[Federal Register Volume 88, Number 208 (Monday, October 30, 2023)]
[Notices]
[Pages 74220-74224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98794; File No. SR-CboeBZX-2023-084]


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

October 24, 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 October 16, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX 
Equities'') 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 Equities'') 
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

[[Page 74221]]

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 relating to 
physical connectivity fees.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
July 3, 2023 (SR-CboeBZX-2023-046). On September 1, 2023, the 
Exchange withdrew that filing and submitted SR-CboeBZX-2023-067. On 
September 29, 2023, the Securities and Exchange Commission issued a 
Suspension of and Order Instituting Proceedings to Determine whether 
to Approve or Disapprove a Proposed Rule Change to Amend its Fees 
Schedule Related to Physical Port Fees (the ``OIP''). On October 2, 
2023, the Exchange filed the proposed fee change (SR-CboeBZX-2023-
080). On October 13, 2023, the Exchange withdrew that filing and on 
business date October 16, 2023 submitted this filing. No comment 
letters were received in connection with any of the foregoing rule 
filings.
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    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.\4\ 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. (``Affiliate Exchanges'').\5\
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    \4\ 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 10 Gb Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10 Gb 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.
    \5\ 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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ 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) \9\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 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 10 Gb 
physical ports. Further, the current 10 Gb physical port fee has 
remained unchanged since June 2018.\10\ 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.\11\ Moreover, the Exchange historically does not increase 
fees every year, notwithstanding inflation. Accordingly, the Exchange 
believes the 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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    \10\ See Securities and Exchange Release No. 83442 (June 14, 
2018), 83 FR 28675 (June 20, 2018) (SR-CboeBZX-2018-037).
    \11\ 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.\12\ Indeed, the Exchange believes 
assessing fees that are a lower rate than fees assessed by other 
exchanges for analogous connectivity (which were similarly adopted via 
the rule filing process and filed with the Commission) is reasonable. 
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. Indeed, the Exchange notes that 
several ports are in fact purchased and utilized across one or more of 
the Exchange's affiliated Exchanges (and charged only once).
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    \12\ 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 10 Gb Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10 Gb 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. The Exchange 
believes increasing the fee for 10 Gb physical ports and charging a 
higher fee as compared to the 1 Gb physical port is equitable as the 1 
Gb physical port is 1/10th the size of the 10 Gb physical port and 
therefore does not offer access to many of the products and services 
offered by the Exchange (e.g., ability to receive certain market data 
products). Thus, the value of the 1 Gb alternative is lower than the 
value of the 10 Gb alternative, when measured based on the type of 
Exchange access it offers. Moreover, market participants

[[Page 74222]]

