[Federal Register Volume 85, Number 221 (Monday, November 16, 2020)]
[Notices]
[Pages 73091-73095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25182]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90379; File No. SR-CboeBZX-2020-079]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Fees Schedule

November 9, 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 November 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 its Fee Schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the

[[Page 73092]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (``BZX Options''), effective November 2, 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 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 18% of the market share and 
currently the Exchange represents less than 8% of the market share.\3\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange, including the Exchange, possesses significant 
pricing power in the execution of option order flow. The Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow, or discontinue to reduce use of certain categories of products, 
in response to fee changes. Accordingly, competitive forces constrain 
the Exchange's transaction fees, and market participants can readily 
trade on competing venues if they deem pricing levels at those other 
venues to be more favorable. The Exchange's fee schedule sets forth 
standard rebates and rates applied per contract. For example, the 
Exchange assesses a standard rebate of $0.29 per contract for Market 
Maker orders that add liquidity in Penny Pilot Securities and a 
standard rebate of $0.40 per contract in Non-Penny Pilot Securities. 
Additionally, in response to the competitive environment, the Exchange 
also offers tiered pricing, as discussed in further detail in the 
following paragraphs, 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. For example, the Exchange currently offers 10 
Market Maker Penny Add Volume Tiers (``MM Penny Add Tier'') under 
footnote 6 of the fee schedule which provide rebates between $0.33 and 
$0.46 per contract for qualifying Market Maker orders which meet 
certain add liquidity thresholds and yield fee code PM.\4\
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
(October 29, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
    \4\ Orders yielding fee code PM are Market Maker orders that add 
liquidity in Penny Pilot securities.
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    The Exchange proposes to adopt two new MM Penny Add Tiers, 
specifically Tiers 9 and 10.\5\ First, the Exchange proposes to adopt 
new MM Penny Add Tier 9, which will provide Members an additional 
opportunity and alternative means to receive an enhanced rebate for 
meeting the corresponding proposed criteria. Particularly, proposed MM 
Penny Add Tier 9 would provide an enhanced rebate of $0.43 per contract 
where a Member (1) has an ADAV \6\ in Market Maker orders greater than 
or equal to 0.15% of average OCV; \7\ (2) has a Step Up ADAV in Market 
Maker orders from September 2020 greater than or equal to 0.10% of 
average OCV; (3) has on BZX Equities an ADV \8\ greater than or equal 
to 0.60% of average TCV; \9\ and (4) has on BZX Equities a Step Up ADV 
from September 2020 greater than or equal to 0.05% of average TCV. 
Proposed MM Penny Add Tier 10 would provide an enhanced rebate of $0.44 
per contract where a Member (1) has an ADAV in Market Maker orders 
greater than or equal to 0.20% of average OCV; (2) has a Step Up ADAV 
in Market Maker orders from September 2020 greater than or equal to 
0.15% of average OCV; (3) has on BZX Equities an ADV greater than or 
equal to 0.60% of average TCV; and (4) has on BZX Equities a Step Up 
ADV from September 2020 greater than or equal to 0.10% of average 
TCV.\10\ The Exchange believes the proposed tiers, along with the 
existing tiers, continue to provide an incremental incentive for 
Members to strive for the highest tier levels, which provide 
increasingly higher rebates for such transactions. Additionally, the 
Exchange notes two of the prongs of the proposed criteria in both tiers 
are similar to the criteria set forth in MM Penny Add Tier 9.\11\ 
Particularly, those thresholds include a threshold relating to ADAV in 
Market Maker orders and a cross-asset threshold, which is designed to 
incentivize Members to achieve certain levels of participation on both 
the Exchange's options and equities platform (``BZX Equities''). The 
Exchange also proposes to add step-up ADAV thresholds (one relating to 
just options volume and the other equities volume), both of which are 
designed to encourage growth (i.e., Members must increase their 
relative liquidity each month over a predetermined baseline (in this 
case the month being September 2020)). Overall, the proposed enhanced 
rebates and corresponding criteria is designed to encourage Members to 
increase their order flow, thereby contributing to a deeper and more 
liquid market, which benefits all market participants and provides 
greater execution opportunities on the Exchange.
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    \5\ The Exchange would renumber current MM Penny Add Tiers 9 and 
10 to MM Penny Add Tiers 11 and 12, respectively.
    \6\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added.
    \7\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
    \8\ ``ADV'' means average daily volume calculated as the number 
of shares added to, removed from, or routed by, the Exchange, or any 
combination or subset thereof, per day. ADV is calculated on a 
monthly basis.
    \9\ ``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.
    \10\ The Exchange also proposes to add the proposed rebate 
amounts to the Standard Rates Table. The Exchange notes that 
although current MM Penny Add Tier 9 offers a rebate of $0.44 per 
share, the Exchange inadvertently omitted to add that rate to the 
Standard Rates Table previously.
    \11\ See BZX Options Fees Schedule, current Tier 9 of the Market 
Maker Penny Add Volume Tiers (footnote 6).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\12\ in general, and furthers the 
requirements of Section 6(b)(4),\13\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers. The Exchange operates 
in a highly-competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or incentives to be insufficient. The 
proposed rule changes reflect a competitive pricing structure designed 
to incentivize market participants to direct their order flow to

