Notice2024-10591
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
May 15, 2024
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 89 Issue 95 (Wednesday, May 15, 2024)</title>
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[Federal Register Volume 89, Number 95 (Wednesday, May 15, 2024)]
[Notices]
[Pages 42564-42567]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10591]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100090; File No. SR-CboeBZX-2024-034]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
May 9, 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 May 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 May 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. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\3\ See Cboe Global Markets U.S. Options Market Volume Summary
by Month (April 19, 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's fee schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides a rebate of
$0.29 per contract for Market Maker orders that add liquidity in Penny
Securities, yielding fee code PM. 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.
The Exchange currently offers six Market Maker Penny Add Volume
Tiers (``MM Penny Add Tier'') under Footnote
[[Page 42565]]
6 of the Fees Schedule, which provide additional rebates between $0.31
and $0.43 per contract for qualifying Market Maker orders (i.e., that
yield fee code PM) \4\ where a Member meets certain liquidity
thresholds.
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\4\ Orders yielding fee code PM are Market Maker orders that add
liquidity in Penny Program Securities and are offered a rebate of
$0.29.
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Currently, the MM Penny Add Tiers include two Market Maker Cross-
Asset Add Tiers, both of which require participation on the Exchange's
equities platform (``BZX Equities''). Under Market Maker Cross-Asset
Add Tier 1, the Exchange provides a rebate of $0.38 per contract where
a Member (1) has an ADAV \5\ in Market Maker orders greater than or
equal to 0.10% of average OCV; \6\ (2) has on BZX Equities an ADAV
greater than or equal to 0.40% of average TCV; \7\ and (3) is the Lead
Market Maker (``LMM'') \8\ on BZX Equities in at least 50 equity
symbols. Under Market Maker Cross-Asset Add Tier 2, the Exchange
currently provides a rebate of $0.39 per contract where a Member (1)
has an ADAV in Market Maker orders greater than or equal to 0.20% of
average OCV; (2) has on BZX Equities an ADAV greater than or equal to
0.45% of average TCV; and (3) is the LMM on BZX Equities in at least 50
equity symbols.
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\5\ ``ADAV'' means average daily added volume calculated as the
number of contracts added.
\6\ ``OCV'' means the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
\7\ ``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.
\8\ ``Lead Market Maker'' means a Market Maker registered with
the Exchange for a particular LMM Security that has committed to
maintain Minimum Performance Standards in the LMM Security. See Rule
11.8(e).
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The Exchange proposes to delete Market Maker Cross-Asset Add Tier 1
and amend the criteria for Market Maker Cross-Asset Add Tier 2.\9\ No
Members are currently satisfying the criteria under Market Maker Cross-
Asset Add Tier 1, and the Exchange no longer wishes to, nor is it
required to, maintain the tier. As proposed, under the remaining Market
Maker Cross-Asset Add Tier, the Exchange will provide a rebate of $0.39
per contract where a Member (1) has an ADAV in Market Maker orders in
SPY, QQQ greater than or equal to 0.20% of average SPY, QQQ OCV; (2)
has on has on [sic] BZX Equities an ADAV greater than or equal to 0.45%
of average TCV or an ADAV greater than or equal to 45,000,000,000; and
(3) is the LMM on BZX Equities in at least 50 equity symbols.
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\9\ As part of this proposed rule change, the Exchange proposes
to rename ``Market Maker Cross-Asset Add Tier 2'' to ``Market Maker
Cross-Asset Add Tier''.
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The Exchange believes the amended tier criteria for the Market
Maker Cross-Asset Add Tier, along with the existing MM Penny Add Tiers,
continue to provide an incremental incentive for Members to strive for
the highest tier levels, which provide increasingly higher rebates for
such transactions. Overall, the MM Penny Add Tiers, including the
Market Maker Cross-Asset Add Tier, are designed to encourage Members to
increase their order flow, thereby contributing to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange.
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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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) \12\ 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,\13\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
\13\ 15 U.S.C. 78f(b)(4).
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As described above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
market participants. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The proposed fee
changes reflect a competitive pricing structure designed to incentivize
market participants to direct their order flow, which the Exchange
believes would enhance market quality to the benefit of all Members.
The Exchange believes that it is reasonable to eliminate Market
Maker Cross-Asset Add Tier 1 because the Exchange is not required to
maintain this tier or provide Members an opportunity to receive
enhanced rebates. As stated, no Members are currently satisfying the
criteria under these tiers, and the proposed change enables the
Exchange to redirect resources and funding into other programs and
tiers intended to incentivize increased order flow. Further, Members
still have other opportunities to obtain reduced fees via the remaining
MM Penny Add Tiers.
The Exchange believes that eliminating Market Maker Cross-Asset Add
Tier 1 is equitable and not unfairly discriminatory because it applies
uniformly to all Members, in that, the tier will not be available for
any Member. The Exchange also notes that the proposed change will not
adversely impact any Member's pricing or their ability to qualify for
other rebate tiers. Further, the MM Penny Add Tiers will continue to
apply uniformly to all qualifying Members, in that all Members that
submit the requisite order flow per each tier program have the
opportunity to compete for and achieve the available tiers.
