[Federal Register Volume 89, Number 124 (Thursday, June 27, 2024)]
[Notices]
[Pages 53687-53690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14062]



[[Page 53687]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100395; File No. SR-CboeBZX-2024-054]


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

June 21, 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 June 10, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 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 to adopt fees for 
Dedicated Cores, effective June 10, 2024.
    Effective June 10, 2024, the Exchange will begin allowing Users \3\ 
to assign a Single Binary Order Entry (``BOE'') logical order entry 
port \4\ to a single dedicated Central Processing Unit (CPU Core) 
(``Dedicated Core''). Historically, CPU Cores had been shared by 
logical order entry ports (i.e., multiple logical ports from multiple 
firms may connect to a single CPU Core). Use of Dedicated Cores 
however, can provide reduced latency, enhanced throughput, and improved 
performance since a firm using a Dedicated Core is utilizing the full 
processing power of a CPU Core instead of sharing that power with other 
firms. This offering is completely voluntary and is available to all 
Users that wish to purchase Dedicated Cores. Users may utilize BOE 
logical order entry ports on shared CPU Cores, either in lieu of, or in 
addition to, their use of Dedicated Core(s). As such, Users are able to 
operate across a mix of shared and dedicated CPU Cores which the 
Exchange believes provides additional risk and capacity management. 
Further, Dedicated Cores are not required nor necessary to participate 
on the Exchange and as such Users may opt not to use Dedicated Cores at 
all.
---------------------------------------------------------------------------

    \3\ A User may be either a Member or Sponsored Participant. The 
term ``Member'' shall mean any registered broker or dealer that has 
been admitted to membership in the Exchange, limited liability 
company or other organization which is a registered broker or dealer 
pursuant to Section 15 of the Act, and which has been approved by 
the Exchange. A Sponsored Participant may be a Member or non-Member 
of the Exchange whose direct electronic access to the Exchange is 
authorized by a Sponsoring Member subject to certain conditions. See 
Exchange Rule 11.3.
    \4\ Users may currently connect to the Exchange using a logical 
port available through an application programming interface 
(``API''), such as the Binary Order Entry (``BOE'') protocol. A BOE 
logical order entry port is used for order entry.
---------------------------------------------------------------------------

    The Exchange proposes to assess the following monthly fees for 
Users that wish to use Dedicated Cores and adopt a maximum limit. 
First, the Exchange proposes to provide up to two Dedicated Cores to 
all Users who wish to use Dedicated Cores, at no additional cost. For 
the use of more than two Dedicated Cores, the Exchange proposes to 
assess the following fees: $650 per Dedicated Core for 3-15 Dedicated 
Cores; $850 per Dedicated Core for 16-30 Dedicated Cores; and $1,050 
per Dedicated Core for 31 or more Dedicated Cores. The proposed fees 
are progressive and the Exchange proposes to include the following 
example in the Fees Schedule to provide clarity as to how the fees will 
be applied. Particularly, the Exchange will provide the following 
example: if a User were to purchase 16 Dedicated Cores, it will be 
charged a total of $9,300 per month ($0 * 2 + $650 * 13 + $850 * 1). 
The Exchange also proposes to make clear in the Fees Schedule that the 
monthly fees are assessed and applied in their entirety and are not 
prorated. The Exchange notes the current standard fees assessed for BOE 
Logical Ports, whether used with Dedicated or shared CPU cores, will 
remain applicable and unchanged.\5\
---------------------------------------------------------------------------

    \5\ The Exchange currently assesses $550 per port per month. 
Port fees will also continue to be assessed on the first two 
Dedicated Cores that Users receive at no additional cost. See Cboe 
BZX Equities Fee Schedule.
---------------------------------------------------------------------------

    Since the Exchange currently has a finite amount of physical space 
in its data centers in which its servers (and therefore corresponding 
CPU Cores) are located, the Exchange also proposes to prescribe a 
maximum limit on the number of Dedicated Cores that Users may purchase 
each month. The purpose of establishing these limits is to manage the 
allotment of Dedicated Cores in a fair manner and to prevent the 
Exchange from being required to expend large amounts of resources in 
order to provide an unlimited number of Dedicated Cores. The Exchange 
proposes to provide that Members will be limited to a maximum number of 
60 Dedicated Cores \6\ and Sponsoring Members will be limited to a 
maximum number of 25 Dedicated Cores for each of their Sponsored Access 
relationships.\7\ The

[[Page 53688]]

