[Federal Register Volume 85, Number 34 (Thursday, February 20, 2020)]
[Notices]
[Pages 9827-9833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03416]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88218; File No. SR-CboeBZX-2020-014]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Introduce a Small Retail Broker Distribution Program

February 14, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 4, 2020, Cboe BZX Exchange, Inc. (``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 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

    BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing with the 
Securities and Exchange Commission (the ``Commission'') a proposed rule 
change to introduce a Small Retail Broker Distribution Program. 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/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 introduce a pricing 
program that would allow small retail brokers that purchase top of book 
market data from the Exchange to benefit from discounted fees for 
access to such market data. The Small Retail Broker Distribution 
Program (the ``Program'') would reduce the distribution and 
consolidation fees paid by small broker-dealers that operate a retail 
business. In turn, the Program may increase retail investor access to 
real-time U.S. equity quote and trade information, and allow the 
Exchange to better compete for this business with competitors that 
offer similar optional products.
    The Exchange initially filed to introduce the Program on August 1, 
2019 (``Initial Proposal'') to further ensure that retail investors 
served by smaller firms have cost effective access to its market data 
products, and as part of its ongoing efforts to improve the retail 
investor experience in the public markets. The Initial Proposal was 
published in the Federal Register on August 20, 2019,\3\ and the 
Commission received no comment letters on the Initial Proposal. The 
Program remained in effect until the fee change was temporarily 
suspended pursuant to a suspension order (the ``Initial Suspension 
Order'').\4\ The Initial Suspension Order also instituted proceedings 
to determine whether to approve or disapprove the Initial Proposal.\5\ 
On October 1, 2019, the Exchange re-filed its proposed rule change with 
additional information about the basis for the proposed fee change 
(``Second Proposal''). The Second Proposal was published in the Federal 
Register on October 15, 2019,\6\ and the Commission received no comment 
letters on the Second Proposal. The Program again remained in effect 
until the fee change was temporarily suspended pursuant to a suspension 
order (the ``Second Suspension Order'').\7\ The Second Suspension Order 
also instituted proceedings to determine whether to approve or 
disapprove the Second Proposal.\8\ On November 27, 2019, the Exchange 
re-filed its proposed rule change a third time with one revision to the 
requirements for participating in the Program and additional 
information about the basis for the proposed fee change (``Third 
Proposal''). The Third Proposal was published in the Federal Register 
on December 16, 2019.\9\ Today, the Exchange is withdrawing the Third 
Proposal, and replacing it with this proposed fee change as part of its 
ongoing efforts to continue to facilitate retail investor access to 
reasonably priced market data.
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    \3\ See Securities Exchange Act Release No. 86667 (August 14, 
2019), 84 FR 43233 (August 20, 2019) (SR-CboeBZX-2019-069).
    \4\ See Securities Exchange Act Release No. 87164 (September 30, 
2019), 84 FR 53208 (October 4, 2019) (SR-CboeBZX-2019-069).
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 87312 (October 15, 
2019), 84 FR 56235 (October 21, 2019) (SR-CboeBZX-2019-086).
    \7\ See Securities Exchange Act Release No. 87629 (November 26, 
2019), 84 FR 66245 (December 3, 2019) (SR-CboeBZX-2019-086).
    \8\ Id.
    \9\ See Securities Exchange Act Release No. 87712 (December 10, 
2019), 84 FR 68508 (December 16, 2019) (SR-CboeBZX-2019-101).
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Current Fees
    The Cboe One Summary Feed is a top of book data feed that provides 
real-time U.S. equity quote and trade information to investors based on 
equity orders submitted to the Exchange and its affiliated equities 
exchanges--i.e., Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., and 
Cboe EDGA Exchange, Inc. Specifically, the Cboe One Summary Feed is a 
data feed that contains the aggregate best bid and offer of all 
displayed orders for securities traded on the Exchange and its 
affiliated exchanges. The Cboe One Summary Feed also contains the 
individual last sale information for the Exchange and each of its 
affiliated exchanges, and consolidated volume for all listed equity 
securities. The fee for external distribution of the Cboe One Summary 
Feed is $5,000 per month, and external distributors are also liable for 
a Data

[[Page 9828]]

