.
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\16\ The end-of-day net asset value (``NAV'') of an ETP is a
daily calculation based off of the most recent closing prices of the
underlying assets and an accounting of the ETP's total cash position
at the time of calculation. ETPs are generally subject to a creation
and redemption mechanism to ensure that the ETP's price does not
fluctuate too far from the NAV, which mechanisms mitigate the
potential for exchange trading to impact the price of an ETP. The
``arbitrage function'' performed by market participants influences
the supply and demand of shares, and thus, trading prices relative
to NAV. The arbitrage function helps to keep an ETP's price in line
with the value of its underlying portfolio, and the Exchange
believes that the arbitrage mechanism is generally an effective and
efficient means of ensuring that intraday pricing in ETPs closely
tracks the value of the underlying portfolio or reference assets.
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Registration as an LMM is and will continue to be available equally
to all Members and allocation of listed securities between LMMs is
governed by Exchange Rule 11.8(e)(2). Where an LMM does not meet the
Minimum Performance Standards for Corporate Securities as provided in
proposed Rule 11.8(e)(1)(E)(i), they will not receive the Liquidity
Provision Rates set forth in proposed footnote 14(A) of the Exchange's
Fee Schedule. If an LMM does not meet the applicable Minimum
Performance Standards for three out of the past four months, the LMM
will continue to be subject to forfeiture of LMM status for that LMM
Security, at the Exchange's discretion.
As described above, the Exchange proposes to provide fees and
rebates specifically applicable to a Qualified LMM in transactions in
BZX-listed Primary Equity Securities as provided in proposed footnote
14(A). The Exchange believes that the proposed fee for liquidity
removing transactions in Corporate Securities is reasonable as it is
generally consistent with the standard liquidity removing fee on the
Exchange which charges a fee of $0.0030 per share for securities priced
above $1. The Exchange also believes the proposed rebate for liquidity
adding transactions in Corporate Securities is reasonable as it
appropriately incentivizes LMMs to meet the proposed Minimum
Performance Standards throughout the month in addition to transacting
in those Corporate Securities. The Exchange notes that the proposed
rebate is generally in-line with other volume adding incentives (e.g.,
the add volume tiers under footnote 1 of the Fee Schedule offer rebates
ranging from $0.0020 up to $0.0031 per share), and the Exchange
believes such rebate is reasonably commensurate with the Minimum
Performance Standards and transaction requirements of the proposed
Corporate LMM Liquidity Provision Rates.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
the proposed change burdens competition, but rather, enhances
competition as it is intended to increase the competitiveness of BZX
both among Members by incentivizing Members to become LMMs in BZX-
listed Primary Equity Securities and as a listing venue by enhancing
market quality in those securities. The marketplace for listings is
extremely competitive and there are several other national securities
exchanges that offer listings. Transfers between listing venues occur
frequently for numerous reasons, including market quality. This
proposal is intended to help the Exchange compete as a listing venue.
Accordingly, the Exchange does not believe that the proposed changes
will impair the ability of issuers, LMMs, or competing listing venues
to maintain their competitive standing. The Exchange also notes that
the proposed change is intended to enhance market quality in BZX-listed
Primary Equity Securities, to the benefit of all investors in such BZX-
listed securities. The Exchange does not believe the proposed amendment
would burden intramarket competition as it would be available to all
Members uniformly. Registration as an LMM is available equally to all
Members and allocation of listed securities between LMMs is governed by
Exchange Rule 11.8(e)(2). Further, if an LMM does not meet the
applicable Minimum Performance Standards for three out of the past four
months, the LMM would continue to be subject to forfeiture of LMM
status for that LMM Security, at the Exchange's discretion.
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
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) \18\ thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission
may designate a shorter time of such action is consistent with the
protection of investor and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
waiving the operative delay would allow market participants to realize
immediately the benefits of the proposal, which the Exchange states
include market quality enhancements, and would help the Exchange better
compete as a listing venue for Primary Equity Securities without undue
delay. The proposed change raises no novel legal or regulatory issues.
Based on the foregoing, the Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal operative upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 will 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="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#1f6d6a737a327c7072727a716b6c5f6c7a7c31787069"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-013 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-2024-013. This
file number should be included on the subject line if email is used. To
help the
[[Page 9880]]
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-2024-013 and should be submitted
on or before March 4, 2024.
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), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02753 Filed 2-9-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 12, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.