[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

[[Page 51655]]

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