[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38397-38400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15342]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92407; File No. SR-CboeBYX-2021-016]


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

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 BYX Exchange, Inc. (``Exchange'' or ``BYX'') 
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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') 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/byx/), 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.

[[Page 38398]]

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 adopt a new 
Step-Up Tier under footnote 2 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, no single registered equities 
exchange has more than 16% of the market share.\3\ 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 ``Taker-Maker'' model whereby it pays 
credits to members that remove liquidity and assesses fees to those 
that add liquidity. The Exchange's Fee Schedule sets forth the standard 
rebates and rates applied per share for orders that remove and provide 
liquidity, respectively. Particularly, for securities at or above 
$1.00, the Exchange provides a standard rebate of $0.00020 per share 
for orders that remove liquidity and assesses a fee of $0.00200 per 
share for orders that add liquidity. For orders priced below $1.00, the 
Exchange does not assess a fee or provide a rebate for orders that add 
liquidity and assesses a fee of 0.10% of total dollar value for orders 
that remove liquidity. 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.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (June 29, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    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. For example, the Exchange 
currently offers various Add/Remove Volume Tiers under footnote 1 of 
the Fee Schedule, which offer various enhanced rebates and reduced fees 
for reaching certain, incrementally more challenging volume-based 
thresholds.
    The Exchange now proposes to adopt a new Step-Up Tier under 
footnote 2 of the Fee Schedule, which offers a reduced fee to Members 
that increase their relative add volume order flow each month over a 
predetermined baseline as well as add liquidity over an established 
threshold. Specifically, the new Step-Up Tier provides Members an 
opportunity to qualify for a reduced fee of $0.0014 on their qualifying 
orders that yield B, V, and Y,\4\ where a Member 1) adds a Step-Up ADAV 
\5\ from June 2021 greater than or equal to 0.05% of TCV \6\ or adds a 
Step-Up ADAV from June 2021 greater than or equal to 2,000,000, and 2) 
has a total add ADAV greater than or equal to 0.25% of TCV. The 
proposed Step-Up Tier is designed to encourage Members that provide 
displayed liquidity on the Exchange to increase their overall add 
volume order flow, which would benefit all Members by providing greater 
execution opportunities on the Exchange and to contribute to a deeper, 
more liquid market, to the benefit of all investors.
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    \4\ Orders yielding Fee Code B are displayed orders that add 
liquidity to BYX (Tape B), Orders yielding Fee Code V are displayed 
orders that add liquidity to BYX (Tape A), and orders yielding Fee 
Code Y are displayed orders that add liquidity to BYX (Tape C). Each 
is assessed a standard fee of $0.00200.
    \5\ ``ADAV'' means average daily volume calculated as the number 
of shares added per day and is calculated on a monthly basis. 
``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV.
    \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.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\7\ in general, and 
furthers the objectives of Section 6(b)(4),\8\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and issuers and other persons 
using its facilities. The Exchange also believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \9\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ 15 U.S.C. 78f.(b)(5).
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    As described above, 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. Also, as described above, the Exchange notes that relative 
volume-based incentives and discounts have been widely adopted by 
exchanges,\10\ including the Exchange,\11\ and are reasonable, 
equitable and non-discriminatory because they are open to all members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Competing equity 
exchanges offer similar tiered pricing structures, including schedules 
of rebates and fees that apply based upon members achieving certain 
volume and/or growth thresholds, as well as assess similar fees or 
rebates for similar types of orders, to that of the Exchange.
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    \10\ 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 BZX Equities Fee Schedule, 
Footnote 2, Step-Up Tiers.
    \11\ See BYX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
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    In particular, the Exchange believes the proposed Step-Up Tier is a

[[Page 38399]]

reasonable means to encourage Members to increase their relative add 
liquidity on the Exchange each month over a predetermined baseline as 
well as over a set threshold by offering Members an additional 
opportunity to meet criteria to receive a reduced fee. More 
specifically, the Exchange notes that greater add volume order flow may 
provide for deeper, more liquid markets and execution opportunities at 
improved prices, which the Exchange believes signals an increase in 
activity from other market participants. 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 the proposed Step-Up Tier is 
reasonable as it does not represent a significant departure from the 
criteria or corresponding rates currently offered under in the Fee 
Schedule, and that the proposed reduced fee is commensurate with the 
new criteria. For example, Remove Volume Tier 7 under footnote 1 of the 
Fee Schedule provides an enhanced rebate of $0.0016 per share for 
qualifying orders, where a Member increases certain order flow on the 
Exchange each month over a predetermined baseline as well as over a set 
threshold. The Exchange notes that this enhanced rebate ($0.0016) over 
the standard rebate ($0.00020) is essentially equivalent to the 
proposed $0.0014 reduced fee offer in the new Step-Up Tier.
    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 the new Step-Up 
Tier and have the opportunity to meet the tier's criteria and receive 
the proposed reduced fee 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 
three 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 reduced fee.

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 Step-Up 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 reduced fee on their qualifying 
orders if such criteria is met. The Exchange does not believe the 
proposed change to adopt a new Step-Up Tier burdens competition, but 
rather, enhances competition as it is intended to increase the 
competitiveness of BYX 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.\12\ 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.'' \13\ 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'. . . .''.\14\ 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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    \12\ See supra note 3.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ 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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[[Page 38400]]

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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-CboeBYX-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-CboeBYX-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-CboeBYX-2021-016 and should be submitted 
on or before August 10, 2021.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15342 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P