Consolidation Fee of $1,000 per month, and User fees equal to $10 per 
month for each Professional User, and $0.25 per month for each Non-
Professional User.\10\
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    \10\ The Exchange also offers an Enterprise license for the Cboe 
One Summary Feed at a cost of $50,000 per month. An Enterprise 
license permits distribution to an unlimited number of Professional 
and Non-Professional Users, keeping costs down for firms that 
provide access to a large number of subscribers.
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Small Retail Broker Eligibility Requirements
    The Exchange proposes to introduce a Program that would reduce 
costs for small retail brokers that provide top of book data to their 
clients. In order to be approved for the Small Retail Broker 
Distribution Program, Distributors would have to provide Cboe One 
Summary Feed Data to a limited number of clients with which the firm 
has established a brokerage relationship, and would have to provide 
such data primarily to Non-Professional Data Users. Specifically, 
distributors would have to attest that they meet the following 
criteria: (1) Distributor is a broker-dealer distributing Cboe One 
Summary Feed Data to Non-Professional Data Users with whom the broker-
dealer has a brokerage relationship; (2) At least 90% of the 
Distributor's total Data User population must consist of Non-
Professional Data Users, inclusive of those not receiving Cboe One 
Summary Feed Data; and (3) Distributor distributes Cboe One Summary 
Feed Data to no more than 5,000 Users.\11\
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    \11\ The Initial Proposal, Second Proposal, and Third Proposal 
would have allowed small retail brokers to participate in the 
Program if they distribute Cboe One Summary Feed Data to no more 
than 5,000 Non-Professional Users. The current proposal instead 
reflects a threshold of 5,000 Users--i.e., including both Non-
Professional and Professional Users.
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    These proposed requirements for participating in the Program are 
designed to ensure that the benefits provided by the Program inure to 
the benefit of small retail brokers that provide Cboe One Summary Feed 
Data to a limited number of subscribers. As explained later in this 
filing, distributors that provide Cboe One Summary Feed Data to a 
larger number of subscribers can benefit from the current pricing 
structure through scale, due to subscriber fees that are significantly 
lower than those charged by the Exchange's competitors, and an 
Enterprise license that caps the total fees to be paid by firms that 
distribute market data to a sizeable customer base. The Exchange 
believes that offering similarly attractive pricing to small retail 
brokers, including regional firms both inside and outside of the U.S. 
that may not have the same established client base as the larger retail 
brokers, would make the Exchange's data a more competitive alternative 
for those firms, and would help ensure that such information is widely 
available to a larger number of retail investors globally. The Program 
would also be available to retail brokers more generally, regardless of 
size, that wish to trial the Cboe One Summary Feed with a limited 
number of subscribers before potentially expanding distribution to 
additional clients, potentially further increasing the accessibility of 
the Exchange's market data to retail investors. The Program would be 
exclusive to the Cboe One Summary Feed, which is a top of book 
offering, as retail investors typically do not need or use depth of 
book data to facilitate their equity investments, and their brokers 
typically do purchase such market data on their behalf.
Discounted Fees
    Distributors that participate in the Program would be liable for 
lower distribution and consolidation fees for access to the Cboe One 
Summary Data Feed.\12\ The distribution fee charged for the Cboe One 
Summary Feed would be lowered by 30% from the current $5,000 per month 
to $3,500 per month for distributors that meet the requirements of the 
Program. In addition, the Data Consolidation Fee charged for the Cboe 
One Summary Feed would be lowered by 65% from the current $1,000 per 
month to $350 per month. User fees for any Professional or Non-
Professional Users that access Cboe One Summary Feed data from a 
distributor that participates in the Program would remain at their 
current levels as the current subscriber charges are already among the 
most competitive in the industry.\13\
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    \12\ New external distributors of the Cboe One Summary Feed are 
not currently charged external distributor fees for their first 
month of service. This would continue to be the case for external 
distributors that participate in the Program.
    \13\ By comparison, The Nasdaq Stock Market LLC (``Nasdaq'') 
charges a subscriber fee for Nasdaq Basic that adds up to $26 per 
month for Professional Subscribers and $1 per month for Non-
Professional Subscribers (Tapes A, B, and C). See Nasdaq Equity 
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
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    The Exchange believes that these fees, which represent a 
significant cost savings for small retail brokers, would help ensure 
that retail investors continue to have fair and efficient access to 
U.S. equity market data. While retail investors normally pay a fixed 
commission when buying or selling equities, and do not typically pay 
separate fees for market data, the Exchange believes that the proposed 
reduction in fees would make the Exchange's data more competitive with 
other available alternatives, and may encourage retail brokers to make 
such data more readily available to their clients. In sum, the Exchange 
believes that the proposed fee reductions may facilitate more cost 
effective access to top of book data that is purchased on a voluntary 
basis by retail brokers and provided to their retail investor clients.
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.\14\ The Cboe One Summary Feed therefore competes 
with the SIP and with similar products offered by other national 
securities exchanges that offer their own competing top of book 
products. In fact, there are ten competing top of book products offered 
by other national securities exchanges today, not counting products 
offered by the Exchange's affiliates.\15\
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    \14\ By contrast, Rule 603(c) of Regulation NMS (the ``Vendor 
Display Rule'') effectively requires that SIP data or some other 
consolidated display be utilized in any context in which a trading 
or order-routing decision can be implemented.
    \15\ Competing top of book products include, Nasdaq Basic, BX 
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BBO/Trades, 
NYSE American BBO/Trades, NYSE Chicago BBO/Trades, and IEX TOPS.
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    The purpose of the proposed rule change is to further increase the 
competitiveness of the Exchange's top of book market data products 
compared to competitor offerings that may currently be cheaper for 
firms with a limited subscriber base that do not yet have the scale to 
take advantage of the lower subscriber fees offered by the Exchange. In 
turn, the Exchange believes that this change may benefit market 
participants and investors by spurring additional competition and 
increasing the accessibility of the Exchange's top of book data.

