[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51654-51657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21091]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87092; File No. SR-CboeBZX-2019-082]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fees Applicable to Physical Connectivity
September 24, 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 September 10, 2019, Cboe BZX Exchange, Inc. (the ``Exchange''
or ``BZX'') filed with the Securities and Exchange Commission
(``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
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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
The Exchange proposes a rule change to waive the fees for a single
1 gigabyte physical port in its secondary data center for Members that
are registered as an LMM on the Exchange for the first twelve months
following the Member establishing physical connectivity to the
secondary data center.
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. Regulatory Organization's Statement of the Purpose of, and Statutory
Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to implement proposed changes to its fee
schedule relating to physical connectivity fees in its secondary data
center, effective September 10, 2019. Specifically, the Exchange is
proposing to waive the fees for a single 1 gigabyte physical port that
is connected solely to the secondary data center for the Exchange's
cash equities trading platform (``BZX Equities'') for Members that are
registered as an LMM on the Exchange for the first twelve months
following the Member establishing physical connectivity to the
secondary data center.\3\
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\3\ The Exchange notes that the waiver applies only to the BZX
Equities secondary data center and to the extent that a Member
otherwise subject to the waiver uses such physical connectivity to
connect to the Exchange's equity options platform (``BZX Options'')
or any of the Exchange's affiliates, such Member will be subject to
the applicable physical connectivity fees.
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By way of background, a physical port is utilized by a Member or
non-Member to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently maintains a
presence in two third-party data centers: (i) The primary data center
where the Exchange's business is primarily conducted on a daily basis,
and (ii) a secondary data center, which is predominantly maintained for
business continuity purposes. The Exchange currently assesses fees of
$2,000 per physical port for a 1 gigabyte circuit for Members and non-
Members to connect to its secondary data center on a monthly basis.\4\
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\4\ See Securities Exchange Act Release No. 83442 (June 14,
2018), 83 FR 28675 (June 20, 2018) (notice of filing and immediate
effectiveness of proposed rule change related to physical port fees
for BZX).
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Pursuant to Regulation Systems Compliance and Integrity,\5\
Exchange Rule 2.4(b)(2) requires all active Lead Market Makers
(``LMMs''),\6\ to connect to the Exchange's secondary data center and
to participate in functional and performance testing on an annual basis
\7\ and, as such, in order to become an LMM on the Exchange, a Member
would be required to pay all fees associated with connecting to the
secondary data center.
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\5\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR72252 (December 5, 2014) (``SCI Adopting Release'').
\6\ As defined in Rule 11.8(e)(1)(B), the term ``LMM'' means a
Market Maker registered with the Exchange for a particular LMM
Security that has committed to maintain Minimum Performance
Standards in the LMM Security.
\7\ See Securities Exchange Act Release No. 76162 (October 15,
2015), 80 FR 63849 (October 21, 2015) (SR-BATS-2015-06) (notice of
filing and immediate effectiveness of a proposed rule change to
adopt Rule 2.4, Mandatory Participation in Testing of Backup
Systems).
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LMMs play an important role in the Exchange's listing program by
providing significant liquidity and enhanced market quality in BZX-
listed securities. There is significant competition among listing
venues to attract, retain, and incentivize liquidity provision by
LMMs.\8\ Increasing the number of LMMs on the Exchange and enhancing
the competition among LMMs is particularly important because it further
increases the pressure on LMMs to meet the market quality metrics
applicable under the LMM Program and enhance market quality in all BZX-
listed securities.\9\ More LMMs registered on the Exchange will result
in more competition to become an LMM in new and existing products,
including where an assigned LMM fails to meet the market quality
metrics, all of which the Exchange believes will act to enhance market
quality in BZX-listed securities and improve issuer and investor
experience.
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\8\ The Exchange recently implemented a new LMM incentive
program that provides payments to LMMs where they meet certain
market quality metrics (the ``LMM Program'') rather than offering
enhanced rebates on a transaction-by-transaction basis, as LMMs have
traditionally been compensated, which it believes will help to
incentivize Members to become LMMs on the Exchange and to foster
competition among LMMs to become an LMM in all products listed on
the Exchange, regardless of trading volume. See Securities Exchange
Act Release No. 86213 (June 27, 2019), 84 FR 31951 (July 3, 2019).
\9\ As provided in Rule 11.8(e)(2)(C), where an LMM does not
meet the market quality metrics for three out of four months, they
are subject to losing their registration as an LMM in the applicable
security.
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The Exchange is proposing to waive the fees for a Member that is a
registered LMM shall have physical connectivity fees waived for a
single 1 gigabyte physical port that is connected solely to the BZX
Equities secondary data center for the first twelve months following
the Member establishing such physical connectivity.\10\ There are a
number of costs, both related and unrelated to the Exchange, associated
with becoming an LMM and the Exchange believes that this proposal to
reduce the overall burden to become an LMM will help the Exchange
compete to attract LMMs. The Exchange believes that the ability to
attract new LMMs will benefit of its listing business, its issuers, and
investors in BZX-listed securities.
