[Federal Register Volume 86, Number 35 (Wednesday, February 24, 2021)]
[Notices]
[Pages 11372-11375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03725]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91151; File No. SR-CboeBZX-2021-016]


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

February 18, 2021.
    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 February 10, 2021, 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 the Fee Schedule applicable to its 
equities trading platform (``BZX Equities'') to expand the Lead Market 
Maker (``LMM'') Pricing provided under footnote 14 to include new 
paragraph (B) entitled ``LMM Add Liquidity Rebate.'' Specifically, the 
Exchange is proposing a new rebate for LMMs in higher volume BZX-listed 
securities that is designed to allow an LMM to opt-in to a more 
traditional LMM incentive than the Exchange's current LMM pricing 
model. As proposed, the LMM Add Liquidity Rebate would provide an 
enhanced per share rebate for those BZX-listed securities that meet 
certain volume thresholds, for which the LMM opts for the security to 
be included in the LMM Add Liquidity Rebate, and for which the security 
is a Qualified Security.\3\ The proposed rebate is

[[Page 11373]]

designed to create a more comprehensive liquidity provision program to 
incentivize LMMs to provide enhanced market quality across all BZX-
listed securities, including in higher volume securities where 
transaction-based incentives may better incentivize liquidity provision 
than current programs.\4\
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    \3\ As provided in the Fee Schedule, a ``Qualified Security'' 
refers to a BZX-listed security for which the applicable LMM is a 
Qualified LMM. ``Qualified LMM'' means an LMM that meets the Minimum 
Performance Standards.
    \4\ The Exchange initially filed the proposed fee changes 
February 1, 2021 (SR-CboeBZX-2021-015). On February 10, 2021, the 
Exchange withdrew that filing and submitted this proposal.
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    The Exchange also proposes to re-letter existing paragraphs (B) and 
(C) based on the new proposed paragraph, make a ministerial change to 
the definition of ``Qualified LMM'' in the Fee Schedule, and eliminate 
the Market Depth Tier provided under footnote 1 of the Fee Schedule.
    The Exchange currently offers LMM Liquidity Provision Rates which 
provide LMMs daily incentives that are based on whether the LMM meets 
certain performance based criteria (i.e., the applicable Minimum 
Performance Standard \5\).\6\ Specifically, the Exchange provides each 
LMM with a daily incentive based on how many Qualified Securities or 
Enhanced Securities \7\ the LMM has and the average aggregate daily 
auction volume in the BZX-listed securities for which it is an LMM 
(``LMM Securities''). The LMM Liquidity Provision Rates were 
implemented to incentivize LMMs to meet the Minimum Performance 
Standards across all of their LMM Securities, especially for newly 
listed and other lower volume securities.
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    \5\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum 
Performance Standards'' means a set of standards applicable to an 
LMM that may be determined from time to time by the Exchange. Such 
standards will vary between LMM Securities depending on the price, 
liquidity, and volatility of the LMM Security in which the LMM is 
registered. The performance measurements will include: (A) Percent 
of time at the NBBO; (B) percent of executions better than the NBBO; 
(C) average displayed size; and (D) average quoted spread. The Fee 
Schedule currently references Rule 11.8(e)(1)(D) rather than 
11.8(e)(1)(E), and as discussed herein, the Exchange is proposing to 
amend the Fee Schedule to reference Rule 11.8(e)(1)(E).
    \6\ The current Minimum Performance Standards include: (i) 
Registration as a market maker in good standing with the Exchange; 
(ii) time at the inside requirements (generally between 3% and 15% 
of Regular Trading Hours for Qualified Securities and between 5% to 
50% for Enhanced Securities, depending on the average daily volume 
of the applicable LMM Security); (iii) auction participation 
requirements (generally requiring that the auction price is between 
3% and 5% of the last Reference Price, as defined in Rule 
11.23(a)(19), for a Qualified Security and 1%-3% for an Enhanced 
Security (the ``Enhanced Auction Range''); (iv) market-wide NBB and 
NBO spread and size requirements (generally requiring between 200 
and 750 shares at both the NBB and NBO for both Qualified Securities 
and Enhanced Securities with an NBBO spread between 1% and 10% for a 
Qualified Security and .25% to 4% for Enhanced Securities, depending 
on price of the security and underlying asset class); and (v) depth 
of book requirements (generally requiring between $25,000 and 
$250,000 of displayed posted liquidity for both Qualified Securities 
and Enhanced Securities within 1% to 10% of both the NBB and NBO for 
Qualified Securities and 0.25% and 5% for Enhanced Securities, 
depending on price of the security and underlying asset class). See 
Securities Exchange Act No. 86213 (June 27, 2019) 84 FR 31951 (July 
3, 2019) (SR-CboeBZX-2019-058) (the ``Original Filing''). The 