[[Page 9829]]

    As explained, the Exchange filed the Initial Proposal to introduce 
the Program in August in order to provide an attractive pricing option 
for small retail brokers. Although that filing was ultimately suspended 
by the Commission, as was the Second Proposal, the Exchange believes 
that its experience in offering the Program while it has been in effect 
reflect the competitive nature of the market for the creation and 
distribution of top of book data. Specifically, after the Exchange 
reduced the fees charged to small retail brokers pursuant to the 
Initial Proposal, Second Proposal, and Third Proposal, while each of 
those were in effect, it successfully onboarded three new customers due 
to the attractive pricing.\16\ These customers are now able to offer 
high quality and cost effective data to their retail investor clients. 
The Exchange has also been discussing the Program with a handful of 
additional prospective clients that are interested in providing top of 
book data to retail investors. Without the proposed pricing discounts, 
the Exchange believes that those customers and prospective customers 
may not be interested in purchasing top of book data from the Exchange, 
and would instead purchase such data from other national securities 
exchanges or the SIPs, potentially at a higher cost than would be 
available pursuant to the Program. The Program has therefore already 
been successful in increasing competition for such market data, and 
continued operation of the Program would serve to both reduce fees for 
such customers and to provide alternatives to data and pricing offered 
by competitors. Ultimately, the Exchange believes that it is critical 
that it be allowed to compete by offering attractive pricing to 
customers as increasing the availability of such products ensures 
continued competition with alternative offerings. Such competition may 
be constrained when competitors are impeded from offering alternative 
and cost effective solutions to customers.
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    \16\ See e.g., Cboe Innovation Spotlight, ``dough--The 
commission-free online broker with premium content and insights,'' 
available at https://markets.cboe.com/us/equities/market_data_products/spotlight/.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\17\ in general, and 
furthers the objectives of Section 6(b)(4),\18\ 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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    \17\ 15 U.S.C. 78f.
    \18\ 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.\19\ 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,\20\ 
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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    \19\ 15 U.S.C. 78k-1.
    \20\ 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, and in 
particular retail 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 investors and listed 
companies.'' \21\ The proposed fee change is a result of the 
competitive environment, as the Exchange seeks to amend its fees to 
attract additional subscribers for its proprietary top of book data 
offerings.
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    \21\ 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 proposed fee change would reduce fees charged to small retail 
brokers that provide access to the Cboe One Summary Feed. The Cboe One 
Summary Feed is a competitively-priced alternative to top of book data 
disseminated by SIPs, or similar data disseminated by other national 
securities exchanges.\22\ It provides subscribers with consolidated top 
of book quotes and trades from four Cboe U.S. equities markets, which 
together account for about 17% of consolidated U.S. equities trading 
volume.\23\ The Cboe One Summary Feed is purchased by a wide variety of 
market participants and vendors, including data platforms, websites, 
fintech firms, buy-side investors, retail brokers, regional banks, and 
securities firms inside and outside of the U.S. that desire low cost, 
high quality, real-time U.S. equity market data. By providing lower 
cost access to U.S. equity market data, the Cboe One Summary Feed 
benefits a wide range of investors that participate in the national 
market system. Reducing fees for broker-dealers that represent retail 
investors and that may have more limited resources than some of their 
larger competitors would further increase access to such data and 
facilitate a competitive market for U.S. equity securities, consistent 
with the goals of the Act.
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    \22\ See e.g., supra note 13 (discussing Nasdaq Basic).
    \23\ Id.
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    While the Exchange is not required to make any data, including top 
of book data, available through its proprietary market data platform, 
the Exchange believes that making such data available increases 
investor choice, and contributes to a fair and competitive market. 
Specifically, making such data publicly available through proprietary 
data feeds allows investors to choose alternative, potentially less 
costly, market data based on their business needs. While some market 
participants that desire a consolidated display choose the SIP for 
their top of book data needs, and in some cases are effectively 
required to do so under the Vendor Display Rule, others may prefer to 
purchase data directly from one or more national securities exchanges. 
For example, a buy-side investor may choose to purchase the Cboe One 
Summary Feed, or a similar product from another exchange, in order to 
perform investment analysis. The Cboe One Summary Feed represents 
quotes from four highly liquid equities markets. As a result, the Cboe 
One Summary

