[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Notices]
[Pages 16160-16162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05842]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88392; File No. SR-CboeBZX-2020-023]


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 16, 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 10, 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.

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.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
March 2, 2020 (SR-CboeBZX-2020-019). On March 10, 2020, the Exchange 
withdrew that filing and submitted this filing.
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    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 17% of the market share and 
currently the Exchange represents only 9% of the market share.\4\ 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. The Exchange's fee schedule sets forth standard 
rebates and rates applied per contract. For example, the Exchange 
assesses a standard rebate of $0.29 per contract for Market Maker 
orders that add liquidity in Penny Pilot Securities and a standard 
rebate of $0.40 per contract in Non-Penny Pilot Securities. 
Additionally, 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 an incremental 
incentive for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \4\ See Cboe Global Markets U.S. Options Market Volume Summary 
(February 24, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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    For example, the Exchange currently offers two Market Maker Non-
Penny Pilot Add Volume Tiers under footnote 7 of the fee schedule which 
provides enhanced rebates between $0.45 and $0.54 per contract for 
qualifying Market Maker orders which meet certain add liquidity 
thresholds and yield fee code NM.\5\ Under the current Market Maker 
Non-Penny Pilot Add Volume Tiers, a Member receives an enhanced rebate 
between $0.45 and $0.54 per contract where the Member has an ADAV \6\ 
in Market Maker orders greater or equal to a specified percentage of 
OCV \7\ (Tiers 1-2). The Exchange now proposes to adopt a new Market 
Maker Non-Penny Pilot Add Volume Tier, ``Tier 3''.
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    \5\ Orders yielding fee code NM are Market Maker orders that add 
liquidity in Non-Penny Pilot securities.
    \6\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added, ``ADRV'' means average daily removed 
volume calculated as the number of contracts removed, and ``ADV'' 
means average daily volume calculated as the number of contracts 
added or removed, combined, per day.
    \7\ ``OCC Customer Volume'' or ``OCV'' means the total equity 
and ETF options volume that clears in the Customer range at the 
Options Clearing Corporation (``OCC'') for the month for which the 
fees apply, excluding volume on any day that the Exchange 
experiences an Exchange System Disruption and on any day with a 
scheduled early market close.
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    The Exchange believes the proposed Market Maker Non-Penny Pilot Add 
Volume Tier will provide Members an additional opportunity to receive 
an enhanced rebate for meeting the corresponding proposed criteria. The 
Exchange believes the proposed tier, along with the existing tiers, 
also provide an incremental incentive for Members to strive for the 
highest tier levels, which provide increasingly higher rebates for such 
transactions. Particularly, the Exchange proposes to add new Market 
Maker Non-Penny Pilot Add Volume Tier 3, which would provide an 
enhanced rebate of $0.86 per contract where a Member (i) has an ADAV in 
Market Maker orders greater than or equal to 1.00% of the average OCV; 
and (ii) has an ADAV in Market Maker Non-Penny Pilot orders of greater 
than or equal to 0.20% of the average OCV. As such, under the proposed 
Tier, the Exchange is adopting an additional threshold that Members 
must meet in addition to the standard ADAV in Market Maker orders 
threshold.

[[Page 16161]]