Exchange notes that it will continue monitoring Dedicated Core interest 
by all Users and allotment availability with the goal of increasing 
these limits to meet Users' needs if and when the demand is there and 
the Exchange is able to accommodate additional Dedicated Cores.
---------------------------------------------------------------------------

    \6\ The prescribed maximum quantity of Dedicated Cores for 
Members applies regardless of whether that Member purchases the 
Dedicated Cores directly from the Exchange and/or through a Service 
Bureau. In a Service Bureau relationship, a customer allows its MPID 
to be used on the ports of a technology provider, or Service Bureau. 
One MPID may be allowed on several different Service Bureaus.
    \7\ The fee tier(s) applicable to Sponsoring Members are 
determined on a per Sponsored Access relationship basis and not on 
the combined total of Dedicated Cores across Sponsored Users. For 
example, under the proposed changes, a Sponsoring Member that has 
three Sponsored Access relationships is entitled to a total of 75 
Dedicated Cores for those 3 Sponsored Access relationships but would 
be assessed fees separately based on the 25 Dedicated Cores for each 
Sponsored User (instead of combined total of 75 Dedicated Cores). 
For example, a Sponsoring Member with 3 Sponsored Access 
relationships would pay $16,950 per month if each Sponsored Access 
relationship purchased the maximum 25 Dedicated Cores. More 
specifically, the Sponsoring Member would be provided 2 Dedicated 
Cores at no additional cost for each Sponsored User under Tier 1 
(total of 6 Dedicated Cores at no additional cost) and provided an 
additional 13 Dedicated Cores at $650 each for each Sponsored User, 
10 Dedicated Cores at $850 each for each Sponsored User (combined 
total of 69 additional Dedicated Cores).
---------------------------------------------------------------------------

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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ 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) \11\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposal is reasonable because the 
Exchange is offering any Users who wishes to utilize Dedicated Cores up 
to two Dedicated Cores at no additional cost. The Exchange believes the 
proposed fees are reasonable because Dedicated Cores provide a valuable 
service in that it may provide reduced latency, enhanced throughput, 
and improved performance compared to use of a shared CPU Core since a 
firm using a Dedicated Core is utilizing the full processing power of a 
CPU Core. The Exchange also emphasizes however, that the use of 
Dedicated Cores is not necessary for trading and as noted above, is 
entirely optional. Users can also continue to access the Exchange 
through shared CPU Cores at no additional cost. For example, less than 
half of the members of the Exchange's affiliate Cboe EDGA Exchange, 
Inc., (``Cboe EDGA'') currently use Dedicated Cores on Cboe EDGA. 
Depending on a firm's specific business needs, the proposal enables 
Users to choose to use Dedicated Cores in lieu of, or in addition to, 
shared CPU Cores (or as noted, not use Dedicated Cores at all). If a 
User finds little benefit in having Dedicated Cores, or determines 
Dedicated Cores are not cost-efficient for its needs or does not 
provide sufficient value to the firm, such User may continue its use of 
the shared CPU Cores, unchanged. The Exchange also has no plans to 
eliminate shared CPU Cores nor to require Users to purchase Dedicated 
Cores.
    The Exchange also believes that the proposed Dedicated Core fees 
are equitable and not unfairly discriminatory because they continue to 
be assessed uniformly to similarly situated users in that all Users who 
choose to purchase Dedicated Cores will be subject to the same proposed 
tiered fee schedule. Further all Users are entitled to up to 2 
Dedicated Cores at no additional cost. The Exchange believes the 
proposed ascending fee structure is also reasonable, equitable and not 
unfairly discriminatory as it is designed so that firms that use a 
higher allotment of the Exchange's finite number of Dedicated Cores pay 
higher rates, rather than placing that burden on market participants 
that have more modest needs who will have the flexibility of obtaining 
Dedicated Cores at lower price points in the lower tiers. As such, the 
proposed fees do not favor certain categories of market participants in 
a manner that would impose a burden on competition; rather, the 
ascending fee structure reflects the (finite) resources consumed by the 
various needs of market participants--that is, the lowest Dedicated 
Core consuming Users pay the least, and highest Dedicated Core 
consuming Users pay the most. Other exchanges similarly assess higher 
fees to those that consume more Exchange resources.\12\ It's also 
designed to encourage firms to manage their needs in a fair manner and 
to prevent the Exchange from being required to expend large amounts of 
resources in order to provide an additional number of Dedicated Cores. 
Moreover, as discussed above and in more detail below, the Exchange 
cannot currently offer an unlimited number of Dedicated Cores due in 
part to physical space constraints. The Exchange believes the proposed 
ascending fee structure is another appropriate means, in conjunction 
with an established cap, to manage this finite resource and ensure the 
resource is apportioned more fairly.
---------------------------------------------------------------------------