[[Page 9830]]

Feed is within 1% of the national best bid and offer approximately 98% 
of the time,\24\ and therefore serves as a valuable reference for 
investors that do not require a consolidated display that contains 
quotations for all U.S. equities exchanges. Making alternative products 
available to market participants ultimately ensures increased 
competition in the marketplace, and constrains the ability of exchanges 
to charge supracompetitive fees. In the event that a market participant 
views one exchanges top of book data fees as more or less attractive 
than the competition they can and frequently do switch between 
competing products. In fact, the competiveness of the market for such 
top of book data products is one of the primary factors animating this 
proposed rule change, which is designed to allow the Exchange to 
further compete for this business.
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    \24\ See https://markets.cboe.com/us/equities/market_data_services/cboe_one/.
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    Indeed, the Exchange has already successfully onboarded three new 
Distributors that have decided to purchase Cboe One Summary Data from 
the Exchange rather than purchasing top of book data from a competitor 
exchange. In addition, the Exchange is in discussions with a handful of 
other Distributors that are interested in procuring market data from 
the Exchange due to the attractive pricing offered pursuant to the 
Program. Distributors can discontinue use at any time and for any 
reason, including due to an assessment of the reasonableness of fees 
charged. Further, 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. Making the 
Exchange's top of book data available at a lower cost, ultimately 
serves the interests of retail investors that rely on the public 
markets. The Exchange understands that the Commission is interested in 
ensuring that retail investors are appropriately served in the U.S. 
equities market. The Exchange agrees that it is important to ensure 
that our markets continue to serve the needs of ordinary investors, and 
the Program is consistent with this goal.
    The Exchange believes that the proposed fees are reasonable as they 
represent a significant cost reduction for smaller, primarily regional, 
retail brokers that provide top of book data from BZX and its 
affiliated equities exchanges to their retail investor clients. The 
market for top of book data is intensely competitive due to the 
availability of substitutable products that can be purchased either 
from other national securities exchanges, or from registered SIPs that 
make such top of book data publicly available to investors at a modest 
cost. The proposed fee reduction is being made to make the Exchange's 
fees more competitive with such offerings for this segment of market 
participants, thereby increasing the availability of the Exchange's 
data products, and expanding the options available to firms making data 
purchasing decisions based on their business needs. The Exchange 
believes that this is consistent with the principles enshrined in 
Regulation NMS to ``promote the wide availability of market data and to 
allocate revenues to SROs that produce the most useful data for 
investors.'' \25\
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    \25\ See Regulation NMS Adopting Release, supra note 21, at 
37503.
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    Today, the Cboe One Summary Feed is among the most competitively 
priced top of book offerings in the industry due to modest subscriber 
fees, and a lower Enterprise cap, both of which keep fees at a 
relatively modest level for larger firms that provide market data to a 
sizeable number of Professional or Non-Professional Users. Distributors 
with a smaller user base, however, may choose to use competitor 
products that have a lower distribution fee and higher subscriber fees. 
The Program would help the Exchange compete for this segment of the 
