[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36978-36981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86463; File No. SR-CboeBZX-2019-065]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Fee Schedule Applicable to Members and Non-Members of the 
Exchange Pursuant to BZX Rules 15.1(a) and (c)

July 24, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 12, 2019, 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\ 15 U.S.C. 78a.
    \3\ 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'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the fee schedule applicable to Members and non-
Members \4\ of the Exchange pursuant to BZX Rules 15.1(a) and (c). 
Changes to the fee schedule pursuant to this proposal are effective 
upon filing. The text of the proposed rule change is attached [sic] as 
Exhibit 5.
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    \4\ A Member is defined as ``any registered broker or dealer 
that has been admitted to membership in the Exchange.'' See Exchange 
Rule 1.5(n).
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    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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

[[Page 36979]]

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'') to modify Step-Up Tier 
3.\5\
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    \5\ The Exchange initially filed the proposed fee change on July 
1, 2019 (SR-CboeBZX-2019-063), effective July 1, 2019. On business 
date July 12, 2019, the Exchange withdrew that filing and submitted 
this filing.
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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 several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. The Exchange in particular operates a 
``Maker-Taker'' model whereby it pays credits to members that provide 
liquidity and assesses fees to those that remove liquidity. The 
Exchange's Fees Schedule sets forth the standard rebates and rates 
applied per share for orders that provide and remove liquidity, 
respectively. Particularly, for orders priced at or above $1.00, the 
Exchange provides a standard rebate of $0.0020 per share for orders 
that add liquidity \6\ and assesses a fee of $0.0025 per share for 
orders that remove liquidity. 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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    \6\ Displayed Orders which add liquidity in Tape B securities 
receive a standard rebate of $0.0025 per share.
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    For example, pursuant to footnote 2 of the Fees Schedule, the 
Exchange offers five Step-Up Tiers that provide Members an opportunity 
to qualify for an enhanced rebate on their orders that add liquidity 
where they increase their relative liquidity each month over a 
predetermined baseline. Under the current Step-Up Tiers, a Member 
receives a rebate of $0.0030 (Tier 1 and Tier 2), $0.0031 (Tier 3 and 
Tier 4), or $0.0032 (Tier 5) per share for qualifying orders which 
yield fee codes B,\7\ V,\8\ or Y \9\ if the corresponding required 
criteria per tier is met.\10\ Step-Up Tiers 1-5 also each require that 
Members reach certain Step-Up Add TCV thresholds. As currently defined 
in the BZX Equities fee schedule, Step-Up Add TCV means ADAV \11\ as a 
percentage of TCV \12\ in the relevant baseline month subtracted from 
current ADAV as a percentage of TCV.\13\ The Exchange notes that step-
up tiers are designed to encourage Members that provide displayed 
liquidity on the Exchange to increase their order flow, which would 
benefit all Members by providing greater execution opportunities on the 
Exchange.
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    \7\ Fee code B is appended to displayed orders which add 
liquidity to Tape B and is provided a rebate of $0.0025 per share.
    \8\ Fee code V is appended to displayed orders which add 
liquidity to Tape A and is provided a rebate of $0.0020 per share.
    \9\ Fee code Y is appended to displayed orders which add 
liquidity to Tape C and is provided a rebate of $0.0020 per share.
    \10\ See Cboe BZX U.S. Equities Fees Schedule, Footnote 2, Step-
Up Tiers.
    \11\ ``ADAV'' means average daily 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.
    \13\ The following demonstrates how Step-Up Add TCV is 
calculated: In December 2018, Member A had an ADAV of 12,947,242 
shares and average daily TCV was 9,248,029,751, resulting in an ADAV 
as a percentage of TCV of 0.14%; In February 2019, Member A had an 
ADAV of 46,826,572 and average daily TCV was 7,093,306,325, 
resulting in an ADAV as a percentage of TCV of 0.66%. Member A's 
Step-Up Add TCV from December 2018 was therefore 0.52% which makes 
Member A eligible for the existing Step-Up Tier 4 rebate. (i.e., 
0.66% (Feb 2019)-0.14% (Dec 2018), which is greater than 0.50% as 
required by current Tier 4).
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    The Exchange now proposes to modify Step-Up Tier 3 to update the 
predetermined baseline, ease the ADAV threshold and increase the 
corresponding rebate. Currently, Step-Up Tier 3 provides that a Member 
will receive a rebate of $0.0031 per share for their qualifying orders 
which yield fee codes B, V, or Y where the (1) MPID has a Step-Up Add 
TCV from January 2018 greater or equal to 0.30% and (2) MPID has an 
ADAV as a percentage of TCV greater than or equal to 0.45%. The 
Exchange proposes to modify the required criteria to provide that the 
Member must have an MPID that (1) has a Step-Up Add TCV from May 2019 
(instead of January 2018) greater than or equal to 0.10% (instead of 
0.30%) and (2) has an ADAV as a percentage of TCV greater than or equal 
to 0.25% (instead of 0.45%). The Exchange also proposes to increase the 
rebate from $0.0031 per share to $0.0032 per share. The proposed 
changes intend to ease the tier's current criteria and use a more 
recent month for the predetermined baseline, which the Exchange 
believes is more representative of current volume trends for market 
participants. The Exchange hopes these changes will encourage those 
Members who could not achieve the tier previously to increase their 
order flow as a means to receive the tier's enhanced (and increased) 
rebate. To achieve the Step-Up Tier 3, even as modified, Members are 
still required to increase the amount of liquidity that they provide on 
BZX on an MPID basis, thereby contributing to a deeper and more liquid 
market, which benefits all market participants. The proposed change 
continues to provide Members an opportunity to receive a rebate and is 
designed to provide Members that provide displayed liquidity on the 
Exchange a further incentive to increase that order flow, which would 
benefit all Members by providing greater execution opportunities on the 
Exchange. The Exchange notes the tier, as modified, continues to be 
available to all Members.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\14\ in general, and 
furthers the objectives of Section 6(b)(4),\15\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members, issuers and other persons 
using its facilities. The Exchange also believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \16\ 
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, and, particularly, is not 
designed to permit

