[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38372-38375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15341]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92406; File No. SR-CboeBZX-2021-048]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule by Adopting a New Single Market Participant Identifier 
Investor Tier

July 14, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2021, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``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'' or ``BZX 
Equities'') proposes 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 38373]]

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 by adopting a new 
Single Market Participant Identifier (``MPID'') Investor Tier under 
footnote 4 of the Fee Schedule, effective July 1, 2021.
    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,\3\ no single registered 
equities exchange has more than 16% 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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    \3\ 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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    Pursuant to footnote 4 of the Fee Schedule, the Exchange currently 
offers three Single MPID Investor Tiers that provide Members an 
opportunity to receive incrementally greater enhanced rebates from the 
standard rebate for liquidity adding orders that yield fee codes B, V 
and Y \4\ where Members (by MPID) meet certain incrementally more 
difficult volume-based criteria. For example, Single MPID Investor Tier 
1 currently provides an enhanced rebate of $0.0031 per share for 
qualifying orders (i.e., yield fee code B, V and Y) where an MPID has 
(1) an ADAV \5\ as a percentage of TCV \6\ greater than or equal to 
0.30%, and (2) an ADAV as a percentage of ADV \7\ greater than or equal 
to 90%. Single MPID Investor Tier 2 provides an enhanced rebate of 
$0.0032 per share for qualifying orders where an MPID has (1) an ADAV 
as a percentage of TCV greater than or equal to 0.75%, and (2) an ADAV 
as a percentage of ADV greater than or equal to 80% and Single MPID 
Investor Tier 3 provides an enhanced rebate of $0.0032 per share for 
Tape B securities or $0.00033 [sic] per share for Tapes A and C 
securities for qualifying orders where an MPID has (1) a Step-Up ADV 
\8\ as a percentage of TCV greater than or equal to 0.10% from May 
2021; or MPID has a Step-Up ADV>=8,000,000 from May 2021, and (2) an 
ADAV as a percentage of TCV greater than or equal to 0.55%; or an ADAV 
greater than or equal to 50,000,000.
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    \4\ Fee code B is appended to displayed orders adding liquidity 
to BZX (Tape B), fee code V is appended to displayed orders adding 
liquidity to BZX (Tape A), and fee code V [sic] is appended to 
displayed orders adding liquidity to BZX (Tape C). Each is provided 
a rebate of $ 0.00180.
    \5\ ADAV means average daily added volume calculated as the 
number of shares added per day. ADAV is calculated on a monthly 
basis.
    \6\ 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.
    \7\ ADV means average daily volume calculated as the number of 
shares added or removed, combined, per day. ADV is calculated on a 
monthly basis.
    \8\ ``Step-up ADV'' means ADV in the relevant baseline month 
subtracted from current day ADV.
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    The Exchange proposes to offer a new Single MPID Investor Tier 1 
(and, subsequently update the titles of current Tier 1 to Tier 2, 
current Tier 2 to Tier 3 and current Tier 3 to Tier 4). New Tier 1 
provides a proposed enhanced rebate $0.0030 for a Member's qualifying 
orders where an MPID has (1) a Step-Up ADV from May 2021 greater than 
or equal to 0.10% of TCV, or a Step-Up ADV greater than or equal to 
8,000,000 from May 2021, and (2) adds a Step-Up ADAV from May 2021 
greater than or equal to 0.05% of TCV. Members that achieve the 
proposed Single MPID Investor Tier 1 must therefore increase the amount 
of overall liquidity, both add and remove volume, that they provide on 
BZX over a baseline amount, thereby contributing to a deeper and more 
liquid market. More specifically, incentivizing an increase in both 
liquidity adding volume and in liquidity removing volume, through 
additional criteria and enhanced rebate opportunities, encourages 
liquidity adding Members on the Exchange to contribute to a deeper, 
more liquid market, and to increase transactions and take execution 
opportunities provided by such increased liquidity, together providing 
for overall enhanced price discovery and price improvement 
opportunities on the Exchange. As such, increased overall order flow 
benefits all Members by contributing towards a robust and well-balanced 
market ecosystem.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\10\ 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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    \9\ 15 U.S.C. 78f.
    \10\ 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,\11\ 
including the Exchange,\12\ 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

