[Federal Register Volume 85, Number 51 (Monday, March 16, 2020)]
[Notices]
[Pages 14987-14989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05239]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88354; File No. SR-CboeBZX-2020-020]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend its Fee Schedule

March 10, 2020.
    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 March 2, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend its 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/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.

[[Page 14988]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (BZX Options), effective March 2, 2020.
    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 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 21% of the market share and 
currently the Exchange represents only 10% of the market share.\3\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange, including the Exchange, possesses significant 
pricing power in the execution of option order flow. 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.
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
(February 20, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides standard 
rebates ranging from $0.25 up to $1.05 per contract for orders that add 
liquidity in both Penny and Non-Penny Securities. 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.\4\ The Exchange proposes to amend its fee schedule 
to specify in new footnote 5 that when orders are submitted with a 
``Designated Give Up'', as defined below, the applicable rebates (i.e., 
any standard rebate or applicable tier rebates) for such orders when 
executed on the Exchange (yielding fee code NA, NF, NN, NY,\5\ PA, PF, 
PN or PY) \6\ are provided to the Member who routed the order to the 
Exchange.
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    \4\ For example, the Exchange currently offers eight Customer 
Penny Pilot Add Tiers under footnote 1, which provide an enhanced 
rebates between $0.35 and $0.53 per contract for qualifying Customer 
orders which meet certain add liquidity thresholds and yield fee 
code PY.
    \5\ Fee codes NA, NF, NN and NY are appended to liquidity adding 
orders in Non-Penny Pilot securities that are Professional, Firm/
Broker Dealer/Joint Back Office, Away Market-Maker and Customer 
orders, respectively.
    \6\ Fee codes PA, PF, PN and PY are appended to liquidity adding 
orders in Penny Pilot Securities that are Professional, Firm/Broker 
Dealer/Joint Back office, Away Market-Maker and Customer orders, 
respectively.
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    The Exchange recently amended Rule 21.12 (Clearing Member Give Up) 
to expand upon the procedure related to the ``give up'' of a Clearing 
Member \7\ by Users \8\ on the Exchange.\9\ Effective March 2, 2020, 
Rule 21.12 will provide that, in addition to its own Clearing Member 
(or itself, if the firm is self-clearing), a User may identify to the 
Exchange a Designated Give Up, as that term is defined in the Rule. 
Specifically, amended Rule 21.12(b)(1) defines the term Designated Give 
Up as any Clearing Member that a User (other than a Market Maker) \10\ 
identifies to the Exchange, in writing, as a Clearing Member the User 
requests the ability to give up. With this change, a Member acting as 
an options routing firm on behalf of one or more other Exchange Members 
(a ``Routing Firm'') is able to route orders to the Exchange and to 
immediately give up the party (a party other than the Routing Firm 
itself or the Routing Firm's own clearing firm) who will accept and 
clear any resulting transaction. Because the Routing Firm is 
responsible for the decision to route the order to the Exchange, the 
Exchange believes that such Member should be provided the rebate when 
orders that yield fee code PY, PA, PF, PN, NY, NA, NF, or NN are 
executed. In connection with this change, the Exchange proposes to 
append new footnote 5 to fee codes PY, PA, PF, PN, NY, NA, NF, or NN in 
the Fee Codes and Associated Fees table of the fee schedule.
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    \7\ A Clearing Member is defined as ``Options Member that is 
self-clearing or an Options Member that clears BZX Options 
Transactions for other Members of BZX Options.'' See Exchange Rule 
16.1. An Option Member is defined as ``a firm, or organization that 
is registered with the Exchange pursuant to Chapter XVII of these 
Rules for purposes of participating in options trading on EDGX 
Options as an `Options Order Entry Firm' or `Options Market 
Maker.''' See Exchange Rule 16.1(a)(38) [sic].
    \8\ See Exchange Rule 1.5(cc).
    \9\ See Securities Exchange Act Release No. 87985 (January 16, 
2020) 85 FR 4007 (January 23, 2020) (SR-CboeBZX-2020-002).
    \10\ See Exchange Rule 1.5(l).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\12\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange notes that the U.S. options markets are highly 
competitive, and the proposed fee structure is intended to provide an 
incentive for Members to direct orders to the Exchange. The proposal 
would only apply to fee codes PY, PA, PF, PN, NY, NA, NF, and NN, 
related to liquidity adding orders, because these are the primary 
rebates in place on the Exchange and reflect the primary liquidity that 
the Exchange is seeking to attract from Routing Firms that are now able 
to identify Designated Give Ups.\13\ The Exchange believes that the 
proposed amendments to its fee schedule will enhance the Exchange's 
competitive position and will result in increased liquidity on the 
Exchange, to the benefit of all Exchange participants. Therefore, the 
Exchange believes that providing rebates is equitable and reasonable 
and not unfairly discriminatory as it would allow the Exchange, in the 
context of the new give up procedure described above, to provide a 
rebate directly to the party making the routing decision to direct 
certain orders to the Exchange (i.e., the Routing Firm), which is 
consistent with both the Exchange's historic practice and the purpose 
behind a rebate (i.e., to incentivize the order being directed to the 
Exchange). The Exchange lastly notes that the proposed change is 
similar to a provision previously adopted by the Exchange's affiliate, 
Cboe EDGX Exchange, Inc.\14\
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    \13\ The Exchange notes that Market-Makers may only give up its 
respective Guarantor, as defined by Rule 21.12(b)(2). See Cboe BZX 
Options Rule 21.12(b)(5).
    \14\ See Cboe EDGX Options Exchange Fee Schedule, Footnote 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the

[[Page 14989]]

proposed change represents a significant departure from previous 
pricing offered by the Exchange or its competitors. Additionally, 
Members may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. The Exchange believes that its 
proposal to incentivize Routing Firms that are utilizing the new give 
up procedure to direct orders to the Exchange, and will enhance the 
Exchange's competitive position by resulting in increased liquidity on 
the Exchange, thereby providing more of an opportunity for customers to 
receive best executions.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2020-020 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-2020-020. 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-CboeBZX-2020-020 and should be submitted 
on or before April 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05239 Filed 3-13-20; 8:45 am]
 BILLING CODE 8011-01-P