[Federal Register Volume 84, Number 129 (Friday, July 5, 2019)]
[Notices]
[Pages 32230-32232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14281]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86233; File No. SR-CboeBZX-2019-041]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change Amending the Fee Schedule 
Assessed on Members To Establish a Monthly Trading Rights Fee

June 28, 2019.

I. Introduction

    On May 2, 2019, Cboe BZX Exchange, Inc. (``BZX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File Number SR-CboeBZX-2019-041) to amend the BZX 
fee schedule to establish a monthly Trading Rights Fee to be assessed 
on Members.\3\ The proposed rule change was immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\4\ The proposed rule change was published for comment in the 
Federal Register on May 16, 2019.\5\ The Commission has received no 
comment letters on the proposal. Under Section 19(b)(3)(C) of the 
Act,\6\ the Commission is hereby: (i) Temporarily suspending the 
proposed rule change; and (ii) instituting proceedings to determine 
whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that the Exchange initially filed the 
proposed rule change on April 29, 2019 (SR-CboeBZX-2019-036). On May 
2, 2019, the Exchange withdrew that filing and submitted the present 
proposal (SR-CboeBZX-2019-041).
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ See Securities Exchange Act Release No. 85840 (May 10, 
2019), 84 FR 22190 (``Notice'').
    \6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend the Membership Fees section of the 
BZX fee schedule to establish a monthly Trading Rights Fee, which would 
be assessed on Members that trade more than a specified volume in U.S. 
equities.\7\ Specifically, the Exchange proposes to charge Members a 
Trading Rights Fee of $500 per month for the ability to trade on the 
Exchange. A Member would not be charged the monthly Trading Rights Fee 
if it meets one of the following exceptions: (1) The Member has a 
monthly ADV \8\ of less than 100,000 shares, or (2) at least 90% of the 
Member's orders submitted to the Exchange per month are retail 
orders.\9\ The proposed Trading Rights Fee also would not be charged to 
new Members for the first three months of their membership.\10\
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    \7\ See Notice, supra note 5, at 22190. The Commission notes 
that the Exchange's affiliates, Cboe BYX Exchange, Inc., Cboe EDGA 
Exchange, Inc., and Cboe EDGX Exchange, Inc., each also filed a 
proposed rule change to amend their fee schedules to establish a 
monthly Trading Rights Fee to be assessed on Members: CboeBYX-2019-
009, CboeEDGA-2019-011, and CboeEDGX-2019-029, respectively.
    \8\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day. ADV is calculated on 
a monthly basis. See Notice, supra note 5, at 22190 n.4.
    \9\ See Notice, supra note 5, at 22190.
    \10\ For any month in which a firm is approved for Membership 
with the Exchange, the monthly Trading Rights Fee would be pro-rated 
in accordance with the date on which Membership is approved. Notice, 
supra note 5, at 22190.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\11\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\12\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') 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. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(C).
    \12\ 15 U.S.C. 78s(b)(1).
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    The Exchange asserts that the proposed Trading Rights Fee ``is 
reasonable because it will assist in funding the overall regulation and 
maintenance of the Exchange.'' \13\ The Exchange also asserts that the 
proposed Trading Rights Fee is reasonable because the ``cost of this 
membership fee is generally less than the analogous membership fees of 
other markets.'' \14\ The Exchange states that it believes the proposed 
Trading Rights Fee is equitable and not unfairly discriminatory because 
it will apply equally to all Members that do not meet the requirements 
of the exceptions.\15\
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    \13\ See Notice, supra note 5, at 22190.
    \14\ See id. The Exchange notes, for example, that the 
Exchange's proposed Trading Rights Fee of $500 a month is 
``substantially lower'' than the monthly $1,250 monthly Trading 
Rights Fee that Nasdaq assesses on its members. Id.
    \15\ See id. at 22191.
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    In regard to the proposed exceptions pursuant to which Members 
would not be charged the Trading Rights Fee, the Exchange states that 
it believes that both exceptions are reasonable. Specifically, the 
Exchange states that the proposed exception for Members that trade less 
than a monthly ADV of 100,000 shares is reasonable because it would 
allow such smaller Members to continue to trade at a lower cost.\16\ In 
addition, the Exchange states the exception is reasonable because such 
firms consume fewer regulatory resources.\17\
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    \16\ See id. at 22190.
    \17\ See id.?>[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES][NOTICE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT]

