[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Notices]
[Pages 41771-41774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95215; File No. SR-CboeBZX-2022-036]


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

July 7, 2022.
    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 July 1, 2022, 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'') 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 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 applicable to its 
equities trading platform (``BZX Equities'') by: (i) introducing a new 
Step-Up Tier 3 and (ii) modifying the criteria in Single MPID Investor 
Tier 1. The Exchange proposes to implement these changes effective July 
1, 2022.
    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 rebates to members that add liquidity and assesses fees 
to those that remove liquidity.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (June 27, 2022), available at https://markets.cboe.com/us/equities/market_statistics/.
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    The Exchange's Fee Schedule sets forth the standard rebates and 
rates applied per share for orders that provide and remove liquidity, 
respectively. Currently, for orders in securities priced at or above 
$1.00, the Exchange provides a standard rebate of $0.00160 per share 
for orders that add liquidity and assesses a fee of $0.0030 per share 
for orders that remove liquidity. For orders in securities priced below 
$1.00, the Exchange does not provide a rebate or assess a fee for 
orders that add liquidity and assesses a fee of 0.30% of total dollar 
value for orders that remove liquidity. Additionally, in response to 
the competitive environment, the Exchange also offers tiered pricing, 
which provides Members with opportunities to qualify for higher rebates 
or lower fees where certain volume criteria and thresholds are met. 
Tiered pricing provides an incremental

[[Page 41772]]

incentive for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying more stringent 
criteria.
Step-Up Tier 3
    Pursuant to footnote 2 of the Fee Schedule, the Exchange currently 
offers two Step-Up Tiers that provide Members an opportunity to qualify 
for an enhanced rebate for liquidity adding orders that yield fee codes 
B,\4\ V,\5\ and Y \6\ where they increase their relative liquidity each 
month over a predetermined baseline. The Exchange notes that Step-Up 
Tiers are designed to encourage Members that provide displayed 
liquidity on the Exchange to increase their order flow, which would 
benefit all Members by providing greater execution opportunities on the 
Exchange. Now the Exchange proposes to add an additional Step-Up Tier 3 
to footnote 2 of the Fee Schedule. Proposed Step-Up Tier 3 is as 
follows:
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    \4\ Orders yielding Fee Code ``B'' are displayed orders adding 
liquidity to BZX (Tape B).
    \5\ Orders yielding Fee Code ``V'' are displayed orders adding 
liquidity to BZX (Tape A).
    \6\ Orders yielding Fee Cody ``Y'' are displayed orders adding 
liquidity to BZX (Tape C).
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     Proposed Step-Up Tier 3 offers an enhanced rebate of 
$0.0032 per share for qualifying orders (i.e., orders yielding fee code 
B, V or Y) where an MPID (i) has a Step-Up ADAV \7\ from May 2021 
greater than or equal to 30,000,000 shares or MPID has a Step-Up Add 
TCV \8\ from May 2021 greater than or equal to 0.30%; and (ii) MPID has 
an ADV \9\ greater than or equal to 0.30% of the TCV \10\ or MPID has 
an ADV greater than or equal to 35,000,000 shares.
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    \7\ ``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV. ADAV means average daily added volume 
calculated as the number of shares added per day and is calculated 
on a monthly basis.
    \8\ ``Step-Up Add TCV'' means ADAV as a percentage of TCV in the 
relevant baseline month subtracted from current ADAV as a percentage 
of TCV.
    \9\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day. ADV is calculated on 
a monthly basis.
    \10\ ``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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    The Exchange notes that the Step-Up tiers, including proposed Step-
Up Tier 3, are designed to provide Members with additional 
opportunities to receive enhanced rebates by increasing their order 
flow to the Exchange, which further contributes to a deeper, more 
liquid market and provides even more execution opportunities for active 
market participants. The proposed change is designed to give Members an 
additional opportunity to receive an enhanced rebate for orders meeting 
the applicable threshold. Furthermore, the proposed Step-Up Tier 3 is 
designed to increase the Members' provision of liquidity to the 
Exchange, which increases execution opportunities and provides for 
overall enhanced price discovery and price improvement opportunities on 
the Exchange. Increased overall order flow benefits all Members by 
contributing towards a robust and well-balanced market ecosystem.
Single MPID Investor Tier 1
    The Single MPID Investor Tier set forth under footnote 4 of the Fee 
Schedule provides an enhanced rebate of $0.0032 \11\ or $0.0033 \12\ 
per share for qualifying orders which yield fee codes B,\13\ V,\14\ or 
Y.\15\ The Exchange proposes to amend the criteria necessary to achieve 
Tier 1 under footnote 4 as described below. Currently, under Tier 1 a 
Member may receive an enhanced rebate where their MPID has: (i) a Step-
Up ADV \16\ as a percentage of TCV greater than or equal to 0.10% from 
May 2021 or the MPID has a Step-Up ADV greater than or equal to 
8,000,000 shares from May 2021; and (ii) 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 shares. The Exchange is 
proposing to amend the criteria under Tier 1 as follows:
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    \11\ An enhanced rebate of $0.0032 per share is paid to MPIDs 
who satisfy the criteria in Tier 1 in Tape B securities.
    \12\ An enhanced rebate of $0.0033 per share is paid to MPIDs 
who satisfy the criteria in Tier 1 in Tape A or Tape C securities.
    \13\ Supra note 4.
    \14\ Supra note 4 [sic].
    \15\ Supra note 6.
    \16\ ``Step-Up ADV'' means ADV in the relevant baseline month 
subtracted from current day ADV.
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     Proposed Single MPID Tier 1 offers an enhanced rebate of 
$0.0032 or $0.0033 per share for qualifying orders (i.e., those 
yielding fee codes B, V or Y) where an MPID (i) has a Step-Up ADV as a 
percentage of TCV greater than or equal to 0.10% from May 2021 or has a 
Step-Up ADV of 10,000,000 (as compared to 8,000,000) from May 2021; and 
(ii) has an ADAV as a percentage of TCV greater than or equal to 0.50% 
(as compared to 0.55%); or MPID has an ADAV greater than or equal to 
45,000,000 (as compared to 50,000,000).
    The Exchange believes that Members who strive to achieve the 
proposed amended Single MPID Tier 1 criteria continue to be 
incentivized to increase the overall amount of liquidity provided on 
the Exchange, both add and remove volume, thereby contributing to a 
deeper and more liquid market and providing more execution 
opportunities to market participants. Incentivizing an increase in both 
liquidity adding volume and liquidity removing volume, through revised 
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 activity, 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 the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
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    In particular, the Exchange notes that volume-based rebates such as 
those proposed herein have been widely adopted by exchanges,\20\ 
including the Exchange,\21\ 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 and (ii) associated higher levels of market activity, 
such as higher

