Notice2024-03097
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Equities Fee Schedule
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Published
February 15, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 32 (Thursday, February 15, 2024)</title>
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[Federal Register Volume 89, Number 32 (Thursday, February 15, 2024)]
[Notices]
[Pages 11888-11891]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03097]
[[Page 11888]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99507; File No. SR-CboeBZX-2024-011]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Equities Fee Schedule
February 9, 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 1, 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, 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) modifying the rate
associated with fee code RP; (2) modifying the criteria of Add Volume
Tier 3; and (3) removing certain tiers from the Fee Schedule. The
Exchange proposes to implement these changes effective February 1,
2024.
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 (January 23, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\4\ See BZX Equities Fee Schedule, Standard Rates.
\5\ Id.
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Fee Code RP
The Exchange currently offers fee code RP, which is appended to
non-displayed orders that add liquidity to the Exchange using a
Supplemental Peg Order.\6\ Currently, orders appended with fee code RP
are provided a rebate of $0.00170 per share in securities priced at or
above $1.00. For securities appended with fee code RP priced below
$1.00 the Exchange does not provide a rebate or assess a fee. Now the
Exchange proposes to lower the rebate amount associated with fee code
RP from $0.00170 per share to $0.00080 per share in securities priced
at or above $1.00. The Exchange does not propose to change its pricing
for orders appended with fee code RP in securities priced below $1.00.
The Exchange notes that this change is being made in order to align the
rebate associated with fee code RP with other fee codes on the Exchange
that provide a rebate for non-displayed orders.\7\
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\6\ See Rule 11.9(c)(18). A ``Supplemental Peg Order'' is a non-
displayed limit order that posts to the BZX Book and thereafter is
eligible for execution at the NBB for buy orders and NBO for sell
orders against routable orders that are equal to or less than the
aggregate size of the Supplemental Peg Order interest available at
that price.
\7\ See e.g., BZX Equities Fee Schedule, Fee Codes HB, HV, and
HY. Each of the aforementioned fee codes provides a rebate of
$0.00080 per share in securities priced at or above $1.00 for non-
displayed orders that add liquidity in Tapes B, A, and C securities,
respectively.
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Add/Remove Volume Tiers
Under footnote 1 of the Fee Schedule, the Exchange offers various
Add/Remove Volume Tiers. In particular, the Exchange offers eight Add
Volume Tiers that provide enhanced rebates for orders yielding fee
codes B,\8\ V \9\ and Y \10\ where a Member reaches certain add volume-
based criteria. First, the Exchange proposes to modify the criteria of
Add Volume Tier 3. The current criteria for Add Volume Tier 3 is as
follows:
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\8\ Fee code B is appended to displayed orders that add
liquidity to BZX in Tape B securities.
\9\ Fee code V is appended to displayed orders that add
liquidity to BZX in Tape A securities.
\10\ Fee code Y is appended to displayed orders that add
liquidity to BZX in Tape C securities.
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<bullet> Add Volume Tier 3 provides a rebate of $0.0027 per share
in securities priced at or above $1.00 to qualifying orders (i.e.,
orders yielding fee codes B, V, or Y) where a Member has an
[[Page 11889]]
ADAV \11\ as a percentage of TCV \12\ >= 0.25% or Member has an ADAV >=
25,000,000.
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\11\ ``ADAV' means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
\12\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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The proposed criteria for Add Volume Tier 3 is as follows:
<bullet> Add Volume Tier 3 provides a rebate of $0.0027 per share
in securities priced at or above $1.00 to qualifying orders (i.e.,
orders yielding fee codes B, V, or Y) where a Member has an ADAV as a
percentage of TCV >= 0.30% or Member has an ADAV >= 30,000,000.
The proposed modification to Add Volume Tier 3 represents a modest
increase in difficulty to achieve the applicable tier threshold while
maintaining the existing rebate. The Exchange believes that the
proposed criteria continues to be commensurate with the rebate received
and will encourage Members to grow their volume on the Exchange.
Increased volume on the Exchange contributes to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange.
In addition to the proposed modification to Add Volume Tier 3, the
Exchange now proposes to delete Add Volume Tier 8 as the Exchange does
not wish 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.
