[Federal Register Volume 85, Number 119 (Friday, June 19, 2020)]
[Notices]
[Pages 37136-37139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13205]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89067; File No. SR-CboeBZX-2020-047]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule
June 15, 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 June 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 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/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 applicable to its
equities trading platform (``BZX Equities'') to modify non-displayed
add volume Tiers 2, 3, and 4 of the Add Volume Tiers, add a new
supplemental incentive program to the Add Volume Tiers, modify Step-Up
Tier 2, and add Step-Up Tier 5.\3\
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\3\ The Exchange initially filed the proposed fee changes on
June 1, 2020 (SR-CboeBZX-2020-045). On June 2, 2020, the Exchange
withdrew that filing and submitted a subsequent filing (SR-CboeBZX-
2020-047).
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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 several equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. The Exchange in particular operates a
``Maker-Taker'' model whereby it pays credits to members that provide
liquidity and assesses fees to those that remove liquidity. The
Exchange's fee schedule sets forth the standard rebates and rates
applied per share for orders that provide and remove liquidity,
respectively. Particularly, for orders priced at or above $1.00, the
Exchange provides a standard rebate of $0.0025 per share for orders
that add liquidity and assesses a fee of $0.0030 per share for orders
that remove liquidity. 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.
Non-Displayed Add Volume Tiers
One of the tiered pricing models referenced above is set forth in
Footnote 1 of the fee schedule (Add Volume Tiers), which provides
Members an opportunity to qualify for an enhanced rebate on their
orders that add liquidity on the Exchange and meet certain criteria.
For example, one set of criteria is applied to non-displayed orders
that meet certain add volume thresholds on the Exchange. Under the
current non-displayed add volume tiers, a Member receives a rebate
ranging from $0.0018 (Tier 1) up to $0.0029 (Tier 4) per share for
qualifying orders which yield fee codes HB,\4\ HI,\5\ HV,\6\ or HY \7\
if the corresponding required criteria per tier is met.\8\ Non-
displayed add volume Tiers 1 through 4 each require that Members reach
certain ADV \9\ thresholds as compared to the TCV \10\ of non-displayed
orders that yield fee codes HB, HI, HV or HY. The Exchange notes that
the non-displayed add volume tiers
[[Page 37137]]
are designed to encourage Members that provide non-displayed liquidity
on the Exchange to meet certain order flow criteria, which would
benefit all Members by providing greater execution opportunities on the
Exchange.
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\4\ Fee code HB is appended to non-displayed orders which add
liquidity to Tape B and is provided a rebate of $0.00150.
\5\ Fee code HI is appended to non-displayed orders that receive
price improvement and adds liquidity and is free.
\6\ Fee code HV is appended to non-displayed orders which add
liquidity to Tape A and is provided a rebate of $0.00150.
\7\ Fee code HY is appended to non-displayed orders which add
liquidity to Tape C and is provided a rebate of $0.00150.
\8\ See Cboe BZX U.S. Equities Fee Schedule, Footnote 1, Add
Volume Tiers.
\9\ ``ADV'' means average daily volume calculated as the number
of shares added or removed, combined, per day, and is calculated on
a monthly basis.
\10\ ``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.
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The Exchange now proposes to modify non-displayed add volume Tiers
2 through 4 to update and ease the ADV threshold. Currently, the non-
displayed add volume Tier 1 [sic] provides a rebate of $0.0020 to a
Member that adds an ADV of greater than or equal to 0.15% of the TCV as
non-displayed orders that yield fee codes HB, HI, HV or HY. The
Exchange proposes to modify the required criteria to provide that the
Member must add an ADV of equal to or greater than 0.10% of the TCV as
non-displayed orders that yield fee codes HB, HI, HV or HY. The non-
displayed add volume Tier 3 currently provides a rebate of $0.0025 to a
Member that adds an ADV of greater than or equal to 0.25% of the TCV as
non-displayed orders that yield fee codes HB, HI, HV or HY. The
Exchange proposes to modify the required criteria to provide that the
Member must add an ADV of equal to or greater than 0.15% of the TCV as
non-displayed orders that yield fee codes HB, HI, HV or HY. Lastly, the
non-displayed add volume Tier 4 currently provides a rebate of $0.0029
to a Member that adds an ADV of greater than or equal to 0.38% of the
TCV as non-displayed orders that yield fee codes HB, HI, HV or HY. The
Exchange proposes to modify the required criteria to provide that the
Member must add an ADV of equal to or greater than 0.35% of the TCV as
non-displayed orders that yield fee codes HB, HI, HV or HY.
