[Federal Register Volume 84, Number 224 (Wednesday, November 20, 2019)]
[Notices]
[Pages 64149-64153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25104]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87539; File No. SR-CboeBYX-2019-020]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule
November 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 November 1, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the
[[Page 64150]]
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 BYX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule in connection with
its Add Volume Tiers.
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 13 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\3\ no single registered
equities exchange has more than 18% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Taker-Maker'' model
whereby it pays credits to members that remove liquidity and assesses
fees to those that add 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
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0005 per share for orders that remove liquidity and assesses a
fee of $0.0019 per share for orders that add liquidity. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow, or discontinue to reduce use of certain categories of products,
in response to fee changes. Accordingly, competitive forces constrain
the Exchange's transaction fees, and market participants can readily
trade on competing venues if they deem pricing levels at those other
venues to be more favorable. 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 incremental incentives for Members to strive for higher or
different tier levels by offering increasingly higher discounts or
enhanced benefits for satisfying increasingly more stringent criteria
or different criteria.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume Summary
(October 25, 2019), available at https://markets.cboe.com/us/equities/market_statistics/.
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For example, pursuant to footnote 1 of the Fees Schedule, the
Exchange offers Add Volume Tiers that provide Members an opportunity to
receive a discounted rate from the standard fee assessment for
liquidity adding orders that yield fee codes ``B'',\4\ ``V'' \5\ and
``Y''.\6\ The Add Volume Tiers currently offer five different tiers
that vary in levels of criteria difficulty and incentive opportunities
in which Members may qualify for discounted rates for such orders. The
Exchange notes that these tiers are designed to encourage Members that
provide displayed, liquidity adding orders on the Exchange to increase
their order flow, thereby contributing to a deeper and more liquid
market to the benefit of all market participants.
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\4\ Appended to displayed orders that add liquidity to BYX (Tape
B), and assessed a fee of $0.0019.
\5\ Appended to displayed orders that add liquidity to BYX (Tape
A), and assessed a fee of $0.0019.
\6\ Appended to displayed orders that add liquidity to BYX (Tape
C), and assessed a fee of $0.0019.
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Specifically, the Exchange proposes to amend Add Volume Tier 4,
which currently provides Members an opportunity to qualify for a
reduced fee of $0.0016 for orders yielding fee codes B, V, and Y where
a Member has an ADAV \7\ of greater than or equal to 0.25% of the
TCV,\8\ and a Step-Up ADAV \9\ of greater than or equal to 0.05% of the
TCV from April 2017 baseline. The Exchange proposes to remove the
requirement that a Member have a Step-Up ADAV of greater than or equal
to 0.05% of the TCV from April 2017 baseline, and slightly decrease the
fee reduction rate from the current $0.0016 to a proposed rate of
$0.0017. The Exchange notes that the proposed change to this tier's
criteria is designed to make it easier to achieve by removing the Step-
Up ADAV component. As a result, the proposed criteria would become the
least difficult tier to achieve in comparison to current Add Volume
Tiers 1 through 3. Therefore, to maintain the Add Volume Tiers in order
of incremental difficulty and corresponding rates, the Exchange moves
this proposed criteria and fee reduction rate to Tier 1 (and updates
the subsequent Tier numbers).
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\7\ ``ADAV'' means average daily volume calculated as the number
of shares added per day. ADAV is calculated on a monthly basis.
\8\ ``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.
\9\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
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The Exchange notes that the proposed change to this tier is
designed to make the tier criteria easier to reach by removing the
Step-Up ADAV component of the criteria. The Exchange believes that by
easing the tier criteria difficulty it will encourage those Members who
could not previously achieve current Tier 4 to increase their order
flow as a means to receive the tier's proffered fee reduction. The
Exchange also notes that the proposed decrease in the current fee
reduction rate is commensurate with the proposed decrease in the tier's
criteria. The Exchange believes the proposed criteria modification for
displayed, liquidity adding orders will incentivize increased overall
order flow to the Book and gives liquidity providing Members on the
Exchange an additional opportunity to receive a discounted rate. It is
designed
[[Page 64151]]
to provide Members that submit displayed liquidity on the Exchange a
further incentive to contribute to a deeper, more liquid market, in
turn, providing additional execution opportunities at transparent
prices as a result of such increased, displayed liquidity. The Exchange
believes that this benefits all Members by enhancing overall market
quality and contributing towards a robust and well-balanced market
ecosystem. The Exchange notes the proposed tier is available to all
Members and is competitively achievable for all Members that submit
displayed order flow, in that, all firms that submit the requisite
displayed order flow could compete to meet the tier.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\10\ in general, and
furthers the objectives of Section 6(b)(4),\11\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and 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) \12\
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 unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
\12\ 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 tier is
reasonable because it restructures an opportunity for Members to
receive a discounted rate by making it easier to reach the proposed
threshold by means of liquidity adding displayed orders. The Exchange
notes that relative volume-based incentives and discounts have been
widely adopted by exchanges,\13\ including the Exchange,\14\ 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 market activity,
such as higher levels of liquidity provision and/or 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 taker-maker 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.\15\
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\13\ See e.g., The Nasdaq Stock Market LLC Rules, Equity 7, Sec.
