[Federal Register Volume 84, Number 191 (Wednesday, October 2, 2019)]
[Notices]
[Pages 52546-52549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87125; File No. SR-CboeBZX-2019-070]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Amend the Fee Schedule 
To Adopt a Pricing Structure for BZX Top Derived Data API Service

September 26, 2019.

I. Introduction

    On August 1, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or

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``BZX'') 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 to amend the BZX fee schedule to adopt a pricing 
structure related to the BZX Top Derived Data API Service (the 
``Program''). The proposed rule change was immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ The proposed rule change was published for comment in the 
Federal Register on August 20, 2019.\4\ The Commission received no 
comment letters regarding the proposed rule change. Under Section 
19(b)(3)(C) of the Act,\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 86671 (August 14, 
2019), 84 FR 43237 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule to establish a 
pricing structure for Distributors \6\ of Derived Data \7\ through an 
Application Programming Interface (``API''). Currently, the Exchange 
charges a fee of $2,500 per month for external distribution of BZX 
Top.\8\ 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.\9\ The Exchange currently offers a Derived Data 
White Label Service \10\ that allows Distributors to receive reduced 
fees when distributing Derived Data taken from BZX Top. Today, 
Distributors of Derived Data through an API are liable for the fees 
normally applicable for the external distribution of BZX Top, as 
discussed above.
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    \6\ A Distributor of an Exchange market data product is any 
entity that receives the Exchange market data product directly from 
the Exchange or indirectly through another entity and then 
distributes it internally or externally to a third party. See BZX 
Fee Schedule.
    \7\ ``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. See Notice, 
supra note 4, 84 FR at 43237. The Exchange states that Derived Data 
is primarily purchased for the creation of certain derivative 
instruments rather than for the trading of U.S. equity securities. 
See id. at 43239.
    \8\ BZX Top is an Exchange proprietary data product that 
provides top of book quotations and execution information for all 
equity securities traded on the Exchange. See Notice, supra note 4, 
84 FR at 43237.
    \9\ A ``Professional User'' of an Exchange market data product 
is any user other than a Non-Professional User. See BZX Fee 
Schedule. A ``Non-Professional User'' of an Exchange market data 
product is a natural person or qualifying trust that uses data only 
for personal purposes and not for any commercial purpose and, for a 
natural person who works in the United States, is not: (i) 
Registered or qualified in any capacity with the Commission, the 
Commodities Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or 
futures contract market or association; (ii) engaged as an 
``investment adviser'' as that term is defined in Section 202(a)(11) 
of the Investment Advisors Act of 1940 (whether or not registered or 
qualified under that Act); or (iii) employed by a bank or other 
organization exempt from registration under federal or state 
securities laws to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt; or, for a natural person who works 
outside of the United States, does not perform the same functions as 
would disqualify such person as a Non-Professional User if he or she 
worked in the United States. Id.
    \10\ A White Label Service 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. See BZX Fee Schedule. The 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. Id. The Distributor maintains control of 
the application's data, entitlements and display. Id.
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    Under the Exchange's proposal, 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 the Program. 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 6-20 External Subscribers would be charged $2,000 per month for each 
External Subscriber. Further, Distributors that make Derived Data 
available to 21 or more External Subscribers would be charged $1,500 
per month for each External Subscriber. Similar to the Derived Data 
White Label Service, the External Subscriber Fee under the Program 
would be non-progressive and based on the number of External 
Subscribers that receive Derived Data from the Distributor.\11\ The 
Exchange would continue to charge a monthly Professional User fee of $4 
per month for each Professional User that accesses the Program. The 
Exchange proposes to eliminate the current Non-Professional User fee of 
$0.10 per month when participating in the Program.\12\
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    \11\ 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).
    \12\ The Exchange also proposes consolidate the Derived Data 
White Label Service and the Program under the common heading 
``Financial Product Distribution Program.''
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\13\ 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,\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(C).
    \14\ 15 U.S.C. 78s(b)(1).
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    The Exchange asserts that the proposed fees for the Program are 
reasonable ``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.'' \15\
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    \15\ See Notice, supra note 4, 84 FR at 43239.
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    The Exchange also asserts that the proposed fees are ``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.'' \16\ Furthermore, the Exchange 
states that the Program would allow the Exchange to ``compete with 
similar products offered by other national securities exchanges that 
offer discounted fees to market participants that purchase Derived 
Data.'' \17\
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    \16\ Id. at 43239.
    \17\ Id. at 43238.
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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

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applicable to the exchange.\18\ 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.'' \19\
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    \18\ 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'').
    \19\ 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; \20\ (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; \21\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\22\
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    \20\ 15 U.S.C. 78f(b)(4).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 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 the establishment of the Program 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.\23\
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    \23\ 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.\24\
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    \24\ 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) \25\ and 19(b)(2)(B) of the Act \26\ 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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    \25\ 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.
    \26\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\27\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \27\ 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,'' \28\
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    \28\ 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,'' \29\ and
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    \29\ 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].'' \30\
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    \30\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal establishes a new pricing structure 
for Distributors of Derived Data through an API. The Commission notes 
that the Exchange's statements in support of the proposed rule change 
are general in nature and lack detail and specificity. The Exchange 
states that it operates in a highly competitive environment, and its 
ability to price top of book data products is constrained by (i) 
competition among other national securities exchanges, including The 
Nasdaq Stock Market LLC (``Nasdaq''), that offer similar data products, 
and pricing options, to their customers; and (ii) the existence of 
real-time consolidated data disseminated by the securities information 
processors.\31\ The Exchange also states that the proposed pricing 
structure for Derived Data reduces the cost for market participants to 
access top of book data that is used, among other things, to create 
derivative instruments rather than to trade U.S. equity securities.\32\ 
However, the Commission notes that the Exchange does not address why 
the Program is an equitable allocation of reasonable fees other than to 
state that the proposal would facilitate ``cost effective access to 
market information'' that is used to compute pricing for certain 
derivative instruments.\33\ The Exchange does not provide other 
explanations for why the Program is an equitable allocation of 
reasonable fees, such as why it is consistent with the Act to charge a 
greater Distributor fee for the Program than the current Derived Data 
White Label Service.
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    \31\ See Notice, supra note 4, 84 FR at 43238.
    \32\ See id. at 43240.
    \33\ See id. at 43238.
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    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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    \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 open market and the national market system, protect investors and 
the public interest, and not be unfairly

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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 October 23, 2019. 
Rebuttal comments should be submitted by November 6, 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-2019-070 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-2017-070. 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 October 23, 2019. Rebuttal comments should be submitted by 
November 6, 2019.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\39\ that File No. SR-CboeBZX-2019-070 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(57) and (58).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21381 Filed 10-1-19; 8:45 am]
 BILLING CODE 8011-01-P