[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80349-80353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25383]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98913; File No. SR-CboeBZX-2023-091]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
November 13, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 1, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') 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/options/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.
[[Page 80350]]
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, effective November
1, 2023.
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 17 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 17% of the market share.\3\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange, including the Exchange, possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\3\ See Cboe Global Markets U.S. Options Monthly Market Volume
Summary (October 30, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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The Exchange's fee schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides a rebate of
$0.29 per contract for Market Maker orders that add liquidity in Penny
Securities, yielding fee code PM. 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. For
example, the Exchange currently offers five Market Maker Penny Add
Volume Tiers (``MM Penny Add Tier'') under footnote 6 of the Fee
Schedule which provide rebates between $0.31 and $0.43 per contract for
qualifying Market Maker orders which meet certain add liquidity
thresholds and yield fee code PM.
The Exchange proposes to amend the criteria for one of the MM Penny
Add Tiers, specifically the Market Maker Cross-Asset Add Tier, which
requires participation on the Exchange's equities platform (``BZX
Equities''). Under this tier, the Exchange currently provides a rebate
of $0.38 per contract where a Member (1) has an ADAV \4\ in Market
Maker orders greater than or equal to 0.05% of average OCV; \5\ (2) has
on BZX Equities an ADAV greater than or equal to 0.35% of average TCV;
\6\ and (3) is the Lead Market Maker (``LMM'') \7\ on BZX Equities in
at least 50 equity symbols. The Exchange proposes to amend the criteria
for this Market Maker Cross-Asset Add Tier.\8\ Under the proposed
criteria, the Exchange will provide a rebate of $0.38 per contract
where a Member (1) has an ADAV in Market Maker orders greater than or
equal to 0.10% of average OCV; (2) has on BZX Equities an ADAV greater
than or equal to 0.40% of average TCV; and (3) is the LMM on BZX
Equities in at least 50 equity symbols.
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\4\ ``ADAV'' means average daily added volume calculated as the
number of contracts added.
\5\ ``OCV'' means the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
\6\ ``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.
\7\ ``Lead Market Maker'' means a Market Maker registered with
the Exchange for a particular LMM Security that has committed to
maintain Minimum Performance Standards in the LMM Security. See Rule
11.8(e).
\8\ As part of this proposed rule change, the Exchange proposes
to rename this Market Maker Cross-Asset Tier as Market Maker Cross-
Asset Tier 1.
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Additionally, the Exchange proposes to adopt a new MM Penny Add
Tier, specifically Market Maker Cross-Asset Add Tier 2, which also
requires participation on BZX Equities.\9\ Under the proposed tier, the
Exchange would provide a rebate of $0.39 per contract where a Member
(1) has an ADAV in Market Maker orders greater than or equal to 0.20%
of average OCV; (2) has on BZX Equities an ADAV greater than or equal
to 0.45% of average TCV; and (3) is the LMM on BZX Equities in at least
50 equity symbols.
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\9\ The Exchange proposes to add this Tier as described in the
table in Footnote 6 and to the amounts of the rebates in the
Standard Rates table.
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The Exchange believes the amended tier criteria for Market Maker
Cross-Asset Tier 1 and the proposed Market Maker Cross-Asset Tier 2,
along with the existing MM Penny Add Tiers, continue to provide an
incremental incentive for Members to strive for the highest tier
levels, which provide increasingly higher rebates for such
transactions. The proposed thresholds for Market Maker Cross-Asset
Tiers 1 and 2 include thresholds relating to ADAV in Market Maker
orders and cross-asset thresholds, which are designed to incentivize
Members to achieve certain levels of participation on both the
Exchange's options and equities platforms. Overall, the MM Penny Add
Tiers, including the Market Maker Cross-Asset Tiers, are designed to
encourage Members to increase their order flow, thereby contributing to
a deeper and more liquid market, which benefits all market participants
and provides greater execution opportunities on the Exchange.