118(a)(1), which generally provides credits to members for
displayed, liquidity providing orders that reach certain thresholds
of consolidated volume.
\14\ See e.g., Cboe BYX U.S. Equities Exchange Fee Schedule,
Footnotes 1 and 2, Remove Volume and Non-Displayed Liquidity
Incentive tiers provide similar incentives for volume removing
orders and for volume adding, non-displayed orders, respectively.
\15\ See supra note 12. For example, Nasdaq offers a rebate of
$0.00305 per share with shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs
that represent more than 1.25% of Consolidated Volume during the
month. The Exchange notes that this rebate of $0.00305 is
substantially similar to the proposed fee reduction of $0.0017
(which is essentially a `rebate' of $0.002 from the $0.0019 standard
fee assessed).
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Moreover, the Exchange believes the proposed modification to remove
the Step-Up component from current Add Volume Tier 4 (proposed Tier 1)
is a reasonable means to further incentivize Members to increase their
overall displayed order flow to the Exchange based on increasing their
daily total added volume (ADAV) above a percentage of the total volume
(TCV). Particularly, the Exchange believes that decreasing the tier's
criteria will encourage those Members who could not achieve the tier
previously to increase their order flow as a means to receive the
tier's reduced rate. The Exchange believes that easing the current Tier
4 criteria will encourage displayed liquidity providing Members to
provide for a deeper, more liquid market, and, as a result, increased
priced transparency, execution opportunities, and overall order flow.
The Exchange believes that these increases benefit all Members by
enhancing market quality and contributing towards a robust and well-
balanced market ecosystem. Increased overall order flow benefits all
investors by deepening the Exchange's liquidity pool, providing greater
execution incentives and opportunities, offering additional flexibility
for all investors to enjoy cost savings, supporting the quality of
price discovery, promoting market transparency and improving investor
protection. In line with the proposed ease in criteria difficulty, the
Exchange also believes that the proposed lesser fee reduction than
offered currently is reasonable as it is commensurate with the proposed
decreased criteria. Similarly, moving the proposed criteria and the
adjusted corresponding fee reduction to Tier 1 is reasonable because it
appropriately reflects the incremental difficulty in achieving the
existing Add Volume Tiers and the incrementally higher reduction in
fees that correspond to each.
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 Add Volume Tier, and would have
the opportunity to meet the tier's criteria and would receive the
proposed rebate if such criteria is met. Given previous months' data,
the Exchange notes that two of its Members reached current Tier 4 in
the last month. Without having a view of activity on other markets and
off-exchange venues, the Exchange has no way of knowing whether this
proposed rule change would definitely result in any Members qualifying
for this tier. While the Exchange has no way of predicting with
certainty how the proposed tier will impact Member activity, the
Exchange anticipates that at least four Members will be able to compete
for and reach the proposed tier. Accordingly, the Exchange believes the
proposed criteria modification is reasonably designed as an incentive
to any and all Members interested in meeting the tier criteria to
submit additional displayed order flow to achieve the proposed
discount. The Exchange anticipates that these will include multiple
Member types, liquidity providers (e.g., wholesale firms
[[Page 64152]]
that mainly are market makers for retail orders) and broker-dealers
(e.g., bulge bracket firms that conduct trading on behalf of
customers), each providing distinct types of order flow to the Exchange
to the benefit of all market participants. For example, broker-dealer
customer order flow provides more trading opportunities, which attracts
Market Makers. Increased Market Maker activity facilitates tighter
spreads which potentially increases order flow from other market
participants. The Exchange also notes that the proposed tier 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 rate would uniformly apply to all Members
that meet the required criteria under the modified tier.
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 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 order flow to a
public exchange, thereby promoting market depth, execution incentives
and enhanced execution opportunities, as well as price discovery and
transparency 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.'' \16\
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\16\ 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, have a reasonable opportunity to meet the tier's
criteria and will all receive the proposed fee rate if such criteria is
met. Additionally the proposed change is designed to attract additional
order flow to the Exchange. The Exchange believes that the modified
tier criteria would incentivize market participants to direct displayed
liquidity and, as a result, executable order flow and improved price
transparency, to the Exchange. Greater overall order flow and pricing
transparency benefits all market participants on the Exchange by
providing more trading opportunities, enhancing market quality, and
continuing to encourage Members to send orders, thereby contributing
towards a robust and well-balanced market ecosystem, 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 and 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
than 18% of the market share.\17\ 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.'' \18\ 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'. . . .''.\19\ 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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\17\ See supra note 3.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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-CboeBYX-2019-020 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 64153]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBYX-2019-020. 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-CboeBYX-2019-020 and should be submitted
on or before December 11, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25104 Filed 11-19-19; 8:45 am]
BILLING CODE 8011-01-P