[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Notices]
[Pages 47209-47211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15477]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97928; File No. SR-CboeBZX-2023-047]


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

July 17, 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 July 3, 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 Options'') 
proposes to amend its Fees 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 for its equity 
options platform (``BZX Options'') relating to physical connectivity 
fees, effective July 3, 2023.
    By way of background, a physical port is utilized by a Member or 
non-Member to connect to the Exchange at the data centers where the 
Exchange's servers are located. The Exchange currently assesses the 
following physical connectivity fees for Members and non-Members on a 
monthly basis: $2,500 per physical port for a 1 gigabit (``Gb'') 
circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange 
proposes to increase the monthly fee for 10 Gb physical ports from 
$7,500 to $8,500 per port. The Exchange notes the proposed fee change 
better enables it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee amount, 
even as amended, continues to be in line with, or even lower than, 
amounts assessed by other exchanges for similar connections.\3\ The 
physical ports may also be used to access the Systems for the following 
affiliate exchanges and only one monthly fee currently (and will 
continue) to apply per port: the Exchange's equities platform (BZX 
Equities), Cboe EDGX Exchange, Inc. (options and equities platforms), 
Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe C2 
Exchange, Inc., (``Affiliate Exchanges'').\4\
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    \3\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection 
to the respective exchange, which is analogous to the Exchange's 
10Gb physical port. See also New York Stock Exchange LLC, NYSE 
American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, 
Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN 
Circuits (which are analogous to the Exchange's 10 Gb physical port) 
are assessed $22,000 per month, per port.
    \4\ The Affiliate Exchanges are also submitting contemporaneous 
identical rule filings.
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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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with section 6(b)(4) \8\ of the Act, which 
requires that Exchange rules 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity fees for 10Gb 
physical ports. Further, the current 10 Gb physical port fee has 
remained unchanged since June 2018.\9\ Since its last increase 5 years 
ago however, there has been notable inflation. Particularly, the dollar 
has had an average inflation rate of 3.9% per year between 2018 and 
today, producing a cumulative price increase of approximately 21.1% 
inflation since the fee for the 10 Gb physical port was last 
modified.\10\ Accordingly, the Exchange believes the

[[Page 47210]]

