[Federal Register Volume 85, Number 199 (Wednesday, October 14, 2020)]
[Notices]
[Pages 65124-65127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22706]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90123; File No. SR-CboeBZX-2020-073]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Rebate Tiers in the Fee Schedule

October 8, 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 October 5, 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.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of the 
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 amend certain Step-Up 
Tiers.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed fee changes on 
October 1, 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 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 $0.0020 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

[[Page 65125]]

discounts for satisfying increasingly more stringent criteria.
    One of the tiered pricing models is set forth in Footnote 2 of the 
fee schedule (Step-Up Tiers), which provides 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. Tier 1 of the Step-Up Tiers provides an enhanced rebate of 
$0.0030 per share for Members with Step-Up Add TCV \4\ from April 2019 
equal to or greater than 0.05%. Tier 2 of the Step-Up Tiers provides an 
enhanced rebate of $0.0032 per share for Members that have an MPID that 
(1) has a Step-Up Add TCV from May 2019 equal to or greater than 0.10% 
and (2) has an ADAV \5\ as a percentage of TCV equal or greater than 
0.25%. Lastly, Step-Up Tier 3 provides an enhanced rebate of $0.0033 
per share where a Member has a Step-Up Add TCV from April 2020 equal to 
or greater than 0.30%. 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.
---------------------------------------------------------------------------

    \4\ ``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.
    \5\ ``ADAV'' means average daily added volume calculated as the 
number of shares added per day.
---------------------------------------------------------------------------

    The Exchange first proposes to eliminate Step-Up Tier 1. The 
Exchange no longer wishes to, nor is it required to, maintain such tier 
and therefore proposes to eliminate Step-Up Tier 1 from the fee 
schedule and re-number Step-Up Tiers 2 and 3 to reflect the elimination 
of Step-Up Tier 1. Specifically, the proposed rule change removes this 
tier as the Exchange would rather redirect resources and funding into 
other programs and tiers intended to incentivize increased order flow. 
The Exchange next proposes to amend one of the criteria required under 
current Step-Up Tier 2 (proposed to be renumbered to Step-Up Tier 1). 
Particularly, the Exchange proposes to change the threshold of ADAV 
(i.e., add volume) as a percentage of TCV requirement in the second 
prong to a threshold of ADV \6\ (i.e., add and remove volume) of TCV 
and also change the threshold amount from 0.25% to 0.50%. (i.e., the 
second prong will require that a Member's MPID increase their overall 
order flow, both adding and removing liquidity, as a percentage greater 
than or equal to 0.50% of the TCV). The Exchange believes the proposed 
change incentivizes increased overall order flow to the Book, which may 
contribute to a deeper, more liquid market to the benefit of all market 
participants by creating a more robust and well-balanced market 
ecosystem. Additionally, to achieve the Step-Up Tier 2, even as 
modified (to be renumbered to Step-Up Tier 1), Members are still 
required to increase the amount of liquidity that they provide on BZX 
on an MPID basis, thereby contributing to a deeper and more liquid 
market, which benefits all market participants. The Exchange also notes 
that Step-Up 2 tier (to be renumbered to Step-Up Tier 1), as modified, 
continues to be available to all Members and provide Members an 
opportunity to receive an enhanced rebate, albeit using a more 
stringent criteria. Moreover, the amount of the current enhanced 
rebates under Step-Up Tiers 2 and 3 (to be renumbered to Step-Up Tiers 
1 and 2) are not changing (i.e., the Exchange proposes to change only 
the criteria under current Step-Up Tier 2).
---------------------------------------------------------------------------

    \6\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day. ADAV and ADV are 
calculated on a monthly basis.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\7\ in general, and 
furthers the objectives of Section 6(b)(4),\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed amendment to 
remove Step-Up Tier 1 is reasonable because the Exchange is not 
required to maintain this tier and Members still have a number of other 
opportunities and a variety of ways to receive enhanced rebates for 
displayed liquidity adding orders, including via the existing Step-Up 
Tiers 2 and 3 (to be renumbered to Step-Up Tiers 1 and 2). The Exchange 
believes the proposal to eliminate this tier is also equitable and not 
unfairly discriminatory because it applies to all Members (i.e., the 
tier won't be available for any Member). The Exchange notes that in the 
past several members satisfied Step-Up Tier 1, but that more recently 
one Member satisfied Step-Up Tier 1. The Exchange also notes that the 
proposed change does not preclude any Member, including the Member that 
was receiving the rebate under Step-Up Tier 1, from achieving the 
remaining Step-Up tiers to qualify for the remaining enhanced rebates 
or other available enhances rebates under other incentive tiers.\9\ 
Additionally, that Member is still entitled to a rebate for its 
displayed orders adding liquidity (i.e., the standard rebate), albeit a 
rebate that is lower than the amount under Step-Up Tier 1. The proposed 
rule change merely results in a Member not receiving a particular 
enhanced rebate, which as noted above, the Exchange is not required to 
offer or maintain. Additionally, as noted above, the Member, along with 
all Members, are eligible to qualify for the remaining Step-Up Tier 
rebates should they satisfy the respective criteria.
---------------------------------------------------------------------------