[[Page 41773]]

levels or liquidity provision and/or growth patterns. The Exchange 
believes the proposed Step-Up Tier 3 is reasonable, fair and equitable, 
and not unfairly discriminatory because the proposed Tier provides an 
additional opportunity for all Members to receive an enhanced rebate by 
achieving the proposed threshold. Furthermore, the Exchange believes 
that the proposed Step-Up Tier 3 is reasonable as it serves to 
incentivize Members to increase their displayed liquidity adding volume 
on the Exchange. Additionally, the Exchange believes that the proposed 
amendments to Single MPID Tier 1 are 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 enhanced rebate, albeit with slightly modified criteria. 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. An 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.
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    \20\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \21\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
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    The Exchange further believes that the proposed Step-Up Tier 3 and 
proposed changes to Single MPID Tier 1 represent an equitable 
allocation of reasonable dues, fees, and other charges because the 
threshold necessary to achieve the tiers encourages Members to add 
increased liquidity to the Exchange and the Exchange believes the 
proposed and current enhanced rebates, respectively, are commensurate 
with the proposed thresholds. The Exchange also believes that the 
proposal represents an equitable allocation of fees and rebates and is 
not unfairly discriminatory because all Members will be eligible for 
the proposed Step-Up Tier 3 and Single MPID Tier 1 enhanced rebates and 
will have the opportunity to meet the tiers' criteria and receive the 
corresponding enhanced rebate for each tier 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 these proposed 
changes would definitely result in any Members qualifying for the 
proposed Step-Up Tier 3 or Single MPID Tier 1. While the Exchange has 
no way of predicting with certainty how the proposed changes will 
impact Member activity, the Exchange anticipates one Member will be 
able to compete for and reach the criteria under proposed Step-Up Tier 
3 and anticipates three Members may be able to compete for and reach 
the proposed amended criteria under Single MPID Tier 1. The Exchange 
also notes that the proposed changes will not adversely impact any 
Member's ability to qualify for reduced fees or enhanced rebates 
offered under other tiers. Should a Member not meet the proposed new 
criteria, the Member will merely not receive that corresponding 
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 competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    Particularly, the proposed Step-Up Tier 3 and proposed amendments 
to Single MPID Tier 1 do not impose a burden on intramarket competition 
that is not in furtherance of the Act in that each tier will be 
eligible to all Members equally in that all Members have the 
opportunity to submit orders in an attempt to satisfy the proposed 
amended criteria and receive the enhanced rebates associated with each 
tier. Furthermore, the Exchange believes that the criteria under 
proposed Step-Up Tier 3 and the proposed amended criteria under Single 
MPID Tier 1 will continue to incentivize Members to submit additional 
liquidity to the Exchange and to increase their order flow on the 
Exchange generally, thereby contributing to a deeper and more liquid 
market and promoting price discovery and market quality on the Exchange 
to the benefit of all market participants and enhancing the 
attractiveness of the Exchange as a trading venue, which the Exchange 
believes, in turn, would continue to encourage market participants to 
direct additional order flow to the Exchange. Greater liquidity 
benefits all Members by providing more trading opportunities and 
encourages Members to send additional orders to the Exchange, thereby 
contributing to robust levels of liquidity, which benefits all market 
participants.
    The Exchange believes the proposed Step-Up Tier 3 and proposed 
amendments to Single MPID Tier 1 do not impose a burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange does not believe that the proposed 
changes represent a significant departure from pricing currently 
offered by the Exchange or pricing offered by other equities exchanges. 
Members may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, the Exchange does 
not believe that the proposed changes will impair the ability of 
Members or competing venues to maintain their competitive standing in 
the financial markets. As previously discussed, the Exchange operates 
in a highly competitive market. 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 16% of the 
market share.\22\ 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.'' \23\ 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'. . .''.\24\
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    \22\ Supra note 3.
    \23\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \24\ 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 41774]]

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 \25\ and paragraph (f) of Rule 19b-4 \26\ 
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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-2022-036 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-2022-036. 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-2022-036 and should be submitted 
on or before August 3, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14875 Filed 7-12-22; 8:45 am]
BILLING CODE 8011-01-P