market, and may broaden the reach of the Exchange's data products by 
providing an additional low cost alternative to competitor products for 
small retail brokers. While such firms may already utilize similar 
market data products from other sources, the Exchange believes that 
offering its own data to small retail brokers at lower distribution and 
data consolidation costs has the potential to increase choice for 
market participants, and ultimately increase the data available to 
retail investors when coupled with the Exchange's lower subscriber 
fees.
    The Exchange also believes that the proposed fees are equitable and 
not unfairly discriminatory as the proposed fee structure is designed 
to decrease the price and increase the availability of U.S. equities 
market data to retail investors. The Program is designed to reduce the 
cost of top of book market data for broker-dealers that provide such 
data to Non-Professional Data User clients that make up a significant 
majority of the distributor's total subscriber population. While there 
is no ``exact science'' to choosing one eligibility threshold compared 
to another, the Exchange believes that having significantly more Non-
Professional Data Users than Professional Data User across a firm's 
entire business, i.e., not limited exclusively to Data Users that are 
provided access to the Exchange's data products, is indicative of a 
broker-dealer that is primarily and actively engaged in the business of 
serving retail investors.
    This understanding is confirmed by an analysis conducted by the 
Exchange on the user population of its retail broker clients that 
purchase market data from the Exchange and its affiliated exchanges. To 
perform its analysis, the Exchange reviewed user populations for each 
broker dealer that it identified as primarily engaged in serving retail 
investors (i.e., retail brokers), and for which the Exchange has 
reported usage broken down into Professional and Non-Professional 
Users.\26\ This analysis showed that each retail broker identified 
currently provides market data from the Exchange or its affiliates to 
at least 90% Non-Professional Users, with the Professional/Non-
Professional breakdown ranging from 90.9% Non-Professional Users on the 
low end to 100% Non-Professional Users on the high end. As a result of 
this analysis, the Exchange believes that a requirement that at least 
90% of a broker-dealer's user population qualify as Non-Professional 
Users is appropriate to ensure that the benefits provided by the 
Program inure to the benefit of broker-dealers that primarily serve 
retail investors. Indeed, this belief is further supported by the 
Exchange's experience with the customers that currently participate in 
the Program, each of which are focused on providing trading services to 
ordinary investors.
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    \26\ Broker dealers with an Enterprise license are required to 
report total user populations but not whether each user is a 
Professional or Non-Professional User. As a result, the Exchange has 
excluded those firms from this portion of its analysis. That said, 
the Exchange believes those firms may have a similar Professional/
Non-Professional breakdown to other retail brokers.
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    As such, the Program would be broadly available to a wide range of 
retail brokers that either purchase the Cboe One Summary Feed today, or 
that may choose to switch from competing products due to the potential 
cost savings. In addition to the subscribers that are currently 
participating in the Program, a number of distributors that currently 
purchase top of book data from one of the four Cboe U.S. equities 
exchanges, and many more prospective customers, could benefit from the 
Program. Each of these current or prospective retail broker customers 
would receive the same benefits in terms of reduced distribution and

[[Page 9831]]

