[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33393-33395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13243]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92201; File No. SR-CboeBZX-2021-045]


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

June 17, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on June 9, 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\ 15 U.S.C. 78a.
    \3\ 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'' or ``BZX 
Equities'') 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 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 to define the term 
``Step-Up ADV'' and introduce a new Single Market Participant 
Identifier (``MPID'') Investor Tier.\4\
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    \4\ The Exchange initially filed the proposed fee changes June 
1, 2021 (SRCboeBZX-2021-044). On June 9, 2021, the Exchange withdrew 
that filing and submitted this proposal.
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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 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\5\ no single registered 
equities exchange has more than 15% of the market share. Thus, in such 
a low-concentrated and highly competitive market, no single equities 
exchange possesses significant pricing power in the execution of order 
flow. The Exchange in particular operates a ``Maker-Taker'' model 
whereby it pays credits to Members that add 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 
securities at or above $1.00, the Exchange provides a standard rebate 
of $0.0018 per share for orders that add liquidity and assesses a fee 
of $0.0030 per share for orders that remove liquidity. Additionally, in 
response to the competitive environment, the Exchange also offers 
tiered pricing which provides Members opportunities to qualify for 
higher rebates or reduced fees where certain volume criteria and 
thresholds are met. Tiered pricing provides an incremental incentive 
for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \5\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (May 26, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    The ``definitions'' section of the Exchange's fee schedule defines 
various terms used throughout the fee schedule. The Exchange proposes 
to adopt a new definition for the term ``Step-Up ADV''. Specifically, 
as proposed ``Step-up ADV'' means ADV \6\ in the relevant baseline 
month subtracted from current day ADV. Such definition would be 
referenced in Tiers designed to incentivize Members to grow their ADV 
from the baseline month, such as the proposed Single MPID Investor 
Tier, as discussed below.
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    \6\ ADV means average daily volume calculated as the number of 
shares added or removed, combined, per day. ADV is calculated on a 
monthly basis.
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    Pursuant to footnote 4 of the fee schedule, the Exchange currently 
offers the Single MPID Investor Tiers that provide Members an 
opportunity to receive an enhanced rebate from the standard rebate for 
liquidity adding orders that yield fee codes B,\7\ V,\8\ and

[[Page 33394]]

Y \9\ and meet certain required volume-based criteria. Specifically, 
Tier 1 of the Single MPID Investor Tiers provides an enhanced rebate of 
$0.0031 per share when (1) an MPID has an ADAV \10\ as a percentage of 
TCV \11\ greater than or equal to 0.30%; and (2) the MPID has an ADAV 
as a percentage of ADV greater than or equal to 90%. Tier 2 of the 
Single MPID Investor Tiers provides an enhanced rebate of $0.0032 per 
share when (1) an MPID has an ADAV as a percentage of TCV greater than 
or equal to 0.75%; and (2) the MPID has an ADAV as a percentage of ADV 
greater than or equal to 80%.
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    \7\ Fee code B is appended to displayed orders adding liquidity 
to BZX (Tape B).
    \8\ Fee code V is appended to displayed orders adding liquidity 
to BZX (Tape A).
    \9\ Fee code Y is appended to displayed orders adding liquidity 
to BZX (Tape C).
    \10\ ADAV means average daily added volume calculated as the 
number of shares added per day. ADAV is calculated on a monthly 
basis.
    \11\ TCV means total consolidated volume calculated as the 
volume reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
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    Now, the Exchange proposes to offer Tier 3 of the Single MPID 
Investor Tiers. Proposed Tier 3 would provide a rebate of $0.0032 per 
share in Tape B securities (i.e., orders yielding fee code B) and 
$0.0033 per share in Tape A and C securities (i.e., orders yielding fee 
codes V and Y, respectively) when (1) an MPID has a Step-Up ADV as a 
percentage of TCV is greater than or equal to 0.10% from May 2021; or 
an MPID has a Step-Up ADV greater than or equal to 8,000,000 from May 
2021; and (2) the MPID has an ADAV as a percentage of TCV greater than 
or equal to 0.55%; or the MPID has an ADAV greater than or equal to 
50,000,000. Members that achieve the proposed Single MPID Investor Tier 
must therefore increase the amount of liquidity that they provide on 
BZX, thereby contributing to a deeper and more liquid market. 
Furthermore, the Exchange proposes to offer a higher rebate for Tape A 
and C securities to further incentivize Members to increase their 
liquidity on the Exchange in those securities.