that purchase 10 Gb physical ports utilize the most bandwidth and 
therefore consume the most resources from the network. As such, the 
Exchange believes the proposed fee change for 10 Gb physical ports is 
reasonably and appropriately allocated.
    The Exchange also notes 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 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 (OTC) markets which do not 
require connectivity to the Exchange. Indeed, 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.\13\ Based on publicly available information, no single equities 
exchange has more than approximately 16% of the market share.\14\ 
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, in 
2020 alone, three new exchanges entered the market: Long Term Stock 
Exchange (LTSE), Members Exchange (MEMX), and Miami International 
Holdings (MIAX Pearl).
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    \13\ Id.
    \14\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (June 29 2023), available at https://www.cboe.com/us/equities/market_statistics/.
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    As noted above, there is no regulatory requirement that any market 
participant connect to any one equities 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. Indeed, the Exchange is unaware of any one 
equities exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 132 members that 
trade equities, Cboe EDGX has 124 members that trade equities, Cboe 
EDGA has 103 members and Cboe BYX has 110 members. There is also no 
firm that is a Member of BZX Equities only. Further, based on publicly 
available information regarding a sample of the Exchange's competitors, 
NYSE has 143 members,\15\ IEX has 129 members,\16\ and MIAX Pearl has 
51 members.\17\
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    \15\ See https://www.nyse.com/markets/nyse/membership.
    \16\ See https://www.iexexchange.io/membership.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/20230630_MIAX_Pearl_Equities_Exchange_Members_June_2023.pdf.
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    A market participant may also submit orders to the Exchange via a 
Member broker or a third-party reseller of connectivity. The Exchange 
notes that third-party non-Members also 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 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.\18\ The Exchange notes that it could, but chooses not to, 
preclude market participants from reselling its connectivity. Unlike 
other exchanges, 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).\19\ Particularly, 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. 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 re-seller.\20\ 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. These third-party sellers may also provide an 
additional value to market participants as they may also manage and 
monitor these connections, and clients of these third-parties may also 
be able to connect from the same colocation facility either from their 
own racks or using the third-party's managed racks and infrastructure 
which may provide further cost-savings. As such, even firms that wish 
to utilize a single, dedicated 10 Gb port (i.e., use one single 10 Gb 
port themselves instead of sharing a port with ther firms), may still 
realize cost savings via a third-party reseller because such reseller 
may be providing additional services and infrastructure support 
alongside the physical port offering (e.g., providing space, hosting, 
power, and other long-haul connectivity options). Further, as noted 
above, 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. Therefore, given the availability of 
third-party providers that also offer connectivity solutions, the 
Exchange believes participation on the Exchange remains affordable 
(notwithstanding the proposed fee change) for all market participants, 
including trading firms that may be able to take advantage of lower 
costs that result from mutualized connectivity and/or from other 
services provided alongside the physical port offerings. Because third-
party resellers also act as a viable alternative to direct connectivity 
to the Exchange, the price that the Exchange is able to charge for 
direct connectivity to its Exchange is constrained. Further, the 
Exchange believes its offerings are more affordable as compared to 
similar offerings at competitor exchanges.\21\
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    \18\ Third-party resellers of connectivity play an important 
role in the capital markets infrastructure ecosystem. For example, 
third-party resellers can help unify access for customers who want 
exposure to multiple financial markets that are geographically 
dispersed by establishing connectivity to all of the different 
exchanges, so the customers themselves do not have to. Many of the 
third-party connectivity resellers also act as distribution agents 
for all of the market data generated by the exchanges as they can 
use their established connectivity to subscribe to, and 
redistribute, data over their networks. This may remove barriers 
that infrastructure requirements may otherwise pose for customers 
looking to access multiple markets and real-time data feeds. This 
facilitation of overall access to the marketplace is ultimately 
beneficial for the entire capital markets ecosystem, including the 
Exchange, on which such firms transact business.
    \19\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, US Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \20\ For example, a third-party reseller may purchase one 10 Gb 
physical port from the Exchange and resell that connectivity to 
three different market participants who may only need 3 Gb each and 
leverage the same single port.
    \21\ 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 10 Gbps Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10 Gbps 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 
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps 
physical port) are assessed $22,000 per month, per port.

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[[Page 74223]]

    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 12 non-Cboe affiliated equities markets. Indeed, 
market participants are free to choose which exchange or reseller to 
use to satisfy their business needs. Moreover, if the Exchange charges 
excessive fees, it may stand to lose not only connectivity revenues but 
also revenues associated with the execution of orders routed to it, 
and, to the extent applicable, market data revenues. The Exchange 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for 
connectivity. 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). Additionally, the Exchange 
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. 
For example, market participants with modest capacity needs can 
continue to buy the less expensive 1 Gb physical port (which cost is 
not changing) or may choose to obtain access via a third-party re-
seller. While pricing may be increased for the larger capacity physical 
ports, such options provide far more capacity and are purchased by 
those that consume more resources from the network. Accordingly, the 
proposed connectivity fees do not favor certain categories of market 
participants in a manner that would impose a burden on competition; 
rather, the allocation reflects the network resources consumed by the 
various size of market participants--lowest bandwidth consuming members 
pay the least, and highest bandwidth consuming members pays the most.
    The Exchange's proposed fee is also 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 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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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-2023-084 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-2023-084. 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-2023-084 and should 
be submitted on or before November 20, 2023.


[[Page 74224]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-23817 Filed 10-27-23; 8:45 am]
BILLING CODE 8011-01-P