[[Page 36980]]

unfair discrimination between customers, issuers, brokers or dealers.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 15 U.S.C. 78f.(b)(5).
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    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.
    In particular, the Exchange believes the proposed changes to Step-
Up Tier 3 are reasonable because the tier continues to provide an 
opportunity for Members to receive an enhanced rebate. The Exchange 
notes that relative volume-based incentives and discounts have been 
widely adopted by exchanges,\17\ including the Exchange,\18\ 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 growth patterns. 
Additionally, as noted above, the Exchange operates in highly 
competitive market. The Exchange is only one of several equity venues 
to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. It is also only 
one of several maker-taker exchanges. Competing equity exchanges offer 
similar tiered pricing structures to that of the Exchange, including 
schedules of rebates and fees that apply based upon members achieving 
certain volume and/or growth thresholds. These competing pricing 
schedules, moreover, are presently comparable to those that the 
Exchange provides, including the pricing of comparable tiers.\19\
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    \17\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up 
Tiers.
    \18\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 2, Step-Up Tiers 1-4.
    \19\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up 
Tiers which offers rebates between $0.0022-$0.0034 per share if the 
corresponding required criteria per tier is met. NYSE Arca Equities' 
Step Up Tiers similarly require Members to increase their relative 
liquidity each month over a predetermined baseline.
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    Moreover, the Exchange believes the Step-Up Tier 3 continues to be 
a reasonable means to encourage Members to increase their liquidity on 
the Exchange based on increasing their relative volume above a 
predetermined baseline and providing liquidity based on the ADAV 
threshold requirement on an MPID basis. As noted above, the proposed 
changes are designed to, overall, ease Step-Up Tier 3's current 
criteria which the Exchange hopes will encourage those Members who 
could not achieve the tier previously to increase their order flow as a 
means to receive the tier's enhanced (and increased) rebate. Increased 
liquidity benefits all investors by deepening the Exchange's liquidity 
pool, 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 also 
believes that the proposed rebate is still reasonable based on the 
difficulty of satisfying the tier's criteria and ensures the proposed 
rebate and threshold appropriately reflects the incremental difficulty 
to achieve the existing Step-Up Tiers. The proposed rebate amount also 
does not represent a significant departure from the rebates currently 
offered under the Exchange's existing Step-Up Tiers. Indeed, the 
proposed rebate amount is the same offered as Step-Up Tier 5 (i.e., 
$0.0032 per share) and only slightly higher than the rebates offered 
under Step-Up Tiers 1, 2, and 4 (i.e., $0.0030 and $0.0031 per share).
    The Exchange believes that the proposal represents an equitable 
allocation of rebates and is not unfairly discriminatory because all 
Members are eligible for the proposed tier and have a reasonable 
opportunity to meet the tier's criteria, which is less stringent than 
current Step-Up Tier 3. Without having a view of Members' activity on 
other markets and off-exchange venues, the Exchange has no way of 
knowing whether this proposed rule change would result in any Members 
qualifying for this tier. However, based on this month's data to date, 
the Exchange expects two or more Members would be able to satisfy the 
tier as amended (whereas if Step-Up Tier 3 were unchanged, only one 
Member would be expected to satisfy the current criteria). The Exchange 
believes the proposed lower ADAV requirement and proposal to use May 
2019 as the predetermined baseline would provide an incentive for 
additional market participants to increase their adding liquidity each 
month in order to meet the new requirements and receive the increased 
rebate. The Exchange also notes that the proposal will not adversely 
impact any Member's pricing or their ability to qualify for other 
rebate tiers. Rather, should a Member not meet the proposed criteria, 
the Member will merely not receive an enhanced rebate. Furthermore, the 
proposed rebate would apply to all Members that meet the required 
criteria under Step-Up Tier 3.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
not impose any burden on intramarket or intermarket 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 liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities for all 
Members. 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.'' \20\
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    \20\ 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 believes the proposed rule change does not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies to all Members equally in that all Members are eligible 
for the proposed tier and will all receive the proposed rebate if such 
criteria is met. Additionally the proposed change is designed to 
attract additional order flow to the Exchange. The Exchange believes 
that the proposed tier would incentivize market participants to direct 
providing displayed order flow to the Exchange. 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 
participants.
    Next, the Exchange believes the proposed rule change 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 12 other equities exchanges and 
off-exchange venues, including 32 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

[[Page 36981]]

than 23% of the market share.\21\ 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.'' \22\ 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'. . . .''.\23\ 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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    \21\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \22\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \23\ 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 has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from Members or other interested 
parties.

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 \24\ and paragraph (f) of Rule 19b-4 \25\ 
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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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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

     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-2019-065 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-2019-065. 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-2019-065 and should be submitted 
on or before August 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16097 Filed 7-29-19; 8:45 am]
BILLING CODE 8011-01-P