Notice2024-16794
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
July 31, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 147 (Wednesday, July 31, 2024)</title>
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[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Notices]
[Pages 61511-61514]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16794]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100587; File No. SR-CboeBZX-2024-068]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
July 25, 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 July 9, 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.
[[Page 61512]]
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.\3\
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\3\ The Exchange initially filed the proposed fee changes on
July 1, 2024 (SR-CboeBZX-2024-063). On July 9, 2024, the Exchange
withdrew that filing and submitted this proposal.
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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 13% of the market share.\4\
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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\4\ See Cboe Global Markets U.S. Options Market Volume Summary
by Month (June 27, 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
$0.25 per contract for Firm,\5\ Broker Dealer \6\ and Joint Back Office
\7\ (``Firm/BD/JBO'') orders that add liquidity in Penny Securities,
yielding fee code PF. 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.\8\ 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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\5\ ``Firm'' applies to any order for the proprietary account of
an OCC clearing member.
\6\ ``Broker Dealer'' applies to any order for the account of a
broker dealer, including a foreign broker dealer.
\7\ ``Joint Back Office'' applies to any order for a joint back
office account.
\8\ As part of the proposed rule change, the Exchange proposes a
clarifying change to remove the duplicative reference to a rebate of
$0.39 for fee code PM in the Standard Rates table.
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First, the Exchange proposes to increase the standard rebate for
Firm/BD/JBO orders (i.e., yield fee code PF) that add liquidity in
Penny Securities, from $0.25 to $0.26.\9\
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\9\ In connection with the proposed fee changes, the Exchange
also proposes to update the corresponding listed rebate of $0.25 for
fee codes PF in the Fee Codes and Associated Fees table to the
proposed new rebate of $0.26.
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Second, the Exchange proposes to update the Firm, Broker Dealer,
and Joint Back Office Penny Add Volume Tiers (i.e., applicable to
orders yielding fee code PF) set forth in Footnote 2. The Exchange
currently provides opportunities for rebates per contract to add
liquidity in Penny Securities as follows:
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Rebate per
Tier contract to add Required criteria
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Tier 1........................ ($0.38).......... Member has an ADAV *
in Firm/BD/JBO
orders >=0.20% of
average OCV.**
Tier 2........................ ($0.46).......... (1) Member has an
ADAV in Away MM/Firm/
BD/JBO orders
>=1.05% of average
OCV; and
(2) Member has an ADV
*** >=1.95% of
average OCV.
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* ``ADAV'' means average daily added volume calculated as the number of
contracts added.
** ``OCC Customer Volume'' or ``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.
*** ``ADV'' means average daily volume calculated as the number of
contracts added or removed, combined, per day.
The Exchange proposes to amend these tiers as follows:
<bullet> modify Tier 1 to require the Member to have an ADAV in
Firm/BD/JBO orders greater than or equal to 15,000 contracts and an
ADAV in Customer orders greater than or equal to 0.20% of average OCV,
to qualify for the rebate; and
<bullet> modify Tier 2 to reduce the rebate from $0.46 to $0.42 per
contract \10\ and require the Member to have an ADAV in Firm/BD/JBO
orders greater than or equal to 30,000 contracts and an ADAV in
Customer orders greater than or equal to 0.20% of average OCV, to
qualify for the rebate.
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\10\ In connection with the proposed fee changes, the Exchange
also proposes to update the corresponding listed rebate of $0.46 for
fee codes PF in the Fee Codes and Associated Fees table to the
proposed new rebate of $0.42.
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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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ 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,\14\ which
requires that Exchange rules provide for the equitable allocation of
reasonable
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dues, fees, and other charges among its Members and other persons using
its facilities.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
\14\ 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
Members. Additionally, competing exchanges offer similar tiered pricing
structures, including schedules of rebates and fees that apply based
upon similarly situated 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.
The Exchange believes the proposed rule change to increase the
standard rebate for Firm/BD/JBO orders that add liquidity in Penny
Securities is reasonable because it is a modest increase in this rebate
rate for these orders and it continues to be in line with the standard
rebate for orders of other market participants that remove liquidity in
Penny Securities on the Exchange.\15\ Additionally, the proposed rebate
is in line with rebates for similar transactions at other
exchanges.\16\ The Exchange believes the proposed change is equitable
and not unfairly discriminatory because it applies uniformly to all
Members and, as previously noted, the increased rebate is in line with
the standard rebate for orders submitted for other market participants
that add liquidity in Penny Securities on the Exchange.
