[Federal Register Volume 89, Number 95 (Wednesday, May 15, 2024)]
[Notices]
[Pages 42564-42567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10591]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100090; File No. SR-CboeBZX-2024-034]


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

May 9, 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 May 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 May 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. 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 Market Volume Summary 
by Month (April 19, 2024), 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.
    The Exchange currently offers six Market Maker Penny Add Volume 
Tiers (``MM Penny Add Tier'') under Footnote

[[Page 42565]]

6 of the Fees Schedule, which provide additional rebates between $0.31 
and $0.43 per contract for qualifying Market Maker orders (i.e., that 
yield fee code PM) \4\ where a Member meets certain liquidity 
thresholds.
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    \4\ Orders yielding fee code PM are Market Maker orders that add 
liquidity in Penny Program Securities and are offered a rebate of 
$0.29.
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    Currently, the MM Penny Add Tiers include two Market Maker Cross-
Asset Add Tiers, both of which require participation on the Exchange's 
equities platform (``BZX Equities''). Under Market Maker Cross-Asset 
Add Tier 1, the Exchange provides a rebate of $0.38 per contract where 
a Member (1) has an ADAV \5\ in Market Maker orders greater than or 
equal to 0.10% of average OCV; \6\ (2) has on BZX Equities an ADAV 
greater than or equal to 0.40% of average TCV; \7\ and (3) is the Lead 
Market Maker (``LMM'') \8\ on BZX Equities in at least 50 equity 
symbols. Under Market Maker Cross-Asset Add Tier 2, the Exchange 
currently provides 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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    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added.
    \6\ ``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.
    \7\ ``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.
    \8\ ``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).
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    The Exchange proposes to delete Market Maker Cross-Asset Add Tier 1 
and amend the criteria for Market Maker Cross-Asset Add Tier 2.\9\ No 
Members are currently satisfying the criteria under Market Maker Cross-
Asset Add Tier 1, and the Exchange no longer wishes to, nor is it 
required to, maintain the tier. As proposed, under the remaining Market 
Maker Cross-Asset Add Tier, the Exchange will provide a rebate of $0.39 
per contract where a Member (1) has an ADAV in Market Maker orders in 
SPY, QQQ greater than or equal to 0.20% of average SPY, QQQ OCV; (2) 
has on has on [sic] BZX Equities an ADAV greater than or equal to 0.45% 
of average TCV or an ADAV greater than or equal to 45,000,000,000; and 
(3) is the LMM on BZX Equities in at least 50 equity symbols.
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    \9\ As part of this proposed rule change, the Exchange proposes 
to rename ``Market Maker Cross-Asset Add Tier 2'' to ``Market Maker 
Cross-Asset Add Tier''.
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    The Exchange believes the amended tier criteria for the Market 
Maker Cross-Asset Add Tier, 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. Overall, the MM Penny Add Tiers, including the 
Market Maker Cross-Asset Add Tier, 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 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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    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 
market participants. 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. The proposed fee 
changes reflect a competitive pricing structure designed to incentivize 
market participants to direct their order flow, which the Exchange 
believes would enhance market quality to the benefit of all Members.
    The Exchange believes that it is reasonable to eliminate Market 
Maker Cross-Asset Add Tier 1 because the Exchange is not required to 
maintain this tier or provide Members an opportunity to receive 
enhanced rebates. As stated, no Members are currently satisfying the 
criteria under these tiers, and the proposed change enables the 
Exchange to redirect resources and funding into other programs and 
tiers intended to incentivize increased order flow. Further, Members 
still have other opportunities to obtain reduced fees via the remaining 
MM Penny Add Tiers.
    The Exchange believes that eliminating Market Maker Cross-Asset Add 
Tier 1 is equitable and not unfairly discriminatory because it applies 
uniformly to all Members, in that, the tier will not be available for 
any Member. The Exchange also notes that the proposed change will not 
adversely impact any Member's pricing or their ability to qualify for 
other rebate tiers. Further, the MM Penny Add Tiers will continue to 
apply uniformly to all qualifying Members, in that all Members that 
submit the requisite order flow per each tier program have the 
opportunity to compete for and achieve the available tiers.
    Additionally, the Exchange believes the amended criteria for the 
remaining Market Maker Cross-Asset Add Tier is 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 the Market Maker Cross-
Asset Add Tier. Specifically, the Exchange believes the amended 
criteria reasonably encourages Members to increase their ADAV in Market 
Makers

[[Page 42566]]

orders in SPY and QQQ over a modestly higher percentage of average SPY, 
QQQ OCV, and to increase their ADAV on BZX Equities. 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 
increases 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 Cross-Asset Add Tier, as amended. While the Exchange has no way of 
knowing whether this proposed rule change would definitively result in 
any particular Market Maker qualifying for the Cross-Asset Add Tier, as 
amended, the Exchange anticipates that approximately one Market Maker 
will be able to compete for and achieve the proposed criteria of the 
amended tier; however, the tier is open to any Market Maker that 
satisfies the tier's amended criteria. The Exchange believes the tier, 
as amended, could provide an incentive for other Members to submit 
additional liquidity on BZX Options and Equities to qualify for the 
enhanced rebate. To the extent a Member participates on the Exchange 
but not on BZX Equities, the Exchange does believe that the proposal 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 change 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 enhanced rebate on the Exchange.
    The Exchange also notes that it does not believe the proposed 
changes 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 enhanced rebate, and 
has alternative choices to aim to achieve under the MM Penny Add Tiers. 
Furthermore, the enhanced rebate would apply to all Members that meet 
the proposed required criteria under 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. The proposal to eliminate 
Market Maker Cross-Asset Add Tier 1 applies to all Members, in that, 
such tier will not be available for any Member. All Members will 
continue to have an opportunity receive enhanced rebates or reduced 
fees offered under various tiers, including the remaining Market Maker 
Cross-Asset Add Tier, as amended. Additionally, the proposal to amend 
the remaining Market Maker Cross-Asset Tier will apply to all Members 
and all Members will continue to have an opportunity to receive the 
corresponding rebate through the program.
    All MM Penny Add Tiers are generally designed to increase the 
competitiveness of BZX and incentivize participants to increase their 
order flow on the Exchange, providing for additional execution 
opportunities for market participants and improved price transparency. 
An overall increase in add activity may provide for deeper, more liquid 
markets and execution opportunities at improved prices. Furthermore, 
greater overall order flow, trading opportunities, and pricing 
transparency benefit all market participants on the Exchange by 
enhancing market quality and continuing to encourage Members to send 
orders, thereby contributing towards a robust and well-balanced market 
ecosystem.
    As discussed above, to the extent a Member participates on the 
Exchange but not on BZX Equities, the Exchange notes that the proposed 
change 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.'' \14\
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    \14\ 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 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.\15\ 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

[[Page 42567]]

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.'' \16\ 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'. . . .''.\17\ 
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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    \15\ See supra note 3.
    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \17\ 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 \18\ and paragraph (f) of Rule 19b-4 \19\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-034 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-2024-034. 
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-2024-034 and 
should be submitted on or before June 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10591 Filed 5-14-24; 8:45 am]
BILLING CODE 8011-01-P