Additionally, the Exchange believes the amended criteria for the
remaining Market Maker Cross-Asset Add Tier is reasonable, as such
changes are designed to encourage Members to increase their liquidity
on the Exchange and also their participation on BZX Equities to
continue to achieve the rebate offered under the Market Maker Cross-
Asset Add Tier. Specifically, the Exchange believes the amended
criteria reasonably encourages Members to increase their ADAV in Market
Makers
[[Page 42566]]
orders in SPY and QQQ over a modestly higher percentage of average SPY,
QQQ OCV, and to increase their ADAV on BZX Equities. The Exchange notes
that increased Market Maker activity (including LMMs), particularly,
facilitates tighter spreads and an increase in overall liquidity
provider activity, both of which signal additional corresponding
increases in order flow from other market participants, contributing
towards a robust, well-balanced market ecosystem. Indeed, increased
overall order flow benefits investors across both the Exchange's
options and equities platforms by continuing to deepen the Exchange's
liquidity pool, potentially providing even greater execution incentives
and opportunities, offering additional flexibility for all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because it
applies uniformly to all Market Makers. Additionally, a number of
Market Makers have a reasonable opportunity to satisfy the criteria of
the Cross-Asset Add Tier, as amended. While the Exchange has no way of
knowing whether this proposed rule change would definitively result in
any particular Market Maker qualifying for the Cross-Asset Add Tier, as
amended, the Exchange anticipates that approximately one Market Maker
will be able to compete for and achieve the proposed criteria of the
amended tier; however, the tier is open to any Market Maker that
satisfies the tier's amended criteria. The Exchange believes the tier,
as amended, could provide an incentive for other Members to submit
additional liquidity on BZX Options and Equities to qualify for the
enhanced rebate. To the extent a Member participates on the Exchange
but not on BZX Equities, the Exchange does believe that the proposal is
still reasonable, equitably allocated and non-discriminatory with
respect to such Member based on the overall benefit to the Exchange
resulting from the success of BZX Equities. Particularly, the Exchange
believes 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, whether they participate on BZX
Equities or not. The proposed change is also fair and equitable in that
membership in BZX Equities is available to all market participants,
which would provide them with access to the benefits on BZX Equities
provided by the proposed change, even where a member of BZX Equities is
not necessarily eligible for the enhanced rebate on the Exchange.
The Exchange also notes that it does not believe the proposed
changes will adversely impact any Member's pricing or ability to
qualify for other tiers. Rather, should a Member not meet the proposed
criteria, the Member will merely not receive the enhanced rebate, and
has alternative choices to aim to achieve under the MM Penny Add Tiers.
Furthermore, the enhanced rebate would apply to all Members that meet
the proposed required criteria under tier.
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 changes to the MM Penny Add Tiers will impose any
burden on intramarket competition. Particularly, the proposed change
applies uniformly to all Market Makers. The proposal to eliminate
Market Maker Cross-Asset Add Tier 1 applies to all Members, in that,
such tier will not be available for any Member. All Members will
continue to have an opportunity receive enhanced rebates or reduced
fees offered under various tiers, including the remaining Market Maker
Cross-Asset Add Tier, as amended. Additionally, the proposal to amend
the remaining Market Maker Cross-Asset Tier will apply to all Members
and all Members will continue to have an opportunity to receive the
corresponding rebate through the program.
All MM Penny Add Tiers are generally designed to increase the
competitiveness of BZX and incentivize participants to increase their
order flow on the Exchange, providing for additional execution
opportunities for market participants and improved price transparency.
An overall increase in add activity may provide for deeper, more liquid
markets and execution opportunities at improved prices. Furthermore,
greater overall order flow, trading opportunities, and pricing
transparency benefit 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.
As discussed above, to the extent a Member participates on the
Exchange but not on BZX Equities, the Exchange notes that the proposed
change can provide an overall benefit to the Exchange resulting from
the success of BZX Equities. Such success enables the Exchange to
continue to provide and potentially expand its existing incentive
programs to the benefit of all participants on the Exchange, whether
they participate on BZX Equities or not. The proposed pricing program
is also fair and equitable in that membership in BZX Equities is
available to all market participants.
Additionally, the proposed change is designed to attract additional
order flow to the Exchange and BZX Equities. Greater liquidity benefits
all market participants on the Exchange by providing more trading
opportunities and encourages Members to send orders, thereby
contributing to robust levels of liquidity, which benefits all market
participant. As a result, the Exchange believes that the proposed
change furthers 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.'' \14\
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\14\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange does not believe that the proposed rule changes will
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 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.\15\ 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
[[Page 42567]]
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.'' \16\ 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'. . . .''.\17\
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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\15\ See supra note 3.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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#7f0d0a131a521c1012121a110b0c3f0c1a1c51181009"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-034 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-2024-034.
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-2024-034 and
should be submitted on or before June 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10591 Filed 5-14-24; 8:45 am]
BILLING CODE 8011-01-P
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