Notice2024-05837
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
March 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 55 (Wednesday, March 20, 2024)</title>
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[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Notices]
[Pages 19942-19944]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05837]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99739; File No. SR-CboeBZX-2024-021]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
March 14, 2024.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 1, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend its Fees 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 Fees Schedule, effective March
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 17 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 16% of the market share.\3\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange, including the Exchange, possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable.
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\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (February 26, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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The Exchange assesses fees in connection with orders routed away to
various exchanges. The Fees Schedule currently lists fee codes and
their corresponding transaction fees for certain Customer orders routed
to other options exchanges. Currently, under the Fee Codes and
Associated Fees section of the Fee Schedule, fee code RP is appended to
routed Customer orders to NYSE American (``AMEX''), BOX Options
Exchange (``BOX''), Nasdaq BX Options (``BX''), Cboe Exchange, Inc.
(``Cboe''), Cboe EDGX Exchange, Inc. (``EDGX''), MIAX Options Exchange
(``MIAX'') or Nasdaq PHLX LLC (``PHLX'') (excluding orders in SPY
options) and assesses a charge of $0.25 per contract; fee code RQ is
appended to routed Customer orders in Penny Program classes to NYSE
Arca, Inc (``ARCA''), Cboe C2 Exchange, Inc. (``C2''), Nasdaq ISE
(``ISE''), ISE Gemini, LLC (``GMNI''), ISE Mercury, LLC (``MERC''),
MIAX Emerald Exchange (``EMLD''), MIAX Pearl Exchange (``PERL''),
Nasdaq Options Market LLC (``NOM''), MEMX LLC (``MEMX''), or PHLX (for
orders in SPY options) and assesses a charge of $0.85 per contract; and
fee code RR is appended to routed Customer orders in Non-Penny classes
to ARCA, C2, ISE, GMNI, MERC, EMLD, PERL, NOM or MEMX and assesses a
charge of $1.25.
The Exchange notes that its current approach to routing fees is to
set forth in a simple manner certain sub-categories of fees that
approximate the cost of routing to other options exchanges based on the
cost of transaction fees assessed by each venue as well as costs to the
Exchange for routing (i.e., clearing fees, connectivity and other
infrastructure costs, membership fees, etc.) (collectively, ``Routing
Costs''). The Exchange then monitors the fees charged as compared to
the costs of its routing services and adjusts its routing fees and/or
sub-categories to ensure that the Exchange's fees do indeed result in a
rough approximation of overall Routing Costs and are not significantly
higher or lower in any area. The Exchange notes that at least one other
options exchange currently assesses routing fees in a similar manner as
the Exchange's
[[Page 19943]]
current approach to assessing approximate routing fees.\4\
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\4\ See, e.g., MIAX Options Exchange Fee Schedule, Section 1(c),
``Fees for Customer Orders Routed to Another Options Exchange.''
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The Exchange proposes to amend fee code RP to exclude applicable
Customer orders routed to Nasdaq BX Options (i.e., BX) and to amend fee
codes RQ and RR to add applicable Customer orders routed to BX. The
charge assessed per contract for each fee code remain the same under
the proposed rule change.
The proposed changes result in an assessment of fees that, given
fees of an away options exchange, is more in line with the Exchange's
current approach to routing fees, that is, in a manner that
approximates the cost of routing Customer orders to other away options
exchanges, based on the general cost of transaction fees assessed by
the sub-category of away options exchanges for such orders (as well as
the Exchange's Routing Costs).\5\ The Exchange notes that routing
through the Exchange is optional and that Members will continue to be
able to choose where to route applicable Customer orders.
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\5\ See BX Options 7 (Pricing Schedule), Section 2.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with section 6(b)(4) of the Act,\9\ which requires
that Exchange rules provide for the equitable allocation of reasonable
dues, fees, and other charges among its Trading Permit Holders and
other persons using its facilities.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed rule change to amend fee codes
RP, RQ, and RR to account for BX's current assessment of fees for
Customer orders is reasonable because it is reasonably designed to
assess routing fees in line with the Exchange's current approach to
routing fees. That is, the proposed rule change is intended to include
Customer orders in Penny Program and Non-Penny classes routed to BX in
the most appropriate sub-category of fees that approximates the cost of
routing to a group of away options exchanges based on the cost of
transaction fees assessed by each venue as well as Routing Costs to the
Exchange.
As described above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
Members. The Exchange notes that at least one other options exchange
currently approximates routing fees in a similar manner as the
Exchange's current approach.\10\
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\10\ See supra note 2[sic].
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Finally, the Exchange believes that the proposed rule change is
equitable and not unfairly discriminatory because all Members' Customer
orders in Penny Program and Non-Penny classes routed to BX will
automatically yield fee codes RQ or RR, respectively, and uniformly be
assessed the corresponding fee.
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. The Exchange does not
believe the proposed rule change to amend fee codes RP, RQ, and RR will
impose any burden on intramarket competition. All Members' Customer
orders routing to BX and currently yielding fee code RP will, as
proposed, yield fee code RQ or RR (depending on whether the order is in
Penny Program or Non-Penny classes, respectively) and will
automatically and uniformly be assessed the current fees already in
place for such routed orders, as applicable.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that other options exchange approximate routing costs in a
similar manner as the Exchange's current approach.\11\ Also, 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 16 other options
exchanges and off-exchange venues. Additionally, the Exchange
represents a small percentage of the overall market. Based on publicly
available information, no single options exchange has more than 16% of
the market share.\12\ Therefore, no exchange possesses significant
pricing power in the execution of option 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.'' \13\ 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'. . . .''.\14\ Accordingly, the
[[Page 19944]]
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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\11\ Id.
\12\ See supra note 1[sic].
\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\
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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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5321263f367e303c3e3e363d2720132036307d343c25"><span class="__cf_email__" data-cfemail="7e0c0b121b531d1113131b100a0d3e0d1b1d50191108">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-021 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-2024-021. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 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-2024-021 and should be submitted
on or before April 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05837 Filed 3-19-24; 8:45 am]
BILLING CODE 8011-01-P
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