The proposed changes are intended to ease the applicable tier's
current criteria, which the Exchange believes will encourage Members
who could not achieve the tier previously to strive to achieve the new
criteria. To achieve the non-displayed add volume Tiers 2 through 4,
even as modified, Members are still required to meet liquidity
requirements on the Exchange, thereby contributing to a deeper and more
liquid market, which benefits all market participants. The proposed
changes continue to provide Members an opportunity to receive a rebate
and is designed to provide Members that provide non-displayed liquidity
on the Exchange a further incentive to increase that order flow, which
would benefit all Members by providing greater execution opportunities
on the Exchange. The Exchange notes the tiers, as modified, continue to
be available to all Members.
Supplemental Incentive Program Tier
The Exchange proposes to adopt a new tier under Footnote 1 (Add
Volume Tiers) that will apply to displayed orders that add liquidity in
Tape B securities (i.e., orders that yield fee code B) \11\ called the
supplemental incentive program tier. The supplemental incentive program
tier would provide an additional enhanced rebate of $0.0001 to Members
that add Tape B ADV of greater than or equal to 0.50% of the Tape B
TCV. The Exchange believes the proposed new tier will encourage Members
to increase their Displayed liquidity in Tape B securities on the
Exchange.
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\11\ Fee code B is appended to displayed orders which add
liquidity to Tape B and is provided a rebate of $0.00250.
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Step-Up Tiers
Pursuant to Footnote 2 of the fee schedule, the Exchange offers
four Step-Up Tiers that provide Members an opportunity to qualify for
an enhanced rebate on their orders that add liquidity where they
increase their relative liquidity each month over a predetermined
baseline. Under the current Step-Up Tiers, a Member receives a rebate
of $0.0030 (Tier 1), $0.0031 (Tier 2), or $0.0032 (Tier 3 and 4) per
share for qualifying orders which yield fee codes B, V,\12\ or Y \13\
if the corresponding required criteria per tier is met.\14\ Step-Up
Tiers 1 through 5 [sic] also each require that Members reach certain
Step-Up Add TCV thresholds. As currently defined in the BZX Equities
fee schedule, Step-Up Add TCV means ADAV \15\ as a percentage of TCV in
the relevant baseline month subtracted from the current ADAV as a
percentage of TCV.\16\ The Exchange notes that Step-Up Tiers are
designed to encourage Members that provide displayed liquidity on the
Exchange to increase their order flow, which would benefit all Members
by providing greater execution opportunities on the Exchange.
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\12\ Fee code V is appended to displayed orders which add
liquidity to Tape A and is provided a rebate of $0.00250 per share.
\13\ Fee code Y is appended to displayed orders which add
liquidity to Tape C and is provided a rebate of $0.00250 per share.
\14\ See Cboe BZX U.S. Equities Fee Schedule, Footnote 2, Step-
Up Tiers.
\15\ ADAV means average daily added volume calculated as the
number of shares added per day, and is calculated on a monthly
basis.
\16\ The following demonstrates how Step-Up Add TCV is
calculated: In December 2018, Member A had an ADAV of 12,947,242
shares and average daily TCV was 9,248,029,751, resulting in an ADAV
as a percentage of TCV of 0.14%; In April 2020, Member A had an ADAV
of 46,826,572 and average daily TCV was 7,093,306,325, resulting in
an ADAV as a percentage of TCV of 0.66%. Member A's Step-Up Add TCV
from December 2018 was therefore 0.52% which makes Member A eligible
for the existing Step-Up Tier 4 rebate. (i.e., 0.66% (April 2020) -
0.14% (Dec 2018), which is greater than 0.50% as required by current
Tier 4).
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The Exchange now proposes to modify Step-Up Tier 2 to add an
alternative baseline month and criteria. Currently, Step-Up Tier 2
provides that a Member will receive a rebate of $0.0031 per share for
their qualifying orders which yield fee codes B, V, or Y where the
Member has a Step-Up Add TCV from December 2018 equal to or greater
than 0.20%. The Exchange proposes to offer an alternative criteria to
provide that the Member will receive the rebate if it has a Step-Up Add
TCV from April 2020 of equal to or greater than 0.15%. The proposed
additional criteria is intended to provide alternative criteria from a
more recent month for the predetermined baseline, which the Exchange
believes is more representative of current volume trends for market
participants. The Exchange hopes these changes will encourage those
Members who could not achieve the tier previously to increase their
order flow as a means to receive the tier's enhanced rebate. To achieve
the Step-Up Tier 2, even as modified, Members are still required to
increase the amount of liquidity that they provide on BZX, thereby
contributing to a deeper and more liquid market, which benefits all
market participants. The proposed change continues to provide Members
an opportunity to receive a rebate and is designed to provide Members
that provide displayed liquidity on the Exchange a further incentive to
increase that order flow, which would benefit all Members by providing
greater execution opportunities on the Exchange. The Exchange notes the
tier, as modified, continues to be available to all Members.
