[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43237-43240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17863]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86671; File No. SR-CboeBZX-2019-070]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule To Institute a Derived Data API Service
August 14, 2019.
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 August 1, 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\ 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. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fee schedule to institute a Derived
Data API Service. The text of the proposed rule change is attached as
Exhibit 5 [sic].
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 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 purpose of the proposed rule change is to implement a new
pricing structure that would reduce fees changed to Distributors that
distribute Derived Data through an Application Programming Interface
(``API'')--i.e., the Derived Data API Service (the ``Program'').
``Derived Data'' is pricing data or other data that (i) is created in
whole or in part from Exchange Data, (ii) is not an index or financial
product, and (iii) cannot be readily reverse-engineered to recreate
Exchange Data or used to create other data that is a reasonable
facsimile or substitute for Exchange Data. The Exchange currently
offers a Derived Data White Label Service Program that allows
Distributors to benefit from discounted fees when distributing Derived
Data taken from BZX Top, which is a proprietary data product that
provides top of book quotations and execution information for all
equity securities traded on the Exchange.\3\ The current program is
limited to the distribution of Derived Data to subscribers within a
White Label Service which is a type of hosted display solution in which
a Distributor hosts or maintains a website or platform on behalf of a
third-party entity. The Derived Data API Service would supplement the
current Derived Data White Label Service Program by offering discounted
fees for Distributors that make Derived Data available through an
API,\4\ thereby allowing Distributors to benefit from reduced fees when
distributing Derived Data to subscribers that establish their own
platforms rather than relying on a hosted display solution.
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\3\ See Rule 13.8(c) [sic].
\4\ With the proposed introduction of the Derived Data API
Service, the Exchange would bring together the BZX Top Derived Data
White Label Service and Derived Data API Service under the common
heading ``Financial Product Distribution Program.'' The Financial
Product Distribution Program would encompass both of these products.
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Current Fee Structure
The Exchange currently charges a fee of $2,500 per month for
external distribution of BZX Top. In addition, external distributors of
BZX Top are charged a fee of $4 per month for each Professional User
and $0.10 per month for each Non-Professional User. The Exchange also
offers special pricing for Derived Data provided through a White Label
Service, as mentioned above. This service allows Distributors to make
Derived Data available on a platform that is branded with a third-party
brand, or co-branded with a third party and a Distributor.\5\ The White
Label Service Program can be used for a number of different purposes,
including the display of information or data, or the creation of
derivative instruments, such as swaps,\6\ swaptions,\7\ or contracts
for difference,\8\ but is unavailable to distributors that make such
information available through an API. Such distributors are not
eligible for discounted Derived Data pricing today, and are instead
liable for the fees
[[Page 43238]]
normally applicable for the distribution of BZX Top, as listed at the
beginning of this paragraph.
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\5\ The Distributor maintains control of the application's data,
entitlements and display.
\6\ A swap is a derivative contract in which two parties agree
to exchange financial instruments.
\7\ A swaption, or swap option, is an option to enter into a
swap at a specified time.
\8\ A contract for difference is an agreement to exchange the
difference between the current value of an asset and its future
value. If the price increases, the seller pays the buyer the amount
of the increase. If the price decreases, the buyer pays the seller
the amount of the decrease.
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Discounted Fees for Derived Data API Service
As proposed, a Distributor that provides a Derived Data API Service
for Derived Data taken from BZX Top would be liable for the following
fees instead of the fees normally applicable for the distribution of
BZX Top. Instead of the regular fee for external distribution,
Distributors would be charged a tiered External Subscriber Fee based on
the number of API Service Platforms (i.e., ``External Subscribers'')
that receive Derived Data from the Distributor through a Derived Data
API Service. As proposed, Distributors would continue to be charged a
fee of $2,500 per month for each External Subscriber if the Distributor
makes Derived Data available to 1-5 External Subscribers. Distributors
that make Derived Data available to additional External Subscribers
would benefit from discounted pricing based on the number of External
Subscribers. Specifically, the external distribution fee would be
lowered by 20% to $2,000 per month for each External Subscriber if the
Distributor makes Derived Data available to 6-20 External Subscribers,
and further lowered another 20% to $1,500 per month for each External
Subscriber if the Distributor makes Derived Data available to 21 or
more External Subscribers. As is the case under the Derived Data White
Label Service, the External Subscriber Fee would be non-progressive and
based on the number of External Subscribers that receive Derived Data
from the Distributor. For example, a Distributor providing Derived Data
based on BZX Top to six External Subscribers that are API Service
Platforms would be charged a monthly fee of $12,000 (i.e., 6 External
Subscribers x $2,000 each). The Exchange would continue to charge a
monthly Professional User fee of $4 per month for each Professional
User that accesses Derived Data through an API Service. The current
Non-Professional User fee of $0.10 per month would be eliminated when
participating in the Derived Data API Service, further reducing costs
for Distributors that provide access to such data to downstream
investors.