[[Page 73093]]

the Exchange, which the Exchange believes would enhance market quality 
to the benefit of all Members.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed Market Maker 
Penny Add Volume Tiers are reasonable because they provides additional 
opportunities for Members to receive a higher rebate by providing 
alternative criteria for which they can reach. The Exchange notes that 
volume-based incentives and discounts have been widely adopted by 
exchanges,\14\ including the Exchange,\15\ and are reasonable, 
equitable and non-discriminatory because they are open to all Members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in a highly competitive market. The 
Exchange is only one of several options venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. Competing options exchanges offer 
similar tiered pricing structures to that of the Exchange, including 
schedules of rebates and fees that apply based upon Members achieving 
certain volume and/or growth thresholds. These competing pricing 
schedules, moreover, are presently comparable to those that the 
Exchange provides.
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    \14\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.01 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
    \15\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 6 and 7, Market Maker Penny Pilot and Non-Penny Pilot 
Volume Tiers which provide enhanced rebates for Market Maker orders 
where Members meet certain volume thresholds.
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    Moreover, the Exchange believes the proposed MM Penny Add Tiers 9 
and 10 are a reasonable means to encourage Members to increase their 
liquidity on the Exchange and also their participation on BZX Equities. 
The Exchange believes that adopting tiers with alternative criteria to 
the existing Market Maker Volume Tiers may encourage those Members who 
could not previously achieve the criteria under existing Market Maker 
Volume Tiers 9 and 10 (proposed to be renumbered to Tiers 11 and 12) to 
increase their order flow on BZX Options and Equities. For example, the 
proposed tiers would provide an opportunity for Members who have an 
ADAV in Market Makers Orders of at least 0.15% of average OCV, but less 
than the more stringent 0.50% of average OCV (the requirement under 
current Tier 9, i.e. new Tier 11), to receive a higher rebate than they 
may currently receive but slightly lower than the rebate they would 
receive for reaching the more stringent criteria under current Tier 9 
(new Tier 11), if they also meet the threshold requirement based on BZX 
Equities participation and can grow a modest amount since September 
2020. Similarly, for Market Makers that participate on both BZX Options 
and Equities, and do not currently meet the 1.00% ADAV threshold under 
current Tier 9 (i.e., new Tier 11), but can or do meet the proposed 
equities ADV threshold, the proposed tier may incentivize those 
participants to grow their options volume in order to receive enhanced 
rebates. Increased liquidity benefits all investors by deepening the 
Exchange's liquidity pool, offering additional flexibility for all 
investors to enjoy cost savings, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection. The Exchange also believes that proposed enhanced rebates 
are reasonable based on the difficulty of satisfying the tiers' 
criteria and ensures the proposed rebates and thresholds appropriately 
reflect the incremental difficulty to achieve the existing MM Penny Add 
Tiers. The proposed enhanced rebate amounts also do not represent a 
significant departure from the enhanced rebates currently offered under 
the Exchange's existing MM Penny Add Tiers. Indeed, the proposed 
enhanced rebate amount under proposed MM Penny Add Tier 9 ($0.43) is 
incrementally higher than current Tiers 7 and 8 ($0.42), which the 
Exchange believes offer slightly less stringent criteria than the 
proposed Tier 9, but is incrementally lower than the rebate offered 
under existing Tier 9 (i.e., new Tier 11) ($0.44), which the Exchange 
believes is more stringent than the proposed criteria under proposed 
Tier 9. Similarly, the proposed enhanced rebate amount under proposed 
MM Penny Add Tier 10 ($0.44) is the same as current Tier 9 (i.e., new 
Tier 11) ($0.44), which the Exchange believes reflects a similar level 
of difficulty but using alternative types of criteria. The Exchange 
also notes that the proposed rebates remain within the range of the 
