[Federal Register Volume 88, Number 85 (Wednesday, May 3, 2023)]
[Notices]
[Pages 27937-27940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09334]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97392; File No. SR-CboeBZX-2023-026]


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

April 27, 2023.
    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 April 17, 2023, 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 proposed rule change. The 
text of these statements may be examined at the

[[Page 27938]]

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) modify 
Step-Up Tier 1; and (2) modify the Non-Displayed Step-Up Tier. The 
Exchange proposes to implement the proposed changes to its fee schedule 
on April 3, 2023.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
April 3, 2023 (SR-CboeBZX-2023-022). On April 17, 2023, the Exchange 
withdrew that filing and submitted SR-CboeBZX-2023-025. On April 17, 
2023, the Exchange withdrew SR-CboeBZX-2023-025 and submitted this 
proposal.
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    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\4\ no single registered 
equities exchange has more than 17% 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 (March 24, 2023), available at https://www.cboe.com//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 4) 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. The Exchange now proposes to modify the 
criteria of Step-Up Tier 1. The current criteria for Step-Up Tier 1 is 
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 $0.0031 per share for 
qualifying orders (i.e., orders yielding fee codes B, V, or Y) where 1) 
Member has a Step-Up ADAV \10\ from January 2023 >=10,000,000 or Member 
has a Step-Up Add TCV \11\ from January 2023 >=0.10%; and 2) Member has 
an ADV \12\ >=0.60% of the TCV.
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    \10\ ``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. ADAV is calculated 
on a monthly basis.
    \11\ ``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. 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.
    \12\ ``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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    The Exchange proposes to modify the criteria for Step-Up Tier 1 to 
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 Add TCV from January 2023 >=0.09%; 
and (2) Member has an ADV >=0.60% of the TCV; and (3) Member adds an 
ADV >=5,000,000 for Non-Displayed orders \13\ that yield fee codes 
HB,\14\ HI,\15\ HV,\16\ or HY.\17\
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    \13\ See Exchange Rule 11.9(c)(11).
    \14\ Orders yielding Fee Code ``HB'' are non-displayed orders 
adding liquidity to BZX (Tape B).
    \15\ Orders yielding Fee Code ``HI'' are non-displayed orders 
that receive price improvement while adding liquidity to BZX .
    \16\ Orders yielding Fee Code ``HV'' are non-displayed orders 
adding liquidity to BZX (Tape A).
    \17\ Orders yielding Fee Code ``HY'' are non-displayed orders 
adding liquidity to BZX (Tape C).
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    Also pursuant to footnote 2 of the Fee Schedule, the Exchange 
currently offers a Non-Displayed Step-Up Tier, which provides Members 
an opportunity to receive an enhanced rebate from the standard rebate 
\18\ for liquidity adding non-displayed orders that yield fee codes HB, 
HV, and HY and meet certain required volume-based criteria. The 
criteria for the Non-Displayed Step-Up Tier is as follows:
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    \18\ 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.
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     The Non-Displayed Step-Up Tier offers 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 proposes to modify the criteria of the Non-Displayed 
Step-Up Tier to the following:
     The Non-Displayed Step-Up Tier offers 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 Add TCV from 
January 2023 >=0.09%; and (2) Member has an ADV >=0.60% of the TCV; and 
(3) Member adds an ADV >=5,000,000 for Non-Displayed Orders that yield 
fee codes HB, HI, HV, or HY.
    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. The proposed 
modifications to the criteria of Step-Up Tier 1 and the Non-Displayed 
Step-Up Tier are 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

[[Page 27939]]

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.\19\ Specifically, the Exchange believes the proposed rule change 
is consistent with the section 6(b)(5) \20\ 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) \21\ 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) \22\ 
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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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Id.
    \22\ 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 proposed modifications to Step-Up Tier 1 and the 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 
modifications to Step-Up Tier 1 and the 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 modifications to 
Step-Up Tier 1 and the 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 the Non-Displayed Step-
Up Tier. 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,\23\ 
including the Exchange,\24\ 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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    \23\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
    \24\ 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.'' \25\
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    \25\ 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 Step-Up Tier 1 and the 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

[[Page 27940]]

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 exchange has more 
than 17% \26\ 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.'' \27\ 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'. . . .''.\28\ 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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    \26\ Supra note 3.
    \27\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \28\ 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 \29\ and paragraph (f) of Rule 19b-4 \30\ 
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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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2023-026 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-2023-026. 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 (https://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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-CboeBZX-2023-026, and 
should be submitted on or before May 24, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09334 Filed 5-2-23; 8:45 am]
BILLING CODE 8011-01-P