[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18290-18292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06740]
[[Page 18290]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88487; File No. SR-CboeBZX-2020-027]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend the Fee Schedule To Institute a Fee Code Applicable to the
Cboe Market Close
March 26, 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 March 19, 2020, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'')
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
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fee schedule to institute a fee code
applicable to the Cboe Market Close. 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 the fee schedule applicable to its
equities trading platform (``BZX Equities'') to introduce a fee code
for orders that participate in the Cboe Market Close.\3\ As proposed,
orders executed in the Cboe Market Close would yield fee code ``MC.''
There would be no transaction fees associated with such orders.
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\3\ The Exchange initially filed the proposed fee changes on
March 5, 2020 (SR-CboeBZX-2020-022). On March 13, 2020, the Exchange
withdrew that filing and re-filed (SR-CboeBZX-2020-024). On March
19, 2020, the Exchange withdrew that filing and submitted this
filing.
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The Exchange plans to implement the Cboe Market Close on March 6,
2020 as part of its ongoing efforts to improve market structure for the
benefit of investors.\4\ The Cboe Market Close is an innovative closing
match process for non-BZX Listed Securities that is designed to match
buy and sell Market-On-Close (``MOC'') orders at the official closing
price for such security published by the primary listing market. The
Exchange is introducing the Cboe Market Close in response to requests
from market participants, particularly buy-side firms, for an
alternative to the primary listing exchanges' closing auctions that
still provides an execution at a security's official closing price.
Cboe Market Close is designed in response to industry persistence and
interest in an alternative to the listing market's closing auction.
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\4\ The Commission approved the Cboe Market Close on January 21,
2020. See Securities Exchange Act Release No. 88008 (January 21,
2020) 85 FR 4726 (January 27, 2020) (the ``Approval Order'') (SR-
BatsBZX-2017-34).
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As noted in the Approval Order, BZX stated that the fees for Cboe
Market Close would be set and maintained over time at a rate less than
the fee charged by the applicable listing exchange for its own
respective closing mechanism. Accordingly, in conjunction with the
upcoming implementation of the Cboe Market Close, the Exchange proposes
to introduce a new fee code for orders that are executed in the Cboe
Market Close, which would yield fee code ``MC.'' As proposed, there
would be no fee to participate in the Cboe Market Close, thereby
providing cost effective executions at the official closing price on a
public exchange, and facilitating the execution of those orders at a
lower rate than such orders would be charged in a primary listing
markets' closing auction.\5\
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\5\ For example, Nasdaq offers tiered fees for both MOC and
Limit-on-Close (``LOC'') order executions in its closing auction
process ranging from $0.0008 to $0.0016 per executed share. See
Nasdaq Crossing Network, Execution Fees for the Nasdaq Closing
Cross, Tiers A through G of the Nasdaq Price List. NYSE offers
tiered fees for MOC order executions in its closing auction process
ranging from $0.0004 to $0.0010. See Executions at the Close Equity
Per Share Charge--per transaction (both sides)--of the NYSE Price
List.
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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,\6\ in general, and
furthers the objectives of Section 6(b)(4),\7\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also 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. The
proposed rule change reflects a competitive pricing structure designed
to incentivize market participants to direct their MOC orders to the
Cboe Market Close, which the Exchange believes would facilitate the
execution of those orders at the official closing price.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes the proposal is reasonable
because it provides Members a free alternative for executing MOC orders
at the official closing price. Currently, market participants may
execute MOC orders on public exchanges at the official closing price
only by participating in the primary listing market's closing auction.
As noted in the Approval Order, BZX stated that the fees for Cboe
Market Close would be set and maintained over time at a rate less than
the fee charged by the applicable listing exchange for its own
respective closing mechanism. Accordingly, the proposal would allow all
Members to participate in the Cboe Market Close without charge, and
therefore at a price that is less than the applicable closing auction
fees that would be incurred on the primary listing exchanges.\8\ The
Exchange also believes the proposal is reasonable because fostering
price
[[Page 18291]]
competition for the execution of MOC orders may facilitate the ability
for smaller and mid-size brokers to better compete for investors' MOC
order flow. In turn, greater choice among, and participation by,
broker-dealers in handling MOC orders should inure to the benefit of
end investors. Further, the Exchange believes the proposal may increase
execution quality competition for MOC orders by incentivizing other
venues, including the primary listing exchanges, to continue to
innovate and compete to attract MOC orders to their venues.
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\8\ For example, Nasdaq offers tiered fees for executions in its
closing auction process ranging from $0.0008 to $0.0016 per executed
share. See Tiers A through G of the Nasdaq fee schedule http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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Additionally, the Exchange believes the proposal is equitable and
not unfairly discriminatory because it would apply equally to all
Members who choose to participate in the Cboe Market Close. The
proposed fee change is designed to allow broad participation in the
Cboe Market Close, and there would be no differentiation in fees
charged to Members. Rather, the Exchange's proposal would allow all
Members to participate in the Cboe Market Close without charge. In
turn, this would allow any interested Member to participate in the Cboe
Market Close on an equal and non-discriminatory basis.
Lastly, while the Exchange's proposal offers participation in the
Cboe Market Close at no cost to Members, the Exchange will continue to
surveil for potentially manipulative activities and will enhance its
surveillance procedures and work with other SROs to detect and prevent
manipulative activity through the use of Cboe Market Close.
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 MOC orders to a public
exchange for execution at the official closing price.
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 allows all Members to participate in the Cboe Market Close
without charge. The proposal is designed to encourage Members to
participate in the Cboe Market Close, which the Exchange believes will
benefit all Members by fostering price competition for the execution of
MOC orders at the official closing price, and may facilitate the
ability for smaller and mid-size brokers to better compete for
investors' MOC order flow. In turn, greater choice among, and
participation by, broker-dealers in handling MOC orders should inure to
the benefit of end investors.
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. The purpose of
Cboe Market Close is to increase competition for the execution of MOC
orders. Specifically, the Exchange believes the proposal may increase
competition for MOC orders by incentivizing other venues, including the
primary listing exchanges, to continue to innovate and compete to
attract MOC orders to their venues.\9\ Further, as previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and direct their MOC order flow, including primary listing markets and
off-exchange venues and alternative trading systems.\10\
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\9\ Supra note 3.
\10\ Id.
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Lastly, the proposal is offered in conjunction with the launch of
the Cboe Market Close which is designed to enhance competition for the
execution of MOC orders at the official closing price. Market
participants may only execute at the official closing price on a public
exchange is through the primary listing market auction. Generally, more
than 70% of execution volume at the official closing price occurs on
the primary listing exchange. Therefore, the proposal is designed to
enhance competition among exchanges by offering market participants an
alternative option to execute MOC orders at the official closing price.
Furthermore, market participants can readily choose to send their MOC
orders to primary listing markets and off-exchange venues if they deem
fee levels at those other venues to be more favorable. For example,
recent studies have shown that Trade Reporting Facility (``TRF'')
volumes using the primary closing auction price have reached as high as
30% on some occasions.\11\
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\11\ See BZX Statement in Support of the Division's Order
Approving a Rule to Introduce Cboe Market Close, at 16 (April 12,
2018).
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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.'' \12\ 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'. . . .''.\13\
Accordingly, the Exchange does not believe the proposal imposes any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\13\ 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 \14\ and paragraph (f) of Rule 19b-4 \15\
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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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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-2020-027 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-2020-027. 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-2020-027, and should be
submitted on or before April 22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06740 Filed 3-31-20; 8:45 am]
BILLING CODE 8011-01-P