Additionally, under footnote 1, the Exchange offers five Non-
Displayed Add Volume Tiers which provide enhanced rebates for orders
yielding fee codes HB,\13\ HV,\14\ or HY \15\ where a Member reaches
certain add volume-based criteria. The Exchange now proposes to delete
Non-Displayed Add Volume Tier 6 as the Exchange does not wish 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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\13\ Fee code HB is appended to non-displayed orders that add
liquidity to BZX in Tape B securities.
\14\ Fee code HV is appended to non-displayed orders that add
liquidity to BZX in Tape A securities.
\15\ Fee code HY is appended to non-displayed orders that add
liquidity to BZX in Tape C securities.
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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.\16\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \17\ 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) \18\ 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) \19\
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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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Id.
\19\ 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 modify Add Volume Tier 3 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,\20\ including the Exchange,\21\ 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 or 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.
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\20\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
\21\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes its proposal to modify Add
Volume Tier 3 is reasonable because the revised tier will be available
to all Members and provide all Members with an opportunity to receive
an enhanced rebate. The Exchange further believes the proposed
modification to Add Volume Tier 3 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 opportunity
to receive an enhanced rebate on qualifying orders. An overall increase
in activity would deepen the Exchange's liquidity pool, offer
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 changes to Add Volume Tier
3 are reasonable as they do not represent a significant departure from
the criteria currently offered in the Fee Schedule. Further, the
Exchange believes its proposed change to fee code RP is reasonable as
this change does not represent a significant departure from the
Exchange's general pricing structure. The Exchange notes that the
proposed change to fee code RP are intended to align the rebate
associated with Supplemental Peg Orders with existing rebates offered
by the Exchange for other non-displayed orders adding liquidity to the
Exchange.\22\ The Exchange also believes that the proposal represents
an equitable allocation of fees and rebates and is not unfairly
discriminatory because all Members continue to be eligible for the
proposed Add Volume Tier 3 and have the opportunity to meet the tier's
criteria and receive the corresponding enhanced rebate if such criteria
is met. Without having a view of activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether this
proposed rule change would definitely result in any Members qualifying
for proposed Add Volume
[[Page 11890]]
Tier 3. While the Exchange has no way of predicting with certainty how
the proposed changes will impact Member activity, based on the prior
month's volume, the Exchange anticipates that at least one Member will
be able to satisfy proposed Add Volume Tier 3. The Exchange also notes
that proposed changes will not adversely impact any Member's ability to
qualify for enhanced rebates offered under other tiers. Should a Member
not meet the proposed new criteria, the Member will merely not receive
that corresponding enhanced rebate.
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\22\ Supra note 7.
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The Exchange believes that its proposal to eliminate Add Volume
Tier 8 and Non-Displayed Add Volume Tier 6 is reasonable because the
Exchange is not required to maintain these tiers nor is it required to
provide Members an opportunity to receive enhanced rebates. The
Exchange believes its proposal to eliminate the tiers is also equitable
and not unfairly discriminatory because it applies to all Members
(i.e., the tiers will not be available for any Member). The Exchange
also notes that the proposed rule change to remove these tiers 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 the tiers 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 of the purposes of the Act. Rather, as discussed above,
the Exchange believes that the proposed change 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
modification to Add Volume Tier 3 and the proposed lower rebate
associated with fee code RP will apply to all Members equally in that
all Members are eligible for the modified tier and lower rebate, have a
reasonable opportunity to meet the proposed 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, enhance competition as they are intended to
increase the competitiveness of BZX by amending existing 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. Greater overall order flow, trading opportunities,
and pricing transparency benefits 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.
Additionally, the Exchange believes the proposed elimination of Add
Volume Tier 8 and Non-Displayed Add Volume Tier 6 does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the proposed
change to eliminate Add Volume Tier 8 and Non-Displayed Add Volume Tier
6 will not impose any burden on intramarket competition because the
changes apply to all Members uniformly, as in, the tiers will no 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.\23\ 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.'' \24\ 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'. . . .''.\25\ 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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\23\ Supra note 3.
\24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\25\ 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 \26\ and paragraph (f) of Rule 19b-4 \27\
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
[[Page 11891]]
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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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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#a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1"><span class="__cf_email__" data-cfemail="4331362f266e202c2e2e262d3730033026206d242c35">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-011 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-2024-011. 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-2024-011 and should
be submitted on or before March 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03097 Filed 2-14-24; 8:45 am]
BILLING CODE 8011-01-P
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