    \9\ See e.g., Cboe BYX Equities Fee Schedule, Footnote 1, which 
provides various Add/Remove Volume Tiers applicable to fee codes B, 
V, and Y.
---------------------------------------------------------------------------

    The Exchange believes that the proposed modification to the 
criteria in Step-Up Tier 2 (to be renumbered to Step-Up Tier 1) is 
reasonable because the tier continues to provide an opportunity for 
Members to receive an enhanced rebate (which amount is not changing), 
albeit using more stringent criteria. The Exchange notes that relative 
volume-based incentives and discounts have been widely adopted by 
exchanges,\10\ including the Exchange,\11\ 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 growth patterns. Additionally, as 
noted above, the Exchange operates in highly competitive market. The 
Exchange is only one of 16 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

[[Page 65126]]

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.\12\
---------------------------------------------------------------------------

    \10\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up 
Tiers.
    \11\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 2, Step-Up Tiers 1-3.
    \12\ 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.
---------------------------------------------------------------------------

    Moreover, the Exchange believes the Step-Up Tier 2 (to be 
renumbered Step-Up Tier 1) continues to be a reasonable means to 
encourage Members to increase their liquidity on the Exchange based on 
increasing their relative volume above a predetermined baseline on an 
MPID basis and now will also incentivize increased overall order flow 
on an MPID basis. 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 the enhanced 
corresponding rebate is still reasonable based on the difficulty of 
satisfying the tier's criteria, even as modified, and appropriately 
reflects the incremental difficulty to achieve the existing Step-Up 
Tiers.
    The Exchange believes that the proposed change to Step-Up Tier 2 
(to be renumbered Step-Up Tier 1) represents an equitable allocation of 
fees and is not unfairly discriminatory because all Members will be 
eligible for the tier, even as modified, and the corresponding enhanced 
rebate will apply uniformly to all Members that reach the proposed tier 
criteria. That is, the proposed tier is designed as an incentive to any 
and all Members interested in meeting the tier criteria to submit 
additional order flow to the Exchange and each will receive the 
proposed enhanced rebate if the tier criteria is met. Additionally, the 
Exchange believes that a couple of Members have a reasonable 
opportunity to satisfy the tier's criteria, even as modified. While the 
Exchange has no way of knowing whether this proposed rule change would 
definitively result in any particular Member qualifying for the 
proposed tier, the Exchange anticipates at least two to three Members 
meeting, or being reasonably able to meet, the proposed criteria; 
however, the proposed tier is open to any Member that satisfies the 
tier's criteria. The Exchange also notes that the proposed change 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 the corresponding enhanced 
rebate.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
not 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 increased overall order flow to the Book, 
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.'' \13\
---------------------------------------------------------------------------

    \13\ 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 
changes apply to all Members equally and all Members are eligible for 
the enhanced rebates offered for Step-Up Tiers 2 and 3 (to be 
renumbered to Step-Up Tiers 1 and 2, respectively) and will all receive 
the enhanced rebate if such criteria is met. Additionally, the proposed 
change is designed to attract additional adding and removing order flow 
to the Exchange. 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 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 15 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 19% of the market share.\14\ 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.'' \15\ 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'. . . .''.\16\ 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.
---------------------------------------------------------------------------

    \14\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(September 28, 2020), available at http://markets.cboe.com/us/equities/market_share/.
    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \16\ 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)).
---------------------------------------------------------------------------

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.

[[Page 65127]]

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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-CboeBZX-2020-073 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-2020-073. 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-2020-073 and should be submitted 
on or before November 4, 2020.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22706 Filed 10-13-20; 8:45 am]
BILLING CODE 8011-01-P