The Exchange also proposes to adopt an additional Step-Up Tier
(Step-Up Tier 5), which would provide Members an enhanced rebate of
$0.0033 per share where the Member has a Step-Up Add TCV from April
2020 of equal to or greater than 0.30%. The Exchange notes that the
proposed Step-Up Tier 5 provides Members an additional way to qualify
for an enhanced rebate where they increase their relative liquidity
each month over a predetermined baseline, which would benefit all
Members by providing greater execution opportunities on the Exchange.
The Exchange notes the proposed tier will be available to all Members.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 37138]]
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, issuers and other persons using its
facilities. 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 changes reflect 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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\17\ 15 U.S.C. 78f.
\18\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes the proposed changes to non-
displayed add volume tiers 2 through 4 are reasonable because they will
ease the tier's current criteria while continuing to provide an
opportunity for Members to receive an enhanced rebate. The Exchange
believes the proposed change to Step-Up Tier 2 is reasonable because it
provides Members an alternate criteria to achieve the tier based on
more recent volume trends. The Exchange also believes the proposals to
adopt the supplemental incentive program tier and Step-Up Tier 5 are
reasonable because they will provide an additional opportunity for
Members to receive an enhanced rebate. The Exchange notes that volume-
based incentives (including relative volume-based incentives) and
discounts have been widely adopted by exchanges,\19\ including the
Exchange,\20\ 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/or (ii) associated higher
levels of 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 maker-taker 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.\21\
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\19\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up
Tiers.
\20\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule,
Footnote 1, Add Volume Tiers, and Footnote 2, Step-Up Tiers 1-4.
\21\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up
Tiers which offers rebates between $0.0022-$0.0034 per share if the
corresponding required criteria per tier is met. NYSE Arca Equities'
Step Up Tiers similarly require Members to increase their relative
liquidity each month over a predetermined baseline.
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The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
Members are eligible for the proposed tiers and have a reasonable
opportunity to meet the tier's criteria. Further, the proposed
modifications to non-displayed add volume tiers 2 through 4 are less
stringent than the current criteria, while the proposed modification to
Step-Up Tier 2 provides an alternative criteria for Members to meet the
tier threshold. Without having a view of Members' 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 the proposed tiers. While the Exchange has no
way of predicting with certainty how the proposed changes will impact
Member activity, based on this month's data to date, the Exchange
expects at least two Members to reasonably compete for and satisfy each
of the proposed modified non-displayed add volume tiers 2 through 4
\22\ and expects at least two Members to reasonably and compete for and
satisfy proposed Step-Up Tiers 2 and 5.\23\ Additionally, the Exchange
expects three Members to reasonably compete for and satisfy the
proposed supplemental incentive program tier. The Exchange also notes
that the proposal will not adversely impact any Member's pricing or
their ability to qualify for other rebate tiers. Rather, should a
Member not meet the proposed criteria, the Member will merely not
receive an enhanced rebate. Furthermore, the proposed rebate would
apply to all Members that meet the applicable required criteria.
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\22\ Based on this month's data to date, one Member has achieved
the non-displayed add volume tier 2, while no Member has achieved
non-displayed add volume tiers 3 and 4.
\23\ Based on this month's data to date, no Member has achieved
the Step-Up Tier 2.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
not [sic] 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 changes 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
individual stocks for all types of orders, large and small.'' \24\
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\24\ 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 not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes apply to all Members equally in that all Members are eligible
for the proposed tiers and will all receive the applicable proposed
rebate if such criteria is met. Additionally, the proposed change is
designed to attract additional order flow to the Exchange. The Exchange
believes that the proposed changes to non-displayed add volume tiers 2
through 4 would incentivize market participants to direct non-displayed
order flow to the Exchange as the proposed criteria is less stringent
than the current criteria. The Exchange also believes the proposed
change to Step Up Tier 2 would encourage market participants to direct
liquidity adding volume to the Exchange as it provides alternative
criteria, in addition to the existing criteria, that would allow
Members to achieve the tier threshold. Lastly, the Exchange believes
the proposals to adopt Step-Up Tier 5 and the supplemental incentive
program tier will incentivize Members to grow their volume on the
Exchange and add volume in Tape B securities, respectively. Greater
liquidity benefits all market participants on the Exchange by providing
more trading opportunities and encourages Members to send orders,
thereby contributing to robust levels of liquidity, which benefits all
market participants.
Next, the Exchange believes the proposed rule changes do 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
[[Page 37139]]
venues that they may participate on and direct their order flow,
including 13 other equities exchanges and off-exchange venues,
including 32 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 20% of
the market share.\25\ 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.'' \26\ 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'. . . .''.\27\
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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\25\ See Cboe Global Markets U.S. Equities Market Volume Summary
(May 28, 2020), available at http://markets.cboe.com/us/equities/market_share/.
\26\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\27\ 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 \28\ and paragraph (f) of Rule 19b-4 \29\
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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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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-2020-047 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-2020-047. 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-2020-047, and should be
submitted on or before July 10, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13205 Filed 6-18-20; 8:45 am]
BILLING CODE 8011-01-P