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\10\ As noted above, the waiver applies only to the BZX Equities
secondary data center and to the extent that a Member otherwise
subject to the waiver uses such physical connectivity to connect to
BZX Options or any of the Exchange's affiliates, such Member will be
subject to the applicable physical connectivity fees.
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Implementation Date
The Exchange proposes to implement these amendments to its fee
schedule on September 10, 2019.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\11\ in general, and
furthers the objectives of Section 6(b)(4),\12\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and other persons using its
facilities. The Exchange also notes that its listing business operates
in a highly competitive market in which market participants, which
includes both ETP issuers and LMMs, can readily transfer their listings
or opt not to participate, respectively, if they deem fee levels,
liquidity provision incentive programs, or any other factor at a
particular venue to be insufficient or excessive. The proposed rule
change reflects a
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competitive pricing structure designed to incentivize Members to enroll
and participate as LMMs on the Exchange, which the Exchange believes
will enhance market quality in ETPs listed on the Exchange. As
described above, the Exchange is proposing to waive certain physical
connectivity fees for Members that are registered as an LMM on the
Exchange for the first twelve months following the Member establishing
physical connectivity to the secondary data center, which it believes
will allow it to better compete to attract market participants to
register as LMMs on the Exchange.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
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The Proposed Fee Waiver Is Reasonable
The Exchange believes that the proposal is a reasonable means to
encourage Members to register as an LMM. By reducing the cost
associated with the initial registration and participation as an LMM,
Members will be more likely to participate in the LMM program. The
Exchange believes that this will benefit the Exchange's listing program
through enhanced competition among LMMs, which will also benefit
issuers of securities listed on the Exchange, and, more broadly,
investors through enhanced market quality in such securities.
The Proposed Fee Waiver Is Equitable and Not Unreasonably
Discriminatory
The Exchange believes that the proposal represents an equitable
allocation of reasonable dues, fees, and other charges and is not
unreasonably discriminatory in that it applies uniformly to all
similarly situated Members. Any Member that has not established
physical connectivity to the secondary data center that becomes an LMM
will be eligible for such waiver. While Members that are already
connected to the secondary data center will not be eligible, they have
already made the decision to connect to the secondary data center and
presumably such costs were included in their calculation. Further, the
proposal will only result in reduced fees for Members and will not
result in any changes for Members that are already connected to the
secondary data center.
The Exchange also believes that the proposal represents an
equitable allocation of reasonable dues, fees, and other charges and is
not unreasonably discriminatory as LMMs play an important role in the
Exchange's listing program by providing significant liquidity and
enhanced market quality in BZX-listed securities. As noted above, there
is significant competition among listing venues to attract, retain, and
incentivize liquidity provision by LMMs. Increasing the number of LMMs
on the Exchange and enhancing the competition among LMMs is
particularly important because it further increases the pressure on
LMMs to meet the market quality metrics applicable under the LMM
Program and enhance market quality in all BZX-listed securities. More
LMMs registered on the Exchange will result in more competition to
become an LMM in new and existing products, including where an assigned
LMM fails to meet the market quality metrics, all of which the Exchange
believes will act to enhance market quality in BZX-listed securities
and improve issuer and investor experience.
The Exchange is proposing to waive the fees for a single 1 gigabyte
physical port in its secondary data center for Members that are
registered as an LMM on the Exchange for the first twelve months
following the Member establishing physical connectivity to the
secondary data center. There are a number of costs, both related and
unrelated to the Exchange, associated with becoming an LMM and the
Exchange believes that this proposal to reduce the overall burden to
become an LMM will help the Exchange compete to attract LMMs. The
Exchange believes that the ability to attract new LMMs will benefit of
its listing business, its issuers, and investors in BZX-listed
securities.
Lastly, the Exchange believes the fees remain competitive with
those charged by other venues and therefore continue to be reasonable
and equitably allocated to Members.\13\
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\13\ See e.g., NYSE Arca Equities Fees and Charges, NYSE Arca
Marketplace: Other Fees and Charges, Connectivity Fees. See also,
Nasdaq Phlx LLC Pricing Schedule, Section XI, Direct Connectivity to
Phlx.
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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 not necessary or appropriate in
furtherance of the purposes of the Act. As discussed above, the
Exchange believes that fees for connectivity and particularly for LMMs
are constrained by the robust competition for order flow among listing
venues and there is significant competition among listing venues to
attract, retain, and incentivize liquidity provision by LMMs. The
Exchange believes that this proposal will enhance the Exchange's
ability to compete as a listing venue by incentivizing the registration
of additional LMMs on the Exchange, resulting in additional competition
among LMMs to the benefit of issuers and investors. The Exchange does
not believe that the proposed changes represent a significant departure
from previous pricing offered by the Exchange or pricing offered by the
Exchange's competitors.
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 \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-2019-082 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-2019-082. 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
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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 such 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-2019-082, and should be
submitted on or before October 21, 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. 2019-21091 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P