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[[Page 32231]]

    The Exchange also states that the second exception for Members that 
submit 90% or more of their orders per month as retail orders is 
reasonable because it would ensure that ``retail broker members can 
continue to submit orders for individual investors at a lower cost, 
thereby continuing to encourage retail investor participation on the 
Exchange.'' \18\
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    \18\ See id. at 22191.
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    Finally the Exchange states that it believes that not charging a 
Trading Rights Fee for new Members is reasonable because it will 
incentivize firms to become Members of the Exchange and ``bring 
additional liquidity to the market to the benefit of all market 
participants.'' \19\
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    \19\ See id.
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\20\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \21\
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    \20\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \21\ See id.
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    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \22\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \23\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\24\
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    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether assessing the proposed monthly 
Trading Rights Fee on certain Members is consistent with the statutory 
requirements applicable to a national securities exchange under the 
Act. In particular, the Commission will consider whether the proposed 
rule change satisfies the standards under the Act and the rules 
thereunder requiring, among other things, that an exchange's rules 
provide for the equitable allocation of reasonable fees among members, 
issuers, and other persons using its facilities; not permit unfair 
discrimination between customers, issuers, brokers or dealers; and do 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\25\
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    \25\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\26\
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    \26\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \27\ and 19(b)(2)(B) of the Act \28\ to determine whether 
the proposed rule change should be approved or disapproved. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
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    \27\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \28\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\29\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \30\
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    \30\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \31\ and
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    \31\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \32\
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    \32\ 15 U.S.C. 78f(b)(8).?>[FEDREG][VOL]*[/VOL][NO]*[/
NO][DATE]*[/DATE][NOTICES][NOTICE][PREAMB][AGENCY]*[/
AGENCY][SUBJECT]*[/SUBJECT]
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    As noted above, the proposal imposes a new monthly Trading Rights 
Fee on certain Members. The Commission notes that the Exchange's 
statements in support of the proposed rule change are general in nature 
and lack detail and specificity. For example, the Exchange asserts 
broadly that the proposed fee will fund overall regulation and 
maintenance of the Exchange, but does not explain why this increase in 
funding is necessary at this time or what is covered under this broad 
umbrella of ``overall regulation and maintenance.'' \33\ Further, the 
rationale provided does not address how the proposed fee is an 
equitable allocation of fees, other than to note simply that it applies 
to all Members who do not qualify for an exception. Under the 
Commission's Rules of Practice, the ``burden to demonstrate that a 
proposed rule change is consistent with the [Act] and the rules and 
regulations issued thereunder . . . is on the [SRO] that proposed the 
rule change.'' \34\ The description of a proposed rule change, its 
purpose and operation, its effect, and a legal analysis of its 
consistency with applicable requirements must all be sufficiently 
detailed and specific to support an affirmative Commission finding,\35\ 
and any failure of an SRO to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\36\
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    \33\ See Notice, supra note 5, at 22190.
    \34\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \35\ See id.
    \36\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and

[[Page 32232]]

open market and the national market system, protect investors and the 
public interest, and not be unfairly discriminatory; or not impose an 
unnecessary or inappropriate burden on competition.\37\
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    \37\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by July 26, 2019. Rebuttal 
comments should be submitted by August 9, 2019. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\38\
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    \38\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, including whether the 
proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2019-041 on the subject line.

Paper Comments

     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-2019-041. 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 (http://www.sec.gov/rules/sro.shtml). 
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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2019-041 and should be submitted 
on or before July 26, 2019. Rebuttal comments should be submitted by 
August 9, 2019.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\39\ that File Number SR-CboeBZX-2019-041 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \39\ 15 U.S.C. 78s(b)(3)(C).
    \40\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14281 Filed 7-3-19; 8:45 am]
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