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\15\ As set forth in the Fees Schedule, the standard rebate for
orders that add liquidity in Penny Securities is between $0.25 and
$0.29 for Professional, Customer, Market Maker, and Away MM orders.
\16\ See, e.g., MIAX Emerald Options Exchange Fee Schedule,
Transaction Fees, which provides that Firm Proprietary and Broker
Dealer orders that add liquidity are provided a rebate of $0.25 per
contract in Penny Classes. See also MEMX Options Fee Schedule, which
provides Firms and Broker Dealers that add liquidity are provided a
rebate of $0.45 per contract in Penny Securities.
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The Exchange believes the proposed changes to the Firm/BD/JBO Penny
Add Volume Tiers are reasonable because they continue to provide
opportunities for Members to receive higher rebates by providing for
incrementally increasing volume-based criteria they can reach for. The
Exchange believes the tiers, as modified, continue to serve as a
reasonable means to encourage Members to increase their liquidity on
the Exchange, particularly in connection with additional Firm/BD/JBO
order flow to the Exchange in order to benefit from the proposed
enhanced rebates.
The Exchange believes the proposed criteria remain commensurate
with the corresponding enhanced rebates, including as amended for Tier
2. The Exchange believes the revised criteria will continue to
encourage Members to send additional Firm/BD/JBO orders to the
Exchange. Greater remove volume order flow may increase transactions on
the Exchange, which the Exchange believes incentivizes liquidity
providers to submit additional liquidity and execution opportunities.
An overall increase in activity deepens the Exchange's liquidity pool,
offers additional cost savings, supports the quality of price
discovery, promotes market transparency and improves market quality for
all investors.
Further, the Exchange believes the proposed reduced rebate offered
under revised Firm/BD/JBO Penny Add Volume Tier 2 is reasonable because
Members are still eligible to receive a rebate for meeting the
corresponding criteria, albeit at a lower amount then before. While
Firm/BD/JBO Penny Add Volume Tier 2, as proposed, will provide a lower
rebate than that currently offered (from $0.46 to $0.42), the Exchange
still believes that the changes are reasonable as the tier, even as
amended, will continue to incentivize Members to send additional Firm/
BD/JBO orders to the Exchange. As noted above, an overall increase in
add activity may provide for deeper, more liquid markets and execution
opportunities at improved prices, which ultimately offers additional
cost savings, supports the quality of price discovery, promotes market
transparency and improves market quality for all investors. Moreover,
the Exchange is not required to maintain these tiers nor provide
rebates. The Exchange believes the proposed changes to the rebates
offered under these tiers still remain commensurate with the
corresponding criteria under the respective tiers.
The Exchange believes the proposed change is also equitable and not
unfairly discriminatory because it applies uniformly to all Members,
who will have the opportunity to meet the tiers' criteria and receive
the corresponding enhanced rebate for each tier 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 these
proposed changes would definitely result in any Members qualifying for
the proposed rebates. While the Exchange has no way of predicting with
certainty how the proposed changes will impact Member activity, based
on trading activity from the prior months, the Exchange anticipates
that up to two Members will achieve Tier 1 and up to two Members will
achieve Tier 2. Additionally, all Members are able to increase their
Firm/BD/JBO order flow to attempt to achieve these tiers. Should a
Member not meet the proposed new criteria, the Member will merely not
receive that corresponding enhanced rebate.
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. Particularly, the Exchange
believes the proposal to increase the standard rebate for Firm/BD/JBO
orders that add liquidity in Penny Securities will not impose any
burden on intramarket competition because it will apply uniformly to
all Members. All Members that submit orders yielding fee code PF will
receive this same rebate. The Exchange believes the proposal to amend
the Firm/BD/JBO Penny Add Volume Tiers will also not impose any burden
on intramarket competition, as the changes will also apply to all
Members. All Members will continue to have an opportunity to receive
rebates under various tiers in the program. The Firm/BD/JBO Penny Add
Volume 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.
The Exchange does not believe that the proposed changes represent a
significant departure from pricing currently offered by the Exchange.
Members may opt to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, the Exchange does
not believe that the proposed changes will impair the ability of
Members or competing venues to maintain their
[[Page 61514]]
competitive standing in the financial markets.
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 13% of the market
share.\17\ 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.'' \18\ 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' . . . .''.\19\
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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\17\ See supra note 4.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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#98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee"><span class="__cf_email__" data-cfemail="6715120b024a04080a0a020913142714020449000811">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-068 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-2024-068. 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-2024-068 and should be submitted
on or before August 21, 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).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16794 Filed 7-30-24; 8:45 am]
BILLING CODE 8011-01-P
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