[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]
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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.
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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 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\
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\3\ The Exchange initially filed the proposed fee changes on
October 1, 2020.
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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 $0.0020 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.
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\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.
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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).
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\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.
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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,\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.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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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.
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\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.
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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\
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\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.
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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\
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\13\ 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 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.
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\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)).
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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.
[[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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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-2020-073 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.
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\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