[Federal Register Volume 85, Number 52 (Tuesday, March 17, 2020)]
[Notices]
[Pages 15234-15238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05377]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88359; File No. SR-CboeBYX-2020-008]


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

March 11, 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 BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

[[Page 15235]]

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 Exchange proposes to amend its fee schedule in connection with 
its Remove Volume Tiers, 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 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 17% 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (February 25, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
---------------------------------------------------------------------------

    Pursuant to footnote 1 of the Fees Schedule, the Exchange currently 
offers Remove Volume Tiers (tiers 6 through 9) that provide Members an 
opportunity to receive an enhanced rebate from the standard fee 
assessment for liquidity removing orders that yield fee codes 
``BB'',\4\ ``N'' \5\ and ``W''.\6\ The Remove Volume Tiers currently 
offer four different tiers that vary in levels of criteria difficulty 
and incentive opportunities in which Members may qualify for enhanced 
rebates for such orders. For example, Tier 6 currently provides an 
enhanced rebate of $0.0015 for Members who have an ADV \7\ of greater 
than or equal to 0.08% of the TCV,\8\ and an ADAV \9\ of greater than 
or equal to 500,000 shares. The Exchange notes that these tiers are 
designed to encourage Members to increase their order flow, adding and/
or removing orders, in order to receive an enhanced rebate on their 
liquidity removing orders.
---------------------------------------------------------------------------

    \4\ Appended to displayed orders that removes liquidity from BYX 
(Tape B), and offered a rebate of $0.00050.
    \5\ Appended to displayed orders that remove liquidity from BYX 
(Tape C), and offered a rebate of $0.00050.
    \6\ Appended to displayed orders that remove liquidity from BYX 
(Tape A), and assessed a fee of $0.00050.
    \7\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day. ADV 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\ ``ADAV'' means average daily volume calculated as the number 
of shares added per day. ADAV is calculated on a monthly basis.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to amend Remove Volume Tier 8. 
Pursuant to current Tier 8, a Member may receive an enhanced rebate of 
$0.0017 for qualifying, liquidity removing orders (i.e. yielding fee 
code BB, N, or W) if that Member has a Step-Up Remove TCV \10\ from 
December 2017 >= 0.10%, and has an ADAV >= 0.30% of the TCV. The 
Exchange proposes to amend Tier 8 so that a Member may receive an 
enhanced rebate of $0.0018 for qualifying, liquidity removing orders if 
that Member has a Step-Up Remove TCV from February 2020 that is greater 
than or equal to 0.05%. The proposed criteria change is designed to 
incentivize Members to increase their relative liquidity taking order 
flow each month over a predetermined baseline (as proposed, from 
February 2020) in order to receive an enhanced rebate on their 
liquidity removing orders, by making Tier 8 criteria easier to achieve 
and increasing the enhanced rebate provided under such tier. Instead of 
meeting two unique criteria to receive the enhanced rebate, the 
proposed change narrows Tier 8 to just one criterion with a lower Step-
Up Remove TCV threshold (as well as updates the month from which this 
criterion is measured). As a result of the proposed ease in criteria 
coupled with the increased enhanced rebate, Members will have an 
additional opportunity to receive an enhanced rebate by submitting 
liquidity removing order and will be further incentivized to submit 
liquidity removing order flow. An increase in liquidity executing 
orders would, in turn, incentivize liquidity adding order flow to take 
advantage of the increase in execution opportunities, thereby 
contributing to deeper, more liquid markets and price discovery. The 
Exchange believes that this would overall benefit all Members by 
contributing towards a robust and well-balanced market ecosystem. The 
Exchange notes that Tier 8, as amended, will continue to be available 
to all Members and is competitively achievable for all Members that 
submit liquidity removing order flow, in that, all firms that submit 
the requisite order flow could compete to meet the tier.
---------------------------------------------------------------------------

    \10\ ``Step-Up Remove TCV'' means remove ADV as a percentage of 
TCV in the relevant baseline month subtracted from current remove 
ADV as a percentage of TCV.
---------------------------------------------------------------------------

    The Exchange also proposes to eliminate Remove Volume Tier 9, which 
currently provides that a Member may receive an enhanced rebate of 
$0.0017 for qualifying, liquidity removing orders if that Member has a 
Step-Up Remove TCV from January 2018 >= 0.30%, and has a remove ADV >= 
0.70% of the TCV. The Exchange proposes to eliminate Tier 9 because no 
Members have achieved this tier in some months.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\11\ in general, and 
furthers the objectives of Section 6(b)(4),\12\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and issuers and other persons 
using its

[[Page 15236]]

facilities. The Exchange also believes that the proposed rule change is 
consistent with the objectives of Section 6(b)(5) \13\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f.(b)(5).
---------------------------------------------------------------------------

    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 an enhanced rebate by making it easier to reach the proposed 
threshold by means of liquidity removing orders. The Exchange notes 
that relative volume-based incentives and discounts have been widely 
adopted by exchanges,\14\ including the Exchange,\15\ 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.\16\
---------------------------------------------------------------------------