consolidation fees based on the product that they purchase from the 
Exchange.
    The Commission has long stressed the need to ensure that the 
equities markets are structured in a way that meets the needs of 
ordinary investors. For example, the Commission's strategic plan for 
fiscal years 2018-2022 touts ``focus on the long-term interests of our 
Main Street investors'' as the Commission's number one strategic 
goal.\27\ The Program would be consistent with the Commission's stated 
goal of improving the retail investor experience in the public markets. 
Furthermore, national securities exchanges commonly charge reduced fees 
and offer market structure benefits to retail investors, and the 
Commission has consistently held that such incentives are consistent 
with the Act. The Exchange believes that 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.
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    \27\ See U.S. Securities and Exchange Commission, Strategic 
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf.
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    In addition, while the Program would be effectively limited to 
smaller firms that distribute data to no more than 5,000 Users, the 
Exchange does not believe that this limitation makes the fees 
inequitable, unfairly discriminatory, or otherwise contrary to the 
purposes of the Act. The Program is designed to ensure that small 
retail brokers have access to Exchange data at a modest cost, and 
therefore contains an eligibility cutoff based on the number of Users 
that would receive Cboe One Summary Feed Data. The retail broker 
clients identified by the Exchange provide data from the Exchange or 
its affiliates to an average of more than 160,000 Non-Professional 
Users, with a small handful of large retail brokers operating pursuant 
to an Enterprise license accounting for about 95% of those Non-
Professional Users.\28\ Many retail broker clients, however, have 
significantly smaller Non-Professional User populations, with retail 
brokers that are not operating pursuant to an Enterprise license 
providing data from the Exchange or its affiliates to an average of 
8,845 Non-Professional Users. The 5,000 User threshold would therefore 
ensure that the benefits of the Program flow to small retail brokers, 
as intended, and not larger firms that already benefit from the current 
fee structure.
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    \28\ As explained, broker dealers with an Enterprise license are 
required to report total user populations but not whether each user 
is a Professional or Non-Professional User. See supra note 26. To 
perform this analysis, the Exchange therefore assumed that retail 
brokers qualifying for the enterprise cap had a similar breakdown of 
Professional/Non-Professional Users as retail brokers that reported 
this information.
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    Large broker-dealers and/or vendors that distribute the Exchange's 
data products to a sizeable number of investors benefit from the 
current fee structure, which includes lower subscriber fees and 
Enterprise licenses. Due to lower subscriber fees, distributors that 
provide Cboe One Summary Feed Data to more than 5,000 Users already 
enjoy cost savings compared to competitor products. The Program would 
therefore ensure that small retail brokers that distribute top of book 
data to their retail investor customers could also benefit from reduced 
pricing, and would aid in increasing the competitiveness of the 
Exchange's data products for this key segment of the market.
    The table below illustrates the impact of the proposed pricing on 
firms that qualify for the Program, both compared to the Exchange's 
current pricing, and compared to the fees charged for a competitor 
product, i.e., Nasdaq Basic. As shown, Cboe One Summary Feed Data 
provided pursuant to the Program would be cheaper than Nasdaq Basic for 
firms with more than 1,200 Users, and the benefits of the pricing 
structure would continue to scale up to firms with 5,000 Users.\29\ 
After 5,000 Users the firm would no longer be eligible for the Small 
Retail Broker Distribution Program but would already enjoy significant 
cost savings compared to Nasdaq Basic under the current pricing 
structure. The Exchange therefore believes that the Program would allow 
the Exchange to better compete with competitors for smaller firms that 
currently pay a lower fee under, for example, the Nasdaq Basic pricing 
model, while also ensuring that larger firms continue to receive 
attractive pricing that is already cheaper than top of book data 
offered by the main competitor product. The Exchange believes this 
supplemental information further validates its assessment that the 
proposed fee reduction is reasonable, equitable, and not unfairly 
discriminatory. Without the proposed fee reduction, small retail 
brokers that would otherwise qualify for the reduced fees proposed 
would be subject to either higher fees for accessing Exchange top of 
book data, or may switch to competitor offerings that are also less 
cost effective, but at current fees levels, cheaper than the current 
Cboe One Summary fee.
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    \29\ For purposes of illustration, the examples included in the 
table assume that the small retail broker provides Cboe One Summary 
Data solely to Non-Professional Users, which pursuant to the 
requirements of the Program must make up at least 90% of the 
Distributor's total subscriber population, and may, in practice, 
make up an even larger proportion of the user population.

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[[Page 9832]]

[GRAPHIC] [TIFF OMITTED] TN20FE20.005

    The Exchange also notes that the proposed fees for the Cboe One 
Summary Feed are designed in a manner that would allow a market data 
vendor to offer a similar competing product that includes data from the 
Exchange and its affiliated equities exchanges. Specifically, the 
Distribution fees proposed for the Cboe One Summary Feed are equivalent 
to the fees that would be charged to a small retail broker for access 
to the top of book feeds offered by the individual exchanges. In 
addition, Distributors of the Cboe One Summary Feed are liable for a 
Data Consolidation Fee that is designed to reflect the value of the 
consolidation of the data. Thus, the pricing for the Cboe One Summary 
Feed would enable a vendor to receive the underlying data feeds and 
offer a similar product on a competitive basis and with no pricing 
disadvantage relative to the exchanges. The examples below illustrate 
the fees that would be associated with the Cboe One Summary Feed 
compared with the fees that would be charged for a competing product 
that incorporates top of book information taken from the Exchange and 
its affiliated equities exchanges.\30\
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    \30\ All Distributors that receive an uncontrolled data feed, 
including small retail brokers that qualify for the Program, would 
have to license directly with the Exchange, and would be responsible 
for paying any applicable fees, but would be able to access such 
market data through the services of a vendor.