With the proposed introduction of the Derived Data API Service, the
Exchange would bring together the Derived Data White Label Service and
Derived Data API Service under the common heading ``Financial Product
Distribution Program.'' The Financial Product Distribution Program
would encompass both of these products. Similar to the Derived Data
White Label Service, the Derived Data API Service would be entirely
optional, in that it applies only to Distributors that opt to use
Derived Data from BZX Top to create an API Service, as described
herein. It does not impact or raise the cost of any other Exchange
product, nor does it affect the cost of BZX Top, except in instances
where Derived Data is made available on an API Service. A Distributor
that provides a White Label Service or API Service for Derived Data
taken from BZX Top would be liable for the fees associated with the
White Label Service or API Service instead of the fees normally
applicable for the distribution of BZX Top. A Distributor that provides
a White Label Service or API Service for BZX Top data that is not
Derived Data or distributes Derived Data through a platform other than
a White Label Service or API Service would be liable for the fees
normally applicable for the distribution of BZX Top.
Market Background
The market for top of book data is highly competitive as national
securities exchanges compete both with each other and with the
securities information processors (``SIPs'') to provide efficient,
reliable, and low cost data to a wide range of investors and market
participants. In fact, Regulation NMS requires all U.S. equities
exchanges to provide their best bids and offers, and executed
transactions, to the two registered SIPs for dissemination to the
public. Top of book data is therefore widely available to investors
today at a relatively modest cost. National securities exchanges may
also disseminate their own top of book data, but no rule or regulation
of the Commission requires market participants to purchase top of book
data from an exchange. In an effort to widen distribution to market
participants that use equities market data to compute pricing for
certain derivatives instruments, national securities exchanges
including the Exchange, its affiliate, Cboe EDGX Exchange Inc., and The
Nasdaq Stock Market LLC (``Nasdaq'') offer discounted pricing for
Derived Data that is created using their top of book products. The
Program would therefore compete with similar products offered by other
national securities exchanges that offer discounted fees to market
participants that purchase Derived Data.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act.\11\ Specifically, the
proposed rule change supports (i) fair competition among brokers and
dealers, among exchange markets, and between exchange markets and
markets other than exchange markets, and (ii) the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. In addition, the
proposed rule change is consistent with Rule 603 of Regulation NMS,\12\
which provides that any national securities exchange that distributes
information with respect to quotations for or transactions in an NMS
stock do so on terms that are not unreasonably discriminatory.
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\11\ 15 U.S.C. 78k-1.
\12\ See 17 CFR 242.603.
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that the proposed fee change would further broaden
the availability of U.S. equity market data to investors, consistent
with the principles of Regulation NMS.
The Exchange operates in a highly competitive environment. Indeed,
there are thirteen registered national securities exchanges that trade
U.S. equities and offer associated top of book market data products to
their customers. The national securities exchanges also compete with
the SIPs for market data customers. 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
[[Page 43239]]
investors and listed companies.'' \13\ The proposed fee change is a
result of the competitive environment, as the Exchange seeks to amend
its fees to attract additional subscribers for one of its proprietary
top of book data offerings through the introduction of a Derived Data
API Service.
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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The Exchange believes that it is reasonable to introduce reduced
fees for the use of Derived Data on API Services as the proposed fee
reduction would facilitate cost effective access to market information
that is used primarily to create certain derivative instruments rather
than to trade U.S. equity securities. The fees that are the subject of
this rule filing are constrained by competition, and it is this
competition that is driving the proposed fee change. Indeed, the
Program is designed to allow the Exchange to compete more effectively
for market data distributors that purchase market information to offer
Derived Data to investors. The existence of alternatives to the Program
ensures that the Exchange cannot set unreasonable or unfairly
discriminatory fees, as subscribers are free to elect such
alternatives. That is, the Exchange competes with other exchanges that
provide similar market data products and pricing programs. As mentioned
above, Derived Data is primarily purchased for the creation of certain
derivative instruments rather than for the trading of U.S. equity
securities. As a result, distributors of Derived Data do not need a
consolidated view of the market across multiple exchanges, and
generally purchase such data from a single exchange. If a competing
exchange were to charge less for a similar product than the Exchange
charges under the proposed fee structure, prospective subscribers may
choose not subscribe to, or cease subscribing to, the Program. The
Exchange believes that lowering the cost of accessing Derived Data may
make the Exchange's market information more attractive, and encourage
additional Distributors to subscribe to BZX Top market data instead of
competitor products. Distributors can discontinue use at any time and
for any reason, including due to an assessment of the reasonableness of
fees charged. Furthermore, firms have a wide variety of alternative
market data products from which to choose, such as similar proprietary
data products offered by other national securities exchanges, including
those that choose to offer discounted fees for the distribution of
Derived Data in an effort to compete for this business.