Exchange notes that as of February 1, 2021, the Enhanced Auction 
Range will be .50%-3%. The Original Filing provides that ``[b]efore 
diverging significantly from the ranges described above, the 
Exchange will submit a rule filing to the Commission describing such 
proposed changes.'' The Exchange does not believe that this change 
represents a ``significant divergence'' but is instead noting the 
change in order to provide transparency regarding the current state 
of the Minimum Performance Standards.
    \7\ An ``Enhanced Security'' refers to a BZX-listed security 
which meets certain enhanced qualifying market quality standards.
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    Now, the Exchange is proposing to offer an opt-in LMM Add Liquidity 
Rebate of $0.0039 per share to an LMM \8\ that elects to participate in 
the program for a particular Qualified Security. As proposed, an LMM 
that opts to participate in the LMM Add Liquidity Rebate for a 
particular LMM Security would not receive the otherwise applicable 
Liquidity Provision Rate that it would receive under the program today. 
In order to be eligible for the proposed rebate, the LMM Security must 
first have a consolidated average daily volume (``CADV'') \9\ of at 
least 1,000,000 shares (the ``CADV Requirement'').\10\ Specifically, an 
LMM may opt in to the program for the next calendar month if an LMM 
Security has a CADV of at least 1,000,000 shares during the prior 
month. For example, if an LMM Security has a CADV of at least 1,000,000 
shares for the month of December 2020, the LMM may opt in to the LMM 
Add Liquidity Rebate for that security during January 2021, which would 
apply to its trading in the LMM Security for the month of February 
2021. If the LMM Security does not meet the CADV Requirement for a 
given month, the LMM Security will be automatically un-enrolled from 
the LMM Add Liquidity Rebate. Like the LMM Liquidity Provision Rates, 
the LMM must meet the Minimum Performance Standards applicable to 
Qualified Securities.
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    \8\ Like the Standard and Enhanced Rates provided under the 
existing LMM Liquidity Provision Rates (i.e., paragraph (A) of 
footnote 14), the proposed rebate would apply only to MPIDs that are 
LMMs.
    \9\ ``CADV'' means consolidated average daily volume calculated 
as the average daily volume reported for a security by all exchanges 
and trade reporting facilities to a consolidated transaction 
reporting plan for the three calendar months preceding the month for 
which the fees apply and excludes volume on days when the market 
closes early and on the Russell Reconstitution Day.
    \10\ New listings and transferred listings made during a given 
month will not be eligible for the LMM Add Liquidity Rebate during 
that month.
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    For example, assume an LMM opts in to the proposed program for the 
month of February 2021 in symbol ABCD. If the LMM meets the Minimum 
Performance Standards for a given trading day, the MPID would receive a 
rebate per share of $0.0039 in symbol ABCD instead of the rebate 
normally applied to the Member's trading in the symbol, which could 
range from $0.0020 to $0.0033 per share. On any trading day in which 
the LMM does not meet the Minimum Performance Standards in symbol ABCD, 
the MPID would receive the rebate normally applied to the Member's 
trading in the symbol. While opting in to the LMM Add Liquidity Rebate 
would preclude the LMM from receiving the LMM Liquidity Provision Rates 
for the elected LMM Security, it would not preclude an LMM from 
achieving other incentives (e.g., LMM Add Volume Tiers).
    As discussed above, the LMM Add Liquidity Rebate would be available 
on a symbol-by-symbol basis for LMM Securities meeting the CADV 
Requirement. For any security that the LMM does not opt in to the LMM 
Add Liquidity Rebate, the LMM will continue to participate in the 
Liquidity Provision Rates by default. An LMM may opt in to the LMM Add 
Liquidity Rebate program instead of the default LMM Liquidity Provision 
Rates program for a given LMM Security for the following calendar 
month. By default, an LMM will be subject to the LMM Liquidity 
Provision Rates unless it opts in to the LMM Add Liquidity Rebate. 
Specifically, if an LMM Security is eligible for the LMM Add Liquidity 
Rebate (i.e., meets the CADV Requirement), an LMM will be able to 
enroll the LMM Security in the program via the Exchange's ETP Portal. 
LMM Securities that do not meet the CADV Requirement will be ineligible 
for the program and will not be available for selection in the ETP 
Portal. Further, LMM elections will remain the same as the prior month 
unless changed by the LMM or the LMM Security fails to meet the CADV 
Requirement.\11\
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    \11\ An LMM must opt in to the LMM Add Liquidity Rebate each 
time a Qualified Security is eligible for the rebate after having 
failed to meet the CADV Requirement during the prior month(s).
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    In addition to the above, the Exchange proposes three additional 
modifications to the Fee Schedule. First, the Exchange proposes to re-
letter existing paragraphs (B) and (C) under footnote 14 based on the 
proposed amendment to add a new