enhanced rebates offered under the current MM Penny Add Tiers (i.e., 
$0.33-$0.46).
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Market Makers. Additionally, a number of 
Market Makers have a reasonable opportunity to satisfy proposed Tier 
9's criteria, which the Exchange believes is less stringent than the 
existing Market Maker Add Penny Tiers 9 and 10 (new Tiers 11 and 12) 
and proposed Tier 10. The Exchange also believes a number of Market-
Makers have a reasonable opportunity to satisfy proposed Tier 10's 
criteria, which the Exchange believes has a similar level of difficulty 
to current Tier 10 (new Tier 12) but using alternative types of 
criteria. While the Exchange has no way of knowing whether this 
proposed rule change would definitively result in any particular Market 
Maker qualifying for the proposed tiers, the Exchange anticipates that 
approximately two Market Makers will be able to compete for and achieve 
the proposed criteria in either proposed Tier 9 or Tier 10; however, 
the proposed tiers are open to any Market-Maker that satisfies the 
applicable tier's criteria. The Exchange believes the proposed tiers 
could provide an incentive for other Members to submit additional 
liquidity on BZX Options and Equities to qualify for the proposed 
enhanced rebates. To the extent a Member participates on the Exchange 
but not on BZX Equities, the Exchange does believe that the proposal is 
still reasonable, equitably allocated and non-discriminatory with 
respect to such Member based on the overall benefit to the Exchange 
resulting from the success of BZX Equities. Particularly, the Exchange 
believes such success allows the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on BZX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in BZX Equities is available to all market 
participants, which would provide them with access to the benefits on 
BZX Equities provided by the proposed change, even where a member of 
BZX Equities is not necessarily eligible for the proposed enhanced 
rebates on the Exchange.
    The Exchange lastly notes that it does not believe the proposed 
tiers will adversely impact any Member's pricing or ability to qualify 
for other tiers. Rather, should a Member not meet the proposed 
criteria, the Member will merely not receive the proposed enhanced 
rebates, and has ten alternative choices (including eight with criteria 
the Exchange believes is less stringent) to aim to achieve under the MM 
Penny Add Tiers. Furthermore, the proposed enhanced rebates would apply

[[Page 73094]]

to all Members that meet the required criteria under proposed tiers.

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 
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.'' \16\
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    \16\ 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 
change applies uniformly to all Market Makers. As discussed above, to 
the extent a Member participates on the Exchange but not on BZX 
Equities, the Exchange notes that the proposed change can provide an 
overall benefit to the Exchange resulting from the success of BZX 
Equities. Such success enables the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on BZX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in BZX Equities is available to all market 
participants. Additionally, the proposed change is designed to attract 
additional order flow to the Exchange and BZX Equities. 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 participant.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 18% of the market 
share. Therefore, no exchange possesses significant pricing power in 
the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \17\ 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' . . . .''.\18\ 
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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    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \18\ 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 \19\ and paragraph (f) of Rule 19b-4 \20\ 
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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-2020-079 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-2020-079. 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

[[Page 73095]]

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-2020-079 and should be submitted on or before December 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25182 Filed 11-13-20; 8:45 am]
BILLING CODE 8011-01-P