    \14\ See e.g., The Nasdaq BX, Inc. Rules, Equity 7 Pricing 
Schedule, Sec. 118(a), which generally provides credits to members 
for adding and/or removing liquidity that reaches certain thresholds 
of Consolidated Volume; and Cboe EDGA U.S. Equities Exchange Fee 
Schedule, Footnote 7, Add/Remove Volume Tiers, which provides 
similar incentives for liquidity removing orders.
    \15\ See generally, Cboe BYX U.S. Equities Exchange Fee 
Schedule, Footnotes 1 and 2, Add/Remove Volume and Step-Up tiers 
provide incentives for volume adding and/or removing orders and for 
criteria based on Step-Up Add TCV, respectively.
    \16\ See supra note 14. BX offers credits between $0.0029 and 
$0.0014 per share for liquidity removing orders (substantially 
similar to those rebates which the Exchange proposes) depending on 
different criteria levels achieved.
---------------------------------------------------------------------------

    Moreover, the Exchange believes the proposed modification to 
increase the enhanced rebate and ease the criteria under Remove Volume 
Tier 8, by removing the ADAV as a percentage of TCV threshold component 
and decreasing the Step-Up Remove TCV threshold (the proposed change 
also updates the month by which the Step-Up component is measured), is 
a reasonable means to further incentivize Members to increase their 
remove volume order flow to the Exchange by encouraging those Members 
who could not achieve the tier previously to increase their remove 
volume by a modest amount since February 2020 to receive the tier's 
increased rebate. As such, adopting criteria based on a Member's 
removing orders will encourage Members executing on the Exchange to 
increase transactions and provide increased execution opportunities, in 
turn, incentivizing liquidity providing Members to take such increase 
execution opportunities and provide increased liquidity and price 
transparency on the Exchange. 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, potentially providing even 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. The proposed increased enhanced rebate amount also does not 
represent a significant departure from the enhanced rebates currently 
offered under the Exchange's existing Remove Volume Tiers (tier 6 
offers an enhanced rebate of $0.0015 and tier 7 an enhanced rebate of 
$0.0018). The proposed amended tier merely provides and additional 
opportunity for Members submitting liquidity taking orders to achieve 
an enhanced rebate. In addition to this, the Exchange believes it is 
reasonable to remove Tier 9 from the Fee Schedule as no Members have 
achieved such tier in recent months. If the Exchange wishes to 
implement additional opportunities to meet different tier criteria 
within the Remove Volume Tiers it may seek to do so by submitting a 
rule filing at a later date.
    The Exchange believes that the proposal represents an equitable 
allocation of rebates and is not unfairly discriminatory because all 
Members will continue to be eligible for Remove Volume Tier 8 as 
amended, and will have the opportunity to meet the tier's criteria and 
would receive the proposed increased enhanced rebate if such criteria 
is met. 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, including wholesale firms (i.e., broker-dealers that 
function to primarily make markets for retail orders) as well as 
proprietary firms, each providing distinct types of order flow to the 
Exchange to the benefit of all market participants. For example, 
increased wholesale firm order flow provides more trading opportunities 
for retail customers, which in turn attracts Market Makers. Increased 
Market Maker activity facilitates tighter spreads which potentially 
increases order flow from other market participants.
    Further, the proposed elimination of Tier 9 represents an equitable 
allocation of fees and is not unfairly discriminatory because it will 
equally remove the enhanced rebate opportunity in Tier 9 for all 
Members. The Exchange also notes that the proposed elimination of Tier 
9 will not adversely impact any Member's pricing or their ability to

[[Page 15237]]

qualify for existing enhanced rebates (note that, the proposed enhanced 
rebate in Tier 8 will be higher than the rebate offered by Tier 9) or 
reduced fee tiers. Likewise, should a Member not meet the proposed 
criteria in Tier 8, the Member will merely not receive the enhanced 
rebate proposed in Tier 8 and still would have the opportunity to meet 
other criteria for enhanced rebates and reduced fees. Furthermore, the 
proposed rate in Tier 8 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.'' \17\
---------------------------------------------------------------------------

    \17\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    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 liquidity 
removing order flow to the Exchange and, as a result, increase 
execution opportunities, which would further incentivize the provision 
of liquidity and continued order flow and improve price transparency on 
the Exchange. Greater overall order flow and pricing transparency 
benefits all market participants on the Exchange by generally 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 17% of the market share.\18\ 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.'' \19\ 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'. . . .''. \20\ 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.
---------------------------------------------------------------------------

    \18\ See supra note 3.
    \19\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \20\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

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 \21\ and paragraph (f) of Rule 19b-4 \22\ 
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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2020-008 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-CboeBYX-2020-008. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 15238]]

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. All submissions should refer to File Number SR-CboeBYX-
2020-008 and should be submitted on or before April 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05377 Filed 3-16-20; 8:45 am]
 BILLING CODE 8011-01-P