[[Page 11374]]

paragraph (B). Second, the Exchange proposes to make a ministerial 
change to the definition of ``Qualified LMM'' in the Fee Schedule to 
reference Rule 11.8(e)(1)(E) instead of (D). Third, the Exchange 
proposes to eliminate the Market Depth Tier provided under Footnote 1 
of the Fee Schedule. The proposal will have no impact on Members as no 
Member has recently met the Market Depth Tier.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\13\ in 
particular, as it is designed to provide for the equitable allocation 
of reasonable dues, fees and other charges among its Members and other 
persons using its facilities. The Exchange also notes that its listing 
business operates in a highly competitive market in which market 
participants, which includes both issuers and LMMs, can readily 
transfer their listings or opt not to participate, respectively, if 
they deem fee levels, liquidity provision incentive programs, or any 
other factor at a particular venue to be insufficient or excessive. The 
proposed rule changes reflect a competitive pricing structure designed 
to incentivize issuers to list new products and transfer existing 
products to the Exchange and market participants to enroll and 
participate as LMMs on the Exchange, which the Exchange believes will 
enhance market quality in all securities listed on the Exchange.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposal to adopt incentives based 
on both Minimum Performance Standards and transactions under the LMM 
Add Liquidity Rebate is a reasonable means to incentivize market 
quality in securities listed on the Exchange. The marketplace for 
listings is extremely competitive and there are several other national 
securities exchanges that offer listings. Transfers between listing 
venues occur frequently for numerous reasons, including market quality. 
As noted above, the LMM Add Liquidity Rebate allows the Exchange to 
offer LMM pricing comparable to other traditional LMM programs 
available on other listing venues and, as such, this proposal is 
intended to help the Exchange compete as a listing venue. Further, the 
Exchange notes that the proposed incentives are not transaction fees, 
nor are they fees paid by participants to access the Exchange. Rather, 
the proposed payments are based on achieving certain objective market 
quality and transaction-based metrics.
    As stated above, the proposed rebate would continue to encourage 
LMMs to meet the Minimum Performance Standards for Qualified 
Securities, but would provide the potential for additional incentives 
for higher volume securities. The proposed rebate would provide LMMs 
with the flexibility to opt in to an additional pricing program that 
better incentivizes LMMs to meet certain market quality metrics in 
higher volume securities, which, when coupled with the existing LMM 
Liquidity Provision Rates, would provide a more comprehensive program 
to incentivize LMMs to provide enhanced market quality across all LMM 
Securities. Specifically, the LMM Liquidity Provision Rates are 
designed to incentivize LMMs to meet the Minimum Performance Standards 
in lower volume securities where transaction-based incentives may not 
sufficiently incentivize liquidity and the proposed LMM Add Liquidity 
Rates would incentivize LMMs to meet the Minimum Performance Standards 
in higher volume securities through the potential of greater economic 
benefits, which the Exchange believes is reasonable. The Exchange 
believes the proposal will benefit all investors by both increasing 
competition among LMMs in higher volume securities and leading to 
tighter and deeper markets to the benefit of all market participants.
    The Exchange believes that it is reasonable only for securities 
that meet the CADV Requirement to be eligible for the LMM Add Liquidity 
Rates because the Exchange does not want to disincentivize LMMs in 
lower volume securities from meeting the standards applicable to 
Enhanced Securities. Such lower volume securities generally benefit 
more from LMMs meeting the standards applicable to Enhanced Securities 
and the Exchange believes that it is reasonable to continue to require 
LMMs in securities that do not meet the CADV Requirement to meet such 
standards in order to maximize their daily payment.
    The Exchange believes that it is reasonable to offer the LMM Add 
Liquidity Rates only for securities that meet the CADV Requirement, 
because the Exchange generally makes more revenue the greater the 
trading volume in the trading volume [sic]. Specifically, as the 
proposed incentives are available only in LMM Securities that meet the 
CADV Requirement, the incentives are generally commensurate with the 
Exchange's revenue in that LMM Security. Further, the LMM Add Liquidity 
Rates provide an alternative incentive structure for LMMs that may 
better incentivize them to meet the required criteria for the LMM 
Security. The Exchange believes the LMM Add Liquidity Rates adds an 
alternative rebate structure that, coupled with the LMM Liquidity 
Provision Rates, would create a comprehensive incentive structure that 
will encourage participation and, further, competition among LMMs. The 
Exchange believes that increased participation and competition among 
LMMs will result in better market quality across all of its listings, 
resulting in greater market quality to the benefit of investors and 
other market participants.
    The Exchange believes it is reasonable that an LMM forfeit the LMM 
Liquidity Provision Rates if it opts in to the LMM Add Liquidity Rates. 
As described above, opting in to the LMM Add Liquidity Rates would 
allow the possibility of greater economic benefit for LMMs by offering 
a per share rebate. As a result, LMMs would have the possibility of 
receiving a higher payment for acting as an LMM in an LMM Security, 
which the Exchange believes makes it reasonable to remove the stipend 
style payment that exists under the LMM Liquidity Provision Rates. 
Furthermore, the proposal is opt-in only; therefore, LMMs may opt not 
to participate if they do not believe that they would benefit from 
opting in or if they deem the LMM Add Liquidity Rates insufficient in a 
given LMM Security.
    The Exchange believes that the proposal represents an equitable 
allocation of payments and is not unfairly discriminatory because, 
while the proposed payments apply only to LMMs, such LMMs must meet 
rigorous Minimum Performance Standards in order to receive the proposed 
rebate. Where an LMM does not meet the Minimum Performance Standards 
for the applicable LMM Security, they will not be eligible for the 
proposed rebates. Further, registration as an LMM is available equally 
to all Members and allocation of listed securities between LMMs is 
governed by Exchange Rule 11.8(e)(2). If an LMM does not meet the 
Minimum Performance Standards for three out of the past four months, 
the LMM is subject to forfeiture of LMM status for that LMM Security, 
at the Exchange's discretion.
    The Exchange believes that its proposal to eliminate the Market 
Depth Tier is designed to provide for the equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its