proposed fee is reasonable as it represents only an approximate 13% 
increase from the rates adopted five years ago, notwithstanding the 
cumulative rate of 21.1%.
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    \9\ See Securities and Exchange Release No. 83429 (June 14, 
2018), 83 FR 28685 (June 20, 2018) (SR-CboeBZX-2018-038).
    \10\ See https://www.officialdata.org/us/inflation/2010?amount=1.
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    The Exchange also believes the proposed fee is reasonable as it is 
still in line with, or even lower than, amounts assessed by other 
exchanges for similar connections.\11\ As noted above, the proposed fee 
is also the same as is concurrently being proposed for its Affiliate 
Exchanges. Further, Members are able to utilize a single port to 
connect to any of the Affiliate Exchanges with no additional fee 
assessed for that same physical port. Particularly, the Exchange 
believes the proposed monthly per port fee is reasonable, equitable and 
not unfairly discriminatory as it is assessed only once, even if it 
connects with another affiliate exchange since only one port is being 
used and the Exchange does not wish to charge multiple fees for the 
same port.
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    \11\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection 
to the respective exchange, which is analogous to the Exchange's 
10Gb physical port. See also New York Stock Exchange LLC, NYSE 
American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, 
Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN 
Circuits (which are analogous to the Exchange's 10 Gb physical port) 
are assessed $22,000 per month, per port.
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    The Exchange also believes that the proposed fee change is not 
unfairly discriminatory because it would be assessed uniformly across 
all market participants that purchase the physical ports. Further, 
Members and non-Members will continue to choose the method of 
connectivity based on their specific needs and no broker-dealer is 
required to become a Member of, let alone connect directly to, the 
Exchange. There is also no regulatory requirement that any market 
participant connect to any one particular exchange. Moreover, direct 
connectivity is not a requirement to participate on the Exchange. The 
Exchange also believes substitutable products and services are 
available to market participants, including, among other things, other 
options exchanges that a market participant may connect to in lieu of 
the Exchange, indirect connectivity to the Exchange via a third-party 
reseller of connectivity, and/or trading of any options product, such 
as within the Over-the-Counter (OTC) markets. Indeed, there are 
currently 16 registered options exchanges that trade options, some of 
which have similar or lower connectivity fees.\12\ Based on publicly 
available information, no single options exchange has more than 
approximately 19% of the market share.\13\ Further, low barriers to 
entry mean that new exchanges may rapidly enter the market and offer 
additional substitute platforms to further compete with the Exchange 
and the products it offers. For example, there are 3 exchanges that 
have been added in the U.S. options markets in the last 5 years (i.e., 
Nasdaq MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one 
additional options exchange that is expected to launch in 2023 (i.e., 
MEMX LLC).
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    \12\ Id.
    \13\ See Cboe Global Markets U.S. Options Market Volume Summary 
(June 27, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    As noted above, there is no regulatory requirement that any market 
participant connect to any one options exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on the Exchange, or trade any particular product 
offered on an exchange. Moreover, membership is not a requirement to 
participate on the Exchange. A market participant may submit orders to 
the Exchange via a Member broker or a third-party reseller of 
connectivity. Indeed, the Exchange is unaware of any one options 
exchange whose membership includes every registered broker-dealer. By 
way of example, while the Exchange currently has 61 members that trade 
options, Cboe EDGX has 51 members that trade options, and Cboe C2 has 
52 Trading Permit Holders (``TPHs'') (i.e., members). There is also no 
firm that is a Member of BZX Options only. Further, based on publicly 
available information regarding a sample of the Exchange's competitors, 
NYSE American Options has 71 members,\14\ and NYSE Arca Options has 69 
members,\15\ MIAX Options has 46 members \16\ and MIAX Pearl Options 
has 40 members.\17\
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    \14\ See https://www.nyse.com/markets/american-options/membership#directory.
    \15\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \16\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
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    Additionally, the Exchange notes that non-Members such as Service 
Bureaus and Extranets resell exchange connectivity. This indirect 
connectivity is another viable alternative for market participants to 
trade on the Exchange without connecting directly to the Exchange (and 
thus not pay the Exchange's connectivity fees), which alternative is 
already being used by non-Members and further constrains the price that 
the Exchange is able to charge for connectivity to its Exchange. The 
Exchange notes that it could, but chooses not to, preclude market 
participants from reselling its connectivity. The Exchange also chooses 
not to adopt fees that would be assessed to third-party resellers on a 
per customer basis (i.e., fee based on number of Members that connect 
to the Exchange indirectly via the third-party). Indeed, the Exchange 
does not receive any connectivity revenue when connectivity is resold 
by a third-party, which often is resold to multiple customers, some of 
whom are agency broker-dealers that have numerous customers of their 
own.
    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether direct connectivity to the Exchange is appropriate and 
worthwhile, and as noted above, no broker-dealer is required to become 
a Member of the Exchange, let alone connect directly to it. In the 
event that a market participant views the Exchange's proposed fee 
change as more or less attractive than the competition, that market 
participant can choose to connect to the Exchange indirectly or may 
choose not to connect to that exchange and connect instead to one or 
more of the other 15 options markets. Notwithstanding the foregoing, 
the Exchange still believes that the proposed fee increase is 
reasonable, equitably allocated and not unfairly discriminatory, even 
for market participants that determine to connect directly to the 
Exchange for business purposes, as those business reasons should 
presumably result in revenue capable of covering the proposed fee.

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. The proposed fee change will 
not impact intramarket competition because it will apply to all 
similarly situated Members equally (i.e., all market participants that 
choose to purchase the 10 Gb physical port).
    The Exchange's proposed fee is still lower than some fees for 
similar connectivity on other exchanges and therefore may stimulate 
intermarket competition by attracting additional firms to connect to 
the Exchange or at least should not deter interested participants from 
connecting directly to

[[Page 47211]]

the Exchange. Further, if the changes proposed herein are unattractive 
to market participants, the Exchange can, and likely will, see a 
decline in connectivity via 10 Gb physical ports as a result. The 
Exchange operates in a highly competitive market in which market 
participants can determine whether or not to connect directly to the 
Exchange based on the value received compared to the cost of doing so.

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 \18\ and paragraph (f) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-2023-047 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-2023-047. 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 
a.m. and 3 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-2023-047 and should 
be submitted on or beforeAugust 11, 2023.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15477 Filed 7-20-23; 8:45 am]
BILLING CODE 8011-01-P