Particularly, Members must not only satisfy a higher ADAV threshold in 
Market Maker orders, but must also satisfy an ADAV threshold in Market 
Maker Non-Penny orders in order to receive the proposed enhanced 
rebate. The proposed tier is designed to encourage a Market Maker's 
liquidity adding volume in Non-Penny orders, and moreover to encourage 
Members to increase their order flow, thereby contributing to a deeper 
and more liquid market, which benefits all market participants and 
provides greater execution opportunities on the Exchange.\8\
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    \8\ The Exchange notes that similar rebates are offered on the 
Nasdaq and MIAX exchanges.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\9\ in general, and furthers the requirements 
of Section 6(b)(4),\10\ in particular, as it is designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers. 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive a higher rebate by providing additional criteria they can reach 
for. The Exchange notes that volume-based incentives and discounts have 
been widely adopted by exchanges,\11\ including the Exchange,\12\ 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 options venues 
to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
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 pricing incentives tied to 
comparable tiers.\13\
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    \11\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.01 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
    \12\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 6 and 7, Market Maker Penny Pilot and Non-Penny Pilot 
Volume Tiers which provide enhanced rebates for Market Maker orders 
where Members meet certain volume thresholds.
    \13\ Supra note 9.
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    Moreover, the Exchange believes the proposed Market Maker Non-Penny 
Pilot Add Volume Tier 3 is a reasonable means to encourage Members to 
increase their liquidity on the Exchange. The Exchange believes that 
adopting a tier with additional criteria to the existing Market Maker 
Non-Penny Pilot Add Volume Tiers will encourage Members to increase 
their order flow in Non-Penny securities on the Exchange. Increased 
liquidity benefits all investors by deepening the Exchange's liquidity 
pool, offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection. The Exchange also 
believes that proposed enhanced rebate is reasonable based on the 
difficulty of satisfying the tier's criteria and ensures the proposed 
rebate and threshold appropriately reflects the incremental difficulty 
to achieve the existing Market Maker Non-Penny Pilot Add Volume Tiers.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Market Makers. Further, the Exchange offers 
similar tiered pricing to Firm, Broker Dealer, Joint-Back Office,\14\ 
Away Market Maker,\15\ and Customer \16\ orders for liquidity adding 
volume in Non-Penny Pilot securities. Additionally a number of Market 
Makers have a reasonable opportunity to satisfy the tier's criteria, 
which the Exchange believe is more stringent than other existing Market 
Maker Non-Penny Pilot Add Volume Tiers. While the Exchange has no way 
of knowing whether this proposed rule change would definitively result 
in any particular Market Maker qualifying for the proposed tier, the 
Exchange anticipates at least one Market Maker meeting, or being 
reasonably able to meet, the proposed criteria; however, the proposed 
tier is open to any Market Maker that satisfies the tier's criteria. 
The Exchange believes the proposed tier could provide an incentive for 
other Members to submit additional liquidity on the Exchange to qualify 
for the proposed enhanced rebate.
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    \14\ See the Firm, Broker Dealer, and Joint Back Office Non-
Penny Pilot Add Volume Tiers in the Exchange's Fee Schedule. Tier 4 
offers a rebate of up to $0.82 per contract to Members satisfying 
the tier.
    \15\ See the Away Market Maker Non-Penny Pilot Add Volume Tiers 
in the Exchange's Fee Schedule. Tier 2 offers a rebate of up to 
$0.52 per contract to Members satisfying the tier. While the tier 
with the highest applicable rebate is significantly less than the 
proposed rebate, the required criteria for an Away Market Maker to 
satisfy Tier 2 is significantly less difficult than the proposed 
criteria for a Market Maker to satisfy Tier 3.
    \16\ See the Customer Non-Penny Pilot Add Volume Tiers in the 
Exchange's Fee Schedule. The applicable tiers offer rebates ranging 
from $0.92 up to $1.05 per contract.
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    The Exchange lastly notes that the proposal will not adversely 
impact any Member's pricing or their ability to qualify for other 
tiers. Rather, should a Member not meet the proposed criteria, the 
Member will merely not receive the proposed enhanced rebate. 
Furthermore, the proposed enhanced rebate would apply to all Members 
that meet the required criteria under proposed Market Maker Non-Penny 
Pilot Add Volume Tier 3.

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 liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities 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

[[Page 16162]]

individual stocks for all types of orders, large and small.'' \17\
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    \17\ 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 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 uniformly to market participants. As discussed above, 
the Exchange believes that adopting a tier with additional criteria to 
the existing Market Maker Non-Penny Pilot Add Volume Tiers will 
encourage Members to increase their order flow in Non-Penny securities 
on the Exchange. Increased liquidity benefits all investors by 
deepening the Exchange's liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection.
    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 director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 17% of the market 
share.\18\ Therefore, no exchange possesses significant pricing power 
in the execution of option 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.
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    \18\ 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 (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 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 \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.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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-2020-023 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-2020-023. 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-2020-023 and should be submitted 
on or before April 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05842 Filed 3-19-20; 8:45 am]
BILLING CODE 8011-01-P