Example 1: Vendor Distributes Cboe One Summary Feed to Two Small Retail 
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Brokers

    A vendor that distributes the Cboe One Summary Feed to one or more 
clients for further internal or external distribution would be liable 
for an External Distribution Fee of $5,000 per month and a Data 
Consolidation Fee of $1,000 per month.\31\ In addition, each small 
retail broker that receives data from the vendor would be liable for 
its own Distribution Fees, which would be reduced to $3,500 per month 
pursuant to the Program, and Data Consolidation Fees, which would be 
reduced to $350 per month. These amounts would be paid directly by each 
small retail broker to the Exchange pursuant to a license agreement 
despite the fact that such clients are utilizing the services of a 
vendor to facilitate their access to the data.

    \31\ Typically, a vendor's business involves distributing market 
data to a wide range of customers, which would likely include a 
number of firms that do not qualify for the Program (e.g., other 
vendors, larger broker-dealers, etc.). In both examples, the fees 
charged to the vendor would permit it to distribute to each of those 
downstream customers without paying additional fees for each 
customer.

Example 2: Vendor Distributes Competing Product to Two Small Retail 
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Brokers

    Similar to Example 1, a vendor that consolidates and distributes 
top of book data taken from the Exchange and its affiliated equities 
exchanges would be liable for External Distribution Fees of $5,000 per 
month--i.e., $2,500 for BZX Top, $1,000 per month for BYX Top, and 
$1,500 for EDGX Top, and $0 per month for EDGA Top. Unlike Example 1, 
however, the vendor would be performing its own consolidation of the 
data incorporated from the four top of book feeds, and would not be 
liable for the Data Consolidation Fee. Similarly, each of the small 
retail brokers would pay their own Distribution Fees to the Exchange, 
which would be reduced to $3,500 under the Program--i.e., $2,500 per 
month for BZX Top, $250 per month for BYX Top, $750 per month for EDGX 
Top, and $0 per month for EDGA Top. Similar to the vendor, the small 
retail brokers would not pay any Data Consolidation Fee. As a result, a 
vendor could offer its own competing product at a price that is 
competitive with the Exchange's pricing.\32\
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    \32\ The discounted Data Consolidation Fee should continue to 
allow a vendor that takes top of book feeds from the Exchange and 
its affiliated equities exchanges to offer a competing product at a 
similar cost. In this regard, the Exchange notes that Nasdaq 
similarly charges a $350 data consolidation fee for Nasdaq Last Sale 
Plus. See Nasdaq Rules, Equity 7, Pricing Schedule, Section 
139(e)(1).
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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 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,

[[Page 9833]]

the Exchange is proposing to reduce the cost of top of book data 
provided by small retail brokers to their retail investor clients. The 
Exchange believes that this would facilitate greater access to such 
data, ultimately benefiting the retail investors that are provided 
access to such market data.
    The Exchange does not believe that this price reduction 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. Indeed, as explained in 
the basis section of this proposed rule change, the Exchange's decision 
to lower its distribution and consolidation fees for small retail 
brokers is itself a competitive response to different fee structures 
available on competing markets. The Exchange therefore 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. The Exchange 
also believes that the proposed reduction in fees for small retail 
brokers would not cause any unnecessary or inappropriate burden on 
intramarket competition. Although the proposed fee discount would be 
largely limited to small retail broker subscribers, larger broker-
dealers and vendors can already purchase top of book data from the 
Exchange at prices that represent a significant cost savings when 
compared to competitor products that combine higher subscriber fees 
with lower fees for distribution. In light of the benefits already 
provided to this group of subscribers, the Exchange believes that 
additional discounts to small retail brokers would increase rather than 
decrease competition among broker-dealers that participate on the 
Exchange. Furthermore, as discussed earlier in this proposed rule 
change, the Exchange believes that offering pricing benefits to brokers 
that represent retail investors facilitates the Commission's mission of 
protecting ordinary investors, and is therefore consistent with the 
Act.

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 \33\ and paragraph (f) of Rule 19b-4 \34\ 
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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    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 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-2020-014 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-2020-014. 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-2020-014 and should be submitted 
on or before March 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03416 Filed 2-19-20; 8:45 am]
 BILLING CODE 8011-01-P