[[Page 38374]]

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.
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    \11\ See generally NYSE Price List, Transaction Fees; Nasdaq 
Equity 7, Section 118(a)(1), Fees for Execution and Routing of 
Orders in Nasdaq-Listed Securities; and EDGX Equities Fee Schedule, 
Footnote 1, Add/Remove Volume Tiers.
    \12\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
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    In particular, the Exchange believes the proposed Single MPID 
Investor Tier 1 is a reasonable means to encourage Members to increase 
their relative add and remove liquidity on the Exchange each month over 
a predetermined baseline by offering Members' an additional opportunity 
to meet criteria to receive an enhanced rebate. More specifically, the 
Exchange notes that greater add volume order flow may provide for 
deeper, more liquid markets and execution opportunities at improved 
prices, and greater remove volume order flow may increase transactions 
on the Exchange, which the Exchange believes incentivizes liquidity 
providers to submit additional liquidity and execution opportunities. 
This overall increase in activity deepens the Exchange's liquidity 
pool, offers additional cost savings, supports the quality of price 
discovery, promotes market transparency and improves market quality, 
for all investors.
    Further, the Exchange believes that proposed Tier 1 is reasonable 
as it does not represent a significant departure from the criteria or 
corresponding enhanced rebates currently offered in the Fee Schedule, 
including other Single MPID Investor Tiers, and that the proposed 
enhanced rebate is commensurate with the new criteria. Particularly, 
the proposed rebate is reasonably based on the difficulty of satisfying 
the tier's proposed criteria as compared to the existing Single MPID 
Investor Tiers, which provide higher rebates for more stringent 
criteria. Indeed, the proposed criteria in new Tier 1 includes smaller 
volume threshold percentages that Members can achieve than Tier 2 
(current Tier 1), and, as a result, a lesser enhanced rebate of 
$0.0030, as proposed, than the enhanced rebate offered in Tier 2 
($0.0031).
    The Exchange also believes that the proposed rule change represents 
an equitable allocation of fees and rebates and is not unfairly 
discriminatory because all Members are eligible for new Single MPID 
Investor Tier 1 and have the opportunity to meet the tier's criteria 
and receive the applicable enhanced rebate if such criteria is met. 
Without having a view of activity on other markets and off-exchange 
venues, the Exchange has no way of knowing whether this proposed rule 
change would definitely result in any Members qualifying for the 
proposed tier. While the Exchange has no way of predicting with 
certainty how the proposed tier will impact Member activity, the 
Exchange anticipates that at least six Members will be able to satisfy 
the criteria proposed under the new tier. The Exchange also notes that 
the proposed tier will not adversely impact any Member's ability to 
qualify for reduced fees or enhanced rebate offered under other tiers. 
Should a Member not meet the proposed new criteria, the Member will 
merely not receive the corresponding proposed enhanced rebate.

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. Rather, as discussed above, the 
Exchange believes that the proposed change would encourage the 
submission of additional order flow to a public exchange, thereby 
promoting market depth, execution incentives and enhanced execution 
opportunities, as well as price discovery and transparency 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.''
    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 
new Single MPID Investor Tier applies to all Members equally in that 
all Members are eligible for these tiers, have a reasonable opportunity 
to meet the tiers' criteria and will receive the enhanced rebate on 
their qualifying orders if such criteria is met. 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, providing 
for additional execution opportunities for market participants and 
improved price transparency. Greater overall order flow, trading 
opportunities, and pricing transparency benefits all market 
participants on the Exchange by enhancing market quality and continuing 
to encourage Members to send orders, thereby contributing towards a 
robust and well-balanced market ecosystem.
    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. 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 small percentage of the overall 
market. Based on publicly available information, no single equities 
exchange has more than 15% of the market share.\13\ 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.'' \14\ 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

[[Page 38375]]

dealers'. . . .''.\15\ 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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    \13\ See supra note 3.
    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \15\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2021-048 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-2021-048. 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-2021-048 and should be submitted 
on or before August 10, 2021.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15341 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P