[Federal Register Volume 88, Number 51 (Thursday, March 16, 2023)]
[Notices]
[Pages 16285-16288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05337]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97108; File No. SR-CboeBZX-2023-020]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Fee Schedule
March 10, 2023.
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 March 6, 2023, 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'' 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 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'') as follows: (1) adopt a
new Step-Up Tier and renumber the remaining tiers; and (2) adopt a new
Non-Displayed Step-Up Tier. The Exchange proposes to implement the
proposed change to its fee schedule on March 6, 2023.\3\
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\3\ The Exchange initially filed the proposed fee changes on
March 1, 2023 (SR-CboeBZX-2023-017). On March 6, 2023, 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
[[Page 16286]]
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,\4\ 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. 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.\5\ 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.\6\ 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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\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (February 22, 2023), available at https://www.cboe.com/us/equities/market_statistics/.
\5\ See BZX Equities Fee Schedule, Standard Rates.
\6\ Id.
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Step-Up Tiers
Pursuant to footnote 2 of the Fee Schedule, the Exchange currently
offers Step Up Tiers (tiers 1 through 3) 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 Y \9\
where they increase their relative liquidity each month over a
predetermined baseline. Specifically, the Tiers are as follows:
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\7\ Orders yielding Fee Code ``B'' are displayed orders adding
liquidity to BZX (Tape B).
\8\ Orders yielding Fee Code ``V'' are displayed orders adding
liquidity to BZX (Tape A).
\9\ Orders yielding Fee Code ``Y'' are displayed orders adding
liquidity to BZX (Tape C).
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Tier 1 offers an enhanced rebate of $0.0032 per share for
qualifying orders (i.e., orders yielding fee codes B, V, or Y) where
(1) MPID has a Step-Up Add TCV \10\ from May 2019 >=0.10%; and (2) MPID
has an ADV \11\ >=0.50% of the TCV.
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\10\ ``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. ADAV means average daily added volume calculated
as the number of shares added per day. ADAV is calculated on a
monthly basis. 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.
\11\ ``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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Tier 2 offers an enhanced rebate of $0.0032 per share for
qualifying orders (i.e., orders yielding fee codes B, V, or Y) where
(1) Member has a Step-Up ADAV \12\ from January 2022 >=10,000,000 or
Members has a Step-Up Add TCV from January 2022 >=0.10%; and (2) Member
has an ADV >=0.30% of the TCV or Members has an ADV >=35,000,000.
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\12\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
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Tier 3 offers an enhanced rebate of $0.0032 per share for
qualifying orders (i.e., orders yielding fee codes B, V, or Y) where
(1) MPID has a Step-Up ADAV from May 2021 >=30,000,000 or MPID has a
Step-Up Add TCV from May 2021 >=0.30%; and (2) MPID has an ADV >=0.30%
of the TCV or MPID has an ADV >=35,000,000.
The Exchange now proposes to add a new Tier 1 and renumber existing
Tiers 1 through 3. Specifically, proposed Tier 1 would provide for the
following:
Proposed Tier 1 would offer an enhanced rebate of $0.0031
per share for qualifying orders (i.e., orders yielding fee codes B, V,
or Y) where (1) Member has a Step-Up ADAV from January 2023
>=10,000,000 or Member has a Step-Up Add TCV from January 2023 >=0.10%;
and (2) Member has an ADV >=0.60% of the TCV.
Proposed Tiers 2 through 4 would have the same criteria and provide
the same enhanced rebate as existing Tiers 1 through 3, respectively.
The only proposed change is to modify the Tier numbers of Tier 1
through 3 to Tier 2 through 4, respectively.
Non-Displayed Step-Up Tier
In addition to the adoption of a new Step-Up Tier 1, the Exchange
now proposes to amend footnote 2 to add a Non-Displayed Step-Up Tier,
which will provide Members an opportunity to receive an enhanced rebate
from the standard rebate \13\ for liquidity adding non-displayed orders
that yield fee codes HB,\14\ HV,\15\ and HY \16\ and meet certain
required volume-based criteria. The proposed criteria for the Non-
Displayed Step-Up Tier is as follows:
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\13\ Currently, the Exchange provides a standard rebate of
$0.00100 per share for liquidity adding non-displayed orders that
yield fee codes HB, HV, or HY.
\14\ Orders yielding Fee Code ``HB'' are non-displayed orders
adding liquidity to BZX (Tape B).