    \12\ See also Cboe U.S. Options Fees Schedule, BZX Options, 
Options Logical Port Fees, Ports with Bulk Quoting Capabilities.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to limit the number of 
Dedicated Cores Users can purchase because the Exchange has a finite 
amount of space in its third-party data centers to accommodate CPU 
cores, including Dedicated Cores. The Exchange must also take into 
account timing considerations in procuring additional Dedicated Cores 
and related hardware such as servers, switches, optics and cables, as 
well as the readiness of the Exchange's data center to accommodate 
additional Dedicated Cores in the Exchange's respective Order Handler 
Cabinets. The Exchange will monitor market participant demand and space 
availability and endeavor to adjust the limit if and when the Exchange 
is able to accommodate additional Dedicated Cores. The Exchange 
monitors its capacity and data center space and thus is in the best 
place to determine these limits and modify them as appropriate in 
response to changes to this capacity and space, as well as market 
demand. For example, Cboe EDGA has increased the prescribed maximum 
limit twice since the launch of Dedicated Cores on its exchange on 
February 26, 2024 as a result of evaluating the demand relative to 
Dedicated Cores availability.\13\ The proposed limits also apply 
uniformly to similarly situated market participants (i.e., all Members 
are subject to the same limit and all Sponsored Participants are 
subject to the same limit, respectively). The Exchange believes it's 
not unfairly discriminatory to provide for different limits for 
different types of Users. For example, the Exchange believe it's not 
unfairly discriminatory to provide for an initial lower limit to be 
allocated for Sponsored Participants because unlike Members, Sponsored 
Participants are able to access the Exchange without paying a 
Membership Fee. Members also have more regulatory obligations and risk 
that Sponsored Participants do not. For example, while Sponsored 
Participants must agree to comply with the Rules of the Exchange, it is 
the Sponsoring Member of that Sponsored Participant that remains 
ultimately responsible for all orders entered on or

[[Page 53689]]

through the Exchange by that Sponsored Participant. The industry also 
has a history of applying fees differently to Members as compared to 
Sponsored Participants.\14\ Lastly, the Exchange believes its proposed 
maximum limits, and distinction between Members and Sponsored Users, is 
another appropriate means to help the Exchange manage its allotment of 
Dedicated Cores and better ensure this finite resource is apportioned 
fairly.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 99983 (April 17, 
2024) 89 FR 30418 (April 23, 2024) (SR-CboeBZX-2024-014) and SR-
CboeBZX-2024-020.
    \14\ See e.g., Securities Exchange Act Release No. 68342 
(December 3, 2012) 77 FR 73096 (December 7, 2012) (SR-CBOE-2012-
114).and Securities Exchange Act Release No. 66082 (January 3, 2012) 
77 FR 1101 (January 9, 2012) (SR-C2-2011-041).
---------------------------------------------------------------------------

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 intramarket competition that is not necessary in 
furtherance of the purposes of the Act because the proposed tiered fee 
structure will apply equally to all similarly situated Users that 
choose to use Dedicated Cores. As discussed above, Dedicated Cores are 
optional and Users may choose to utilize Dedicated Cores, or not, based 
on their views of the additional benefits and added value provided by 
utilizing a Dedicated Core. The Exchange believes the proposed fees 
will be assessed proportionately to the potential value or benefit 
received by Users with a greater number of Dedicated Cores and notes 
that Users may determine at any time to cease using Dedicated Cores. As 
discussed, Users can also continue to access the Exchange through 
shared CPU Cores at no additional cost. Finally, all Users will be 
entitled to two Dedicated Cores at no additional cost.
    Next, the Exchange believes the proposed rule change does not 
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, 
including competition for exchange memberships. Market Participants 
have numerous alternative venues that they may participate on, 
including 15 other equities exchanges, as well as off-exchange venues, 
where competitive products are available for trading. Indeed, 
participants can readily choose to submit their order flow 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.'' \15\ 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' . . . .''.\16\ Accordingly, the Exchange does not believe its 
proposed change imposes any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \16\ 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)).
---------------------------------------------------------------------------

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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2024-054 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-2024-054. 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-2024-054 and should 
be submitted on or before July 18, 2024.


[[Page 53690]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14062 Filed 6-26-24; 8:45 am]
BILLING CODE 8011-01-P