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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \11\ 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) \12\ 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) of the Act,\13\ which
requires that Exchange rules provide for the equitable allocation of
reasonable
[[Page 80351]]
dues, fees, and other charges among its Trading Permit Holders and
other persons using its facilities.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
\13\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes the proposed changes to the MM
Penny Add Tiers are reasonable because they provide additional
opportunities for Members to receive a rebate by providing alternative
criteria for which they can reach. The Exchange notes that volume-based
incentives and discounts have been widely adopted by exchanges,\14\
including the Exchange,\15\ 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. Additionally, as noted
above, the Exchange operates in a highly competitive market. The
Exchange is only one of several options venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. Competing options exchanges offer
similar tiered pricing structures to that of the Exchange, including
schedules of rebates and fees that apply based upon Members achieving
certain volume and/or growth thresholds. These competing pricing
schedules, moreover, are presently comparable to those that the
Exchange provides.
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\14\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule,
Footnote 2, Market Maker Volume Tiers, which provide reduced fees
between $0.02 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
\15\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule,
Footnotes 6 and 7, Market Maker Penny and Non-Penny Volume Tiers
which provide enhanced rebates for Market Maker orders where Members
meet certain volume thresholds.
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Moreover, the Exchange believes the proposed MM Penny Add Tier,
namely Market Maker Cross-Asset Tier 2, is a reasonable means to
encourage Members to increase their liquidity on the Exchange and also
their participation on BZX Equities. The Exchange believes that
adopting tiers with alternative criteria to the existing MM Penny Add
Tiers may encourage those Members who could not previously achieve the
criteria under existing MM Penny Add Tiers to increase their order flow
on BZX Options and Equities.
For example, the proposed Cross-Asset Tier 2 would provide an
opportunity for Members who have an ADAV in Market Maker orders of at
least 0.20% of average OCV, but less than the more stringent 0.45% of
average OCV (the requirement under current Tier 3), to receive a higher
rebate than they may currently receive but equal or slightly lower than
the rebate they would receive for reaching the more stringent criteria
under current Tiers 3 through 4, if they also meet the threshold
requirements based on BZX Equities participation. Similarly, for Market
Makers that participate on both BZX Options and Equities, and do not
currently meet the 0.35% ADAV threshold under current Tier 2, but can
or do meet the proposed equities thresholds, the proposed tier may
incentivize those participants to grow their options volume in order to
receive enhanced rebates. Increased liquidity benefits all investors by
deepening the Exchange's liquidity pool, offering additional
flexibility for all investors to enjoy cost savings, supporting the
quality of price discovery, promoting market transparency and improving
investor protection. The Exchange also believes that proposed enhanced
rebate is reasonable based on the difficulty of satisfying the tier's
criteria and ensures the proposed rebate and thresholds appropriately
reflect the incremental difficulty to achieve the existing MM Penny Add
Tiers.
The proposed enhanced rebate amounts also do not represent a
significant departure from the enhanced rebates currently offered under
the Exchange's existing MM Penny Add Tiers. Indeed, the proposed
enhanced rebate amount under the proposed Cross-Asset Add Tier 2
($0.39) is incrementally higher than current Tiers 1 and 2 ($0.31 and
$0.38, respectively), which the Exchange believes offer slightly less
stringent criteria than the proposed Cross-Asset Add Tier 2, but is
incrementally lower than the rebate offered under existing Tier 4
($0.43), which the Exchange believes is more stringent than the
proposed criteria under the proposed Cross-Asset Tier 2. Similarly, the
proposed enhanced rebate amount under the proposed Cross-Asset Tier 2
($0.39) is the same as current Tier 3 ($0.39), which the Exchange
believes reflects a similar level of difficulty but using alternative
types of criteria. Finally, the proposed enhanced rebate amount under
the proposed Cross-Asset Tier 2 ($0.39) is incrementally higher than
the rebate offered under existing Cross-Asset Add Tier 1, which the
Exchange believes is less stringent than the proposed criteria than the
proposed Cross-Asset Add Tier 2. The Exchange also notes that the
proposed rebates remain within the range of the enhanced rebates
offered under the current MM Penny Add Tiers (i.e., $0.31-$0.43).
