[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Notices]
[Pages 19942-19944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05837]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99739; File No. SR-CboeBZX-2024-021]


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

March 14, 2024.
    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 March 1, 2024, 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 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 Fees Schedule, effective March 
1, 2024.
    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 16% 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.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (February 26, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange assesses fees in connection with orders routed away to 
various exchanges. The Fees Schedule currently lists fee codes and 
their corresponding transaction fees for certain Customer orders routed 
to other options exchanges. Currently, under the Fee Codes and 
Associated Fees section of the Fee Schedule, fee code RP is appended to 
routed Customer orders to NYSE American (``AMEX''), BOX Options 
Exchange (``BOX''), Nasdaq BX Options (``BX''), Cboe Exchange, Inc. 
(``Cboe''), Cboe EDGX Exchange, Inc. (``EDGX''), MIAX Options Exchange 
(``MIAX'') or Nasdaq PHLX LLC (``PHLX'') (excluding orders in SPY 
options) and assesses a charge of $0.25 per contract; fee code RQ is 
appended to routed Customer orders in Penny Program classes to NYSE 
Arca, Inc (``ARCA''), Cboe C2 Exchange, Inc. (``C2''), Nasdaq ISE 
(``ISE''), ISE Gemini, LLC (``GMNI''), ISE Mercury, LLC (``MERC''), 
MIAX Emerald Exchange (``EMLD''), MIAX Pearl Exchange (``PERL''), 
Nasdaq Options Market LLC (``NOM''), MEMX LLC (``MEMX''), or PHLX (for 
orders in SPY options) and assesses a charge of $0.85 per contract; and 
fee code RR is appended to routed Customer orders in Non-Penny classes 
to ARCA, C2, ISE, GMNI, MERC, EMLD, PERL, NOM or MEMX and assesses a 
charge of $1.25.
    The Exchange notes that its current approach to routing fees is to 
set forth in a simple manner certain sub-categories of fees that 
approximate the cost of routing to other options exchanges based on the 
cost of transaction fees assessed by each venue as well as costs to the 
Exchange for routing (i.e., clearing fees, connectivity and other 
infrastructure costs, membership fees, etc.) (collectively, ``Routing 
Costs''). The Exchange then monitors the fees charged as compared to 
the costs of its routing services and adjusts its routing fees and/or 
sub-categories to ensure that the Exchange's fees do indeed result in a 
rough approximation of overall Routing Costs and are not significantly 
higher or lower in any area. The Exchange notes that at least one other 
options exchange currently assesses routing fees in a similar manner as 
the Exchange's

[[Page 19943]]

current approach to assessing approximate routing fees.\4\
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    \4\ See, e.g., MIAX Options Exchange Fee Schedule, Section 1(c), 
``Fees for Customer Orders Routed to Another Options Exchange.''
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    The Exchange proposes to amend fee code RP to exclude applicable 
Customer orders routed to Nasdaq BX Options (i.e., BX) and to amend fee 
codes RQ and RR to add applicable Customer orders routed to BX. The 
charge assessed per contract for each fee code remain the same under 
the proposed rule change.
    The proposed changes result in an assessment of fees that, given 
fees of an away options exchange, is more in line with the Exchange's 
current approach to routing fees, that is, in a manner that 
approximates the cost of routing Customer orders to other away options 
exchanges, based on the general cost of transaction fees assessed by 
the sub-category of away options exchanges for such orders (as well as 
the Exchange's Routing Costs).\5\ The Exchange notes that routing 
through the Exchange is optional and that Members will continue to be 
able to choose where to route applicable Customer orders.
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    \5\ See BX Options 7 (Pricing Schedule), Section 2.
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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) of the Act,\9\ which requires 
that Exchange rules provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Trading Permit Holders 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 rule change to amend fee codes 
RP, RQ, and RR to account for BX's current assessment of fees for 
Customer orders is reasonable because it is reasonably designed to 
assess routing fees in line with the Exchange's current approach to 
routing fees. That is, the proposed rule change is intended to include 
Customer orders in Penny Program and Non-Penny classes routed to BX in 
the most appropriate sub-category of fees that approximates the cost of 
routing to a group of away options exchanges based on the cost of 
transaction fees assessed by each venue as well as Routing Costs to the 
Exchange.
    As described above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. The proposed rule change 
reflects a competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange believes would enhance market quality to the benefit of all 
Members. The Exchange notes that at least one other options exchange 
currently approximates routing fees in a similar manner as the 
Exchange's current approach.\10\
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    \10\ See supra note 2[sic].
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    Finally, the Exchange believes that the proposed rule change is 
equitable and not unfairly discriminatory because all Members' Customer 
orders in Penny Program and Non-Penny classes routed to BX will 
automatically yield fee codes RQ or RR, respectively, and uniformly be 
assessed the corresponding 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 Exchange does not 
believe the proposed rule change to amend fee codes RP, RQ, and RR will 
impose any burden on intramarket competition. All Members' Customer 
orders routing to BX and currently yielding fee code RP will, as 
proposed, yield fee code RQ or RR (depending on whether the order is in 
Penny Program or Non-Penny classes, respectively) and will 
automatically and uniformly be assessed the current fees already in 
place for such routed orders, as applicable.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that other options exchange approximate routing costs in a 
similar manner as the Exchange's current approach.\11\ Also, 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 16 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 16% of 
the market share.\12\ 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.'' \13\ 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'. . . .''.\14\ Accordingly, the

[[Page 19944]]

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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    \11\ Id.
    \12\ See supra note 1[sic].
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-021 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-2024-021. 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 (http://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-2024-021 and should be submitted 
on or before April 10, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05837 Filed 3-19-24; 8:45 am]
BILLING CODE 8011-01-P