[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68830-68833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22009]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98646; File No. SR-CboeBZX-2023-067]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove Proposed Rule Change To Amend Its Fee Schedule 
Related to Physical Port Fees

September 29, 2023.

I. Introduction

    On September 1, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File Number SR-CboeBZX-2023-067) to amend its fee 
schedule to increase the monthly fee for 10 gigabit (``Gb'') physical 
ports. The proposed rule change was immediately effective upon filing 
with the Commission pursuant to Section 19(b)(3)(A) of the Act.\3\ The 
proposed rule change was published for comment in the Federal Register 
on September 20, 2023.\4\ Pursuant to Section 19(b)(3)(C) of the 
Act,\5\ the Commission is hereby: (1) temporarily suspending the 
proposed rule change; and (2) instituting proceedings to determine 
whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release No. 98395 (September 14, 
2023), 88 FR 64950 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Background and Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule for its equities 
platform (``BZX Equities'') relating to physical connectivity fees. The 
Exchange proposes to increase the monthly fee for 10 Gb physical ports 
from $7,500 to $8,500 per port. The Exchange currently assesses the 
following physical connectivity fees for Members \6\ and non-Members on 
a monthly basis: $2,500 per physical port for a 1 Gb circuit and $7,500 
per physical port for a 10 Gb circuit.\7\ According to the Exchange, 
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 options platform (BZX 
Options), Cboe EDGX Exchange, Inc. (options and equities platforms), 
Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe C2 
Exchange, Inc.
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    \6\ The term ``Member'' means any registered broker or dealer 
that has been admitted to membership in the Exchange. See Exchange 
Rule 1.5(n).
    \7\ 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.

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[[Page 68831]]

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\8\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\9\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. The Commission believes a temporary suspension of the proposed 
rule change is necessary and appropriate to allow for additional 
analysis of the proposed rule change's consistency with the Act and the 
rules thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(C).
    \9\ 15 U.S.C. 78s(b)(1).
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    In support of the proposal, the Exchange states its belief that the 
proposed fee change is reasonable as it reflects a moderate increase in 
physical connectivity fees for 10 Gb physical ports.\10\ The Exchange 
states that the current 10 Gb physical port fee has remained unchanged 
since June 2018.\11\ The Exchange states that during this 5-year span 
there has been an average inflation rate of 3.9%, producing a 
cumulative price increase of approximately 21.1% inflation since the 
fee for the 10 Gb physical port was last modified.\12\ In support of 
its claim of reasonableness, the Exchange compares its proposed rate 
increase from the rates adopted five years ago of approximately 13% to 
the cumulative inflation rate of 21.1%.\13\
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    \10\ See Notice, supra note 4, at 64951.
    \11\ See id.
    \12\ See id.
    \13\ See id.
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    In further support of the proposal, the Exchange states that the 
proposed fee is reasonable, fair, and equitable, and not unfairly 
discriminatory.\14\ The Exchange believes that the proposed fee is 
reasonable as it is still in line with, or even lower than, amounts 
assessed by other exchanges for similar connections.\15\ The Exchange 
also states its belief that the fee is not unfairly discriminatory, 
because the fee would be assessed uniformly across all market 
participants that purchase the physical ports.\16\ The Exchange states 
that the fee is equitable because increasing the fee for 10 Gb physical 
ports and charging a higher fee as compared to the 1 Gb physical port 
as the 1 Gb physical port is 1/10 the size of the 10 Gb physical port 
and does not offer access to many of the products and services offered 
by the Exchange.\17\ The Exchange also states its belief the proposed 
fee is reasonably and appropriately allocated because, the Exchange 
states, market participants that purchase 10 Gb physical ports use the 
most bandwidth and therefore consume the most resources from the 
network.\18\
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    \14\ See id.
    \15\ See id.
    \16\ See id.
    \17\ See id. at 64951-64952.
    \18\ See id. at 64952.
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    In further support of its proposed fee, the Exchange states that 
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, or connect directly to, the 
Exchange.\19\ The Exchange also states its belief that substitutable 
products and services are available to market participants, including, 
among other things, other equities 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 equities product, such as within the Over-the-Counter markets.\20\ 
Additionally, the Exchange believes that 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.\21\ According to the Exchange, three new equities 
exchanges entered the market in 2020 (i.e., Long Term Stock Exchange 
(LTSE), Members Exchange (MEMX), and MIAX Pearl).\22\
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    \19\ See id.
    \20\ See id. The Exchange states there are currently 16 
registered equities exchanges that trade equities (12 of which are 
not affiliated with Cboe), some of which have similar or lower 
connectivity fees; and based on publicly available information, no 
single equities exchange has more than approximately 16% of the 
market share.
    \21\ See id.
    \22\ See id.
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    The Exchange states its belief that participation on the Exchange 
remains affordable (notwithstanding the proposed fee change) for all 
market participants, including smaller trading firms that may be able 
to take advantage of lower costs that result from mutualized 
connectivity.\23\ The Exchange states that a market participant may 
submit orders to the Exchange via a Member broker or a third-party 
reseller of connectivity.\24\ The Exchange notes that third-party non-
Members also resell exchange connectivity, which the Exchange states 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).\25\ The Exchange states it does not 
preclude market participants from reselling its connectivity and has 
not adopted 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).\26\ The Exchange notes 
that multiple Members are able to share a single physical port (and 
corresponding bandwidth) with other non-affiliated Members if purchased 
through a third-party reseller.\27\ The Exchange states its belief that 
this allows resellers to mutualize the costs of the ports for market 
participants and provide such ports at a price that may be lower than 
the Exchange charges due to this mutualized connectivity.\28\
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    \23\ See id.
    \24\ See id.
    \25\ See id. The Exchange states this 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.
    \26\ See id. The Exchange states its belief these third-party 
resellers may purchase the Exchange's physical ports and resell 
access to such ports either alone or as part of a package of 
services.
    \27\ See id.
    \28\ See id.
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    Finally, the Exchange states that the proposed fees would not cause 
any unnecessary or inappropriate burden on intermarket competition 
because proposed fee is 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 
the Exchange.\29\ The Exchange also states that 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.\30\ Furthermore, the Exchange states that it 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.\31\ The Exchange also states 
that the proposed rule change would not cause any unnecessary or 
inappropriate burden on 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).\32\