Further, the Exchange believes that the amended criteria for Market
Maker Cross-Asset Tier 1 is a reasonable, as such changes are designed
to encourage Members to increase their liquidity on the Exchange and
also their participation on BZX Equities to continue to achieve the
rebate offered under Market Maker Cross-Asset Tier 1. The Exchange
notes that increased Market Maker activity (including LMMs),
particularly, facilitates tighter spreads and an increase in overall
liquidity provider activity, both of which signal additional
corresponding increase in order flow from other market participants,
contributing towards a robust, well-balanced market ecosystem. Indeed,
increased overall order flow benefits investors across both the
Exchange's options and equities platforms by continuing to deepen the
Exchange's liquidity pool, potentially providing even greater execution
incentives and opportunities, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because it
applies uniformly to all Market Makers. Additionally, a number of
Market Makers have a reasonable opportunity to satisfy the criteria of
the proposed Cross-Asset Add Tier 2, which the Exchange believes is
less stringent than the existing MM Penny Add Tiers 3 and 4, and the
criteria of Cross-Asset Add Tier 1, as amended, which the Exchange
believes is less stringent than MM Penny Add Tier 1. While the Exchange
has no way of knowing whether this proposed rule change would
definitively result in any particular Market Maker qualifying for the
proposed tiers, the Exchange anticipates that approximately one Market
Maker will be able to compete for and achieve the proposed criteria of
Cross-Asset Add Tier 1 and approximately one Market Maker will be able
to compete for and achieve the proposed criteria of the proposed Cross-
Asset Add Tier 2; however, the proposed tiers are open to any Market
Maker that satisfies the applicable tiers' criteria. The Exchange
believes the proposed tiers could provide an incentive for other
Members to submit additional liquidity on BZX Options and Equities to
qualify for the proposed enhanced rebates. To the extent a Member
participates on the Exchange but not on BZX Equities, the Exchange does
believe that the proposal
[[Page 80352]]
is still reasonable, equitably allocated and non-discriminatory with
respect to such Member based on the overall benefit to the Exchange
resulting from the success of BZX Equities. Particularly, the Exchange
believes such success allows the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on BZX
Equities or not. The proposed pricing program is also fair and
equitable in that membership in BZX Equities is available to all market
participants, which would provide them with access to the benefits on
BZX Equities provided by the proposed change, even where a member of
BZX Equities is not necessarily eligible for the proposed enhanced
rebates on the Exchange.
The Exchange also notes that it does not believe the proposed tier
will adversely impact any Member's pricing or ability to qualify for
other tiers. Rather, should a Member not meet the proposed criteria,
the Member will merely not receive the proposed enhanced rebate, and
has four alternative choices to aim to achieve under the MM Penny Add
Tiers. Furthermore, the proposed enhanced rebate would apply to all
Members that meet the required criteria under proposed tier.
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 Exchange does not
believe the proposed changes to the MM Penny Add Tiers will impose any
burden on intramarket competition. Particularly, the proposed change
applies uniformly to all Market Makers. As discussed above, to the
extent a Member participates on the Exchange but not on BZX Equities,
the Exchange notes that the proposed changes can provide an overall
benefit to the Exchange resulting from the success of BZX Equities.
Such success enables the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on BZX
Equities or not. The proposed pricing program is also fair and
equitable in that membership in BZX Equities is available to all market
participants. Additionally, the proposed change is designed to attract
additional order flow to the Exchange and BZX Equities. Greater
liquidity benefits all market participants on the Exchange by providing
more trading opportunities and encourages Members to send orders,
thereby contributing to robust levels of liquidity, which benefits all
market participant. As a result, the Exchange believes that the
proposed change furthers 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.'' \16\
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\16\ 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 does not believe that the proposed rule changes will
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 17 other options exchanges and
off-exchange venues. Additionally, the Exchange represents a small
percentage of the overall market. Based on publicly available
information, no single options exchange has more than 17% of the market
share.\17\ Therefore, no exchange possesses significant pricing power
in the execution of option 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.'' \18\ 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' . . . .''.\19\
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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\17\ See supra note 3.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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-2023-091 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 80353]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2023-091. 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-2023-091 and should
be submitted on or before December 8, 2023.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25383 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P