2. Statutory Basis

    The Exchange believes that the proposed rule change is 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, 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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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    In particular, the Exchange notes that volume-based rebates such as 
that proposed herein have been widely adopted by exchanges, including 
the Exchange, and are equitable 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; 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns; and (iii) introduction 
of higher volumes of orders into the price and volume discovery 
processes. The Exchange believes that the proposed Single MPID Investor 
Tier 3 is a reasonable, fair and equitable, and not unfairly 
discriminatory allocation of fees and rebates because it will continue 
to provide Members with an incentive to reach certain volume thresholds 
on the Exchange.
    More specifically, the Exchange believes the proposed additional 
Single MPID Investor Tier is a reasonable means to encourage Members to 
increase their liquidity on the Exchange in order to meet the proposed 
criteria to receive the proposed enhanced rebates. The Exchange further 
believes that the proposed tier represents an equitable allocation of 
reasonable dues, fees, and other charges because the threshold 
necessary to achieve the tier encourages Members to add increased 
liquidity to the BZX and the Exchange believes the proposed enhanced 
rebates are commensurate with the proposed thresholds. The Exchange 
also believes that it is an equitable allocation of reasonable fees to 
offer a different enhanced rebate for Tape B securities as compared to 
Tape A and C securities under proposed Tier 3 of the Single MPID 
Investor Tiers. As described above, enhanced rebates are designed to 
incentivize increased liquidity on the Exchange, and the Exchange 
believes that the proposal to offer a higher enhanced rebate for Tape A 
and C securities will incentivize increased liquidity in Tape A and C 
securities specifically. Furthermore, the Exchange believes the 
proposed rebate for Tape B is sufficient to incentivize increased 
liquidity in those securities. The 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 proposed rebates are reasonable based on the 
difficulty of satisfying the tier's proposed criteria as compared to 
the existing Single MPID Investor Tiers, which provide equal or lower 
rebates for less stringent criteria. Furthermore, the Exchange believes 
that the proposed tier is not unfairly discriminatory as it applies to 
all Members that meet the required criteria.
    Additionally, a number of Members have a reasonable opportunity to 
satisfy proposed Single MPID Investor Tier 3, which the Exchange 
believes is more stringent than existing Tier 1 and Tier 2. 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 Members to compete 
for and reasonably achieve the proposed tier; however, the proposed 
tier is open to any Member that satisfies the tier's criteria. The 
Exchange believes the proposed tier could provide an incentive for 
other Members to submit additional liquidity on the Exchange to qualify 
for the proposed enhanced rebate.

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. The 
Exchange does not believe the proposed change to adopt a new Single 
MPID Investor Tier burdens competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX by 
adopting an additional pricing incentive in order to attract order flow 
and incentivize participants to increase their participation on the 
Exchange.
    As previously discussed, the Exchange operates in a highly 
competitive market. In such an environment, the Exchange must 
continually review, and consider adjusting, its fees and rebates to 
remain competitive with other exchanges. Members have numerous 
alternative venues that they may participate on and direct their order 
flow, including other equities exchanges, off-exchange venues, and 
alternative trading systems. Additionally, the Exchange represents a

[[Page 33395]]

small percentage of the overall market. Based on publicly available 
information, no single equities exchange has more than 15% 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 changes 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \14\ Supra note 3[sic].
    \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.

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-2021-045 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-2021-045. 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-2021-045, and should be 
submitted on or before July 15, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13243 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P