The proposed rule change would provide an alternate fee structure
for providing BZX Top market data to Distributors that make Derived
Data available to External Subscribers via API Services. As proposed,
if a Distributor uses an API Service to distribute Derived Data, the
Distributor will be charged a fee that is tiered based on the number of
External Subscribers that are provided access to that data instead of
the higher fee normally charged for external distribution. The Exchange
believes that this fee is equitable and not unfairly discriminatory
because the Exchange will apply the same fees to any similarly situated
Distributors that elect to participate in the Program based on the
number of External Subscribers provided access to Derived Data through
an API Service, with Distributors providing access to six or more
External Subscribers receiving a discount compared to the current
pricing applicable for external distribution of BZX Top. The Exchange
believes that it is equitable and not unfairly discriminatory to begin
providing discounted rates to Distributors that provide access to at
least six External Subscribers as the discounted rates are designed to
incentivize firms to grow the number of External Subscribers that
purchase Derived Data from the Exchange. The Exchange understands that
Distributors that may provide this sort of API Service typically serve
a relatively larger number of External Subscribers, and would therefore
be able to meet the proposed threshold by providing Derived Data taken
from BZX Top to those customers.
The Exchange would also continue to charge a small fee for
Professional Users but would eliminate Non-Professional User fees for
data provided under the Program. The Exchange believes that it is
equitable and not unfairly discriminatory to charge a fee for
Professional Users but no fee for Non-Professional Users. Non-
Professional Users are already subject to a heavily discounted fee for
BZX Top market data relative to Professional Users. Differential fees
for Professional and Non-Professional Users are widely used by the
Exchange and other exchanges for their proprietary market data as this
reduces costs for retail investors and makes market data more broadly
available. The Exchange believes that eliminating fees for Non-
Professional Users that access Derived Data from Distributors pursuant
to the Program is consistent with longstanding precedent indicating
that it is consistent with the Act to provide reasonable incentives to
retail investors that rely on the public markets for their investment
needs.
Furthermore, the proposed fees will only apply to Distributors that
elect to participate in the Program by distributing Derived Data
through an API Service. BZX Top market data is distributed and
purchased on a voluntary basis, in that neither the Exchange nor market
data distributors are required by any rule or regulation to make this
data available. Distributors of BZX Top are not required to participate
in the proposed Program, which is merely an alternative option being
proposed by the Exchange to potentially lower costs for market data
that is Derived Data. As previously explained, the Exchange currently
offers discounted fees for Distributors that distribute Derived Data on
a While [sic] Label Service. Expanding the universe of customers that
can benefit from discounted fees for distributing Derived Data would
serve to further increase the accessibility of the Exchange's market
data products.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by: (i) Competition among exchanges
that offer similar data products, and pricing options, to their
customers; and (ii) the existence of inexpensive real-time consolidated
data disseminated by the SIPs. Top of book data is disseminated by both
the SIPs and the thirteen equities exchanges. There are therefore a
number of alternative products available to market participants and
investors. In this competitive environment potential subscribers are
free to choose which competing product to purchase to satisfy their
need for market information. Often, the choice comes down to price, as
broker-dealers or vendors look to purchase the cheapest top of book
data product, or quality, as market participants seek to purchase data
that represents significant market liquidity. In order to better
compete for this segment of the market, the Exchange is proposing to
reduce fees charged to Distributors that distribute Derived Data
through an API. The Exchange believes that this would facilitate
greater access to such data, ultimately benefiting investors that are
provided access to such data.
[[Page 43240]]
The proposed fees apply to data derived from BZX Top, which is
subject to competition from both the SIPs and exchanges that offer
similar products, including but not limited to those that choose to
provide similar pricing options for Derived Data. A number of national
securities exchanges, including the Exchange, its affiliated Cboe U.S.
equities exchanges, and Nasdaq offer pricing discounts for Derived Data
today. These pricing programs reduce the cost of accessing top of book
market information that is used, among other things, to create
derivative instruments rather than to trade U.S. equity securities. In
order to better compete for this segment of the market, the Exchange is
proposing to expand the programs that it offers to include a Derived
Data API Service, allowing additional market data customers to benefit
from discounted pricing. The Exchange does not believe that the
proposed price reduction for Derived Data offered through an API would
cause any unnecessary or inappropriate burden on intermarket
competition as other exchanges and data vendors are free to lower their
prices to better compete with the Exchange's offering. The Exchange
believes that the proposed rule change is pro-competitive as it seeks
to offer pricing incentives to customers to better position the
Exchange as it competes to attract additional market data subscribers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \14\ and paragraph (f) of Rule 19b-4 \15\
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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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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-2019-070 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-2019-070. 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-2019-070, and should be
submitted on or before September 10, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17863 Filed 8-19-19; 8:45 am]
BILLING CODE 8011-01-P