\15\ Orders yielding Fee Code ``HV'' are non-displayed orders
adding liquidity to BZX (Tape A).
\16\ Orders yielding Fee Code ``HY'' are non-displayed orders
adding liquidity to BZX (Tape C).
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The proposed Non-Displayed Step-Up Tier would offer an
enhanced rebate of $0.0025 per share for qualifying orders (i.e.,
orders yielding fee codes HB, HV, or HY) where (1) Member has a Step-Up
ADAV from January 2023 >=10,000,000 or Member has a Step-Up Add TCV
from January 2023 >=0.10%; and (2) Member has an ADV >=0.60% of the
TCV.
The Exchange notes that the Step-Up Tiers in general 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. Like other
Step-Up Tiers, the proposed Step-Up Tier 1 is designed to give members
an additional opportunity to receive an enhanced rebate for orders
meeting the applicable criteria. Furthermore, the proposed Non-
Displayed Step-Up Tier 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.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
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
[[Page 16287]]
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 as well as Section 6(b)(4) \20\
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.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
\20\ 15 U.S.C. 78f(b)(4).
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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 Exchange believes that
its proposal to introduce a new Step-Up Tier 1 and a new Non-Displayed
Step-Up Tier reflects 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. The Exchange believes the proposed Step-Up
Tier 1 and Non-Displayed Step-Up Tier are reasonable as they serve to
incentivize Members to increase their liquidity-adding, displayed
volume (Step-Up Tier 1) and liquidity-adding, non-displayed volume
(Non-Displayed Step-Up Tier), which benefit all market participants by
incentivizing continuous liquidity and thus, deeper, more liquid
markets as well as increased execution opportunities. Particularly, the
proposed incentives to provide displayed liquidity are designed to
incentivize continuous displayed liquidity, which signals other market
participants to take the additional execution opportunities provided by
such liquidity, while the proposed incentives to provide non-displayed
liquidity will further contribute to a deeper, more liquid market and
provide even more execution opportunities for active market
participants at improved prices. 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.
In particular, the Exchange believes the proposed Step-Up Tier 1
and Non-Displayed Step-Up Tier represent an equitable allocation of
rebates and are not unfairly discriminatory because all Members are
eligible for those tiers and would have the opportunity to meet a
tier's criteria and would receive the proposed rebate if such criteria
is met. Further, the proposed rebates are commensurate with the
proposed criteria. That is, the rebates reasonably reflect the
difficulty in achieving the applicable criteria as proposed. 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 tiers will impact Member activity, the Exchange anticipates
that at least one Member will be able to satisfy the criteria proposed
under Step-Up Tier 1 and Non-Displayed Step-Up Tier 1. The Exchange
also notes that proposed tier/rebate will not adversely impact any
Member's ability to qualify for other reduced fee or enhanced rebate
tiers. Should a Member not meet the proposed criteria under the
modified tier, the Member will merely not receive that corresponding
enhanced rebate.
Additionally, the Exchange notes that relative volume-based
incentives and discounts have been widely adopted by exchanges,\21\
including the Exchange,\22\ 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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\21\ See, e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
\22\ See, e.g., BZX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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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. Rather, as discussed above,
the Exchange believes that the proposed changes 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 changes
further 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.'' \23\
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\23\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange believes the proposed rule changes do not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
tier changes apply to all Members equally in that all Members continue
to be eligible for the current Step-Up Tiers, the proposed Step-Up Tier
1, and proposed Non-Displayed Step-Up Tier, have a reasonable
opportunity to meet the tiers' criteria and will receive the
corresponding additional rebates if such criteria are met.
Additionally, the proposed tier changes are designed to attract
additional order flow to the Exchange. The Exchange believes that the
proposed tier criteria would incentivize market participants to direct
liquidity adding displayed and non-displayed order flow to the
Exchange, bringing with it 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.
Members have numerous alternative venues that they may participate on
and direct their order flow, including 15 other equities exchanges and
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
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exchange has more than 15% \24\ of the market share. 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.'' \25\ 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' . . . .''.\26\ Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\24\ Supra note 3.
\25\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\26\ 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 \27\ and paragraph (f) of Rule 19b-4 \28\
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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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 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-2023-020 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-2023-020. 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 such 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-2023-020 and should be submitted
on or before April 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-05337 Filed 3-15-23; 8:45 am]
BILLING CODE 8011-01-P