[[Page 68832]]

Additionally, the Exchange stated that it does not believe its proposed 
pricing will impose a barrier to entry to smaller participants and 
notes that its proposed connectivity pricing is associated with 
relative usage of the various market participants.\33\
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    \29\ See id. at 64953.
    \30\ See id.
    \31\ See id.
    \32\ See id.
    \33\ See id.
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    To date, the Commission has not received any comment letters on the 
proposed rule change.
    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\34\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \35\
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    \34\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \35\ See id.
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    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \36\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \37\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\38\
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    \36\ 15 U.S.C. 78f(b)(4).
    \37\ 15 U.S.C. 78f(b)(5).
    \38\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to increase 
the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port 
for the Exchange is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\39\
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    \39\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\40\
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    \40\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\41\ and 19(b)(2)(B) of the Act \42\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \41\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \42\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\43\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \43\ Id. Section 19(b)(2)(B) of the Act also provides that 
proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding, or if the exchange consents to 
the longer period. See id.
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     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(4) of the Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities''; \44\
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    \44\ 15 U.S.C. 78f(b)(4).
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     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers''; \45\ and
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    \45\ 15 U.S.C. 78f(b)(5).
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     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(8) of the Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Act].'' \46\
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    \46\ 15 U.S.C. 78f(b)(8).
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    As discussed in Section III above, the Exchange made various 
arguments in support of their proposal. The Commission believes that 
there are questions as to whether the Exchange has provided sufficient 
information to demonstrate that the proposed fees are consistent with 
the Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \47\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\48\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\49\
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    \47\ 17 CFR 201.700(b)(3).
    \48\ See id.
    \49\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated, not be unfairly discriminatory, and not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.\50\
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    \50\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect

[[Page 68833]]

to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 25, 2023. 
Rebuttal comments should be submitted by November 8, 2023. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\51\
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    \51\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    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-2023-067 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-2023-067. 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-2023-067 and should 
be submitted on or before October 25, 2023. Rebuttal comments should be 
submitted by November 8, 2023.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\52\ that File No. SR-CboeBZX-2023-067, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \52\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22009 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P