[[Page 11375]]

facilities primarily because it will have no impact on Members as no 
Member has recently met the tier. Removing this tier does not impact 
any other tiers available to Members and removal of this tier will 
apply equally to all Members.
    The Exchange believes its proposal to re-letter paragraphs (B) and 
(C) under footnote 14 and amend the definition of Qualified LMM will 
have no impact on Members of the Exchange as they are ministerial in 
nature.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed change burdens competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX 
both among Members by incentivizing Members to become LMMs in BZX-
listed securities and as a listing venue by enhancing market quality in 
BZX-listed securities. The marketplace for listings is extremely 
competitive and there are several other national securities exchanges 
that offer listings. Transfers between listing venues occur frequently 
for numerous reasons, including market quality. This proposal is 
intended to help the Exchange compete as a listing venue. Accordingly, 
the Exchange does not believe that the proposed change will impair the 
ability of issuers, LMMs, or competing listing venues to maintain their 
competitive standing. The Exchange also notes that the proposed change 
is intended to enhance market quality in BZX-listed securities, to the 
benefit of all investors in BZX-listed securities. The Exchange does 
not believe the proposed amendment would burden intra-market 
competition as it would be available to all Members uniformly. 
Registration as an LMM is available equally to all Members and 
allocation of listed securities between LMMs is governed by Exchange 
Rule 11.8(e)(2). Further, if an LMM does not meet the Minimum 
Performance Standards for three out of the past four months, the LMM is 
subject to forfeiture of LMM status for that LMM Security, at the 
Exchange's discretion.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and paragraph (f) of Rule 19b-4 \15\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2021-016 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-2021-016. 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-2021-016 and should be submitted 
on or before March 17, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03725 Filed 2-23-21; 8:45 am]
BILLING CODE 8011-01-P