[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Notices]
[Pages 61511-61514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16794]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100587; File No. SR-CboeBZX-2024-068]


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

July 25, 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 July 9, 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.

[[Page 61512]]

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.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
July 1, 2024 (SR-CboeBZX-2024-063). On July 9, 2024, the Exchange 
withdrew that filing and submitted this proposal.
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    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 13% of the market share.\4\ 
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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    \4\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (June 27, 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 
$0.25 per contract for Firm,\5\ Broker Dealer \6\ and Joint Back Office 
\7\ (``Firm/BD/JBO'') orders that add liquidity in Penny Securities, 
yielding fee code PF. 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.\8\ 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.
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    \5\ ``Firm'' applies to any order for the proprietary account of 
an OCC clearing member.
    \6\ ``Broker Dealer'' applies to any order for the account of a 
broker dealer, including a foreign broker dealer.
    \7\ ``Joint Back Office'' applies to any order for a joint back 
office account.
    \8\ As part of the proposed rule change, the Exchange proposes a 
clarifying change to remove the duplicative reference to a rebate of 
$0.39 for fee code PM in the Standard Rates table.
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    First, the Exchange proposes to increase the standard rebate for 
Firm/BD/JBO orders (i.e., yield fee code PF) that add liquidity in 
Penny Securities, from $0.25 to $0.26.\9\
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    \9\ In connection with the proposed fee changes, the Exchange 
also proposes to update the corresponding listed rebate of $0.25 for 
fee codes PF in the Fee Codes and Associated Fees table to the 
proposed new rebate of $0.26.
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    Second, the Exchange proposes to update the Firm, Broker Dealer, 
and Joint Back Office Penny Add Volume Tiers (i.e., applicable to 
orders yielding fee code PF) set forth in Footnote 2. The Exchange 
currently provides opportunities for rebates per contract to add 
liquidity in Penny Securities as follows:

------------------------------------------------------------------------
                                    Rebate per
             Tier                contract to add     Required criteria
------------------------------------------------------------------------
Tier 1........................  ($0.38)..........  Member has an ADAV *
                                                    in Firm/BD/JBO
                                                    orders >=0.20% of
                                                    average OCV.**
Tier 2........................  ($0.46)..........  (1) Member has an
                                                    ADAV in Away MM/Firm/
                                                    BD/JBO orders
                                                    >=1.05% of average
                                                    OCV; and
                                                   (2) Member has an ADV
                                                    *** >=1.95% of
                                                    average OCV.
------------------------------------------------------------------------
* ``ADAV'' means average daily added volume calculated as the number of
  contracts added.
** ``OCC Customer Volume'' or ``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.
*** ``ADV'' means average daily volume calculated as the number of
  contracts added or removed, combined, per day.

    The Exchange proposes to amend these tiers as follows:
     modify Tier 1 to require the Member to have an ADAV in 
Firm/BD/JBO orders greater than or equal to 15,000 contracts and an 
ADAV in Customer orders greater than or equal to 0.20% of average OCV, 
to qualify for the rebate; and
     modify Tier 2 to reduce the rebate from $0.46 to $0.42 per 
contract \10\ and require the Member to have an ADAV in Firm/BD/JBO 
orders greater than or equal to 30,000 contracts and an ADAV in 
Customer orders greater than or equal to 0.20% of average OCV, to 
qualify for the rebate.
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    \10\ In connection with the proposed fee changes, the Exchange 
also proposes to update the corresponding listed rebate of $0.46 for 
fee codes PF in the Fee Codes and Associated Fees table to the 
proposed new rebate of $0.42.
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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.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ 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) \13\ 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,\14\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable

[[Page 61513]]

dues, fees, and other charges among its Members and other persons using 
its facilities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
    \14\ 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 
Members. Additionally, competing exchanges offer similar tiered pricing 
structures, including schedules of rebates and fees that apply based 
upon similarly situated members achieving certain volume and/or growth 
thresholds, as well as assess similar fees or rebates for similar types 
of orders, to that of the Exchange.
    The Exchange believes the proposed rule change to increase the 
standard rebate for Firm/BD/JBO orders that add liquidity in Penny 
Securities is reasonable because it is a modest increase in this rebate 
rate for these orders and it continues to be in line with the standard 
rebate for orders of other market participants that remove liquidity in 
Penny Securities on the Exchange.\15\ Additionally, the proposed rebate 
is in line with rebates for similar transactions at other 
exchanges.\16\ The Exchange believes the proposed change is equitable 
and not unfairly discriminatory because it applies uniformly to all 
Members and, as previously noted, the increased rebate is in line with 
the standard rebate for orders submitted for other market participants 
that add liquidity in Penny Securities on the Exchange.
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    \15\ As set forth in the Fees Schedule, the standard rebate for 
orders that add liquidity in Penny Securities is between $0.25 and 
$0.29 for Professional, Customer, Market Maker, and Away MM orders.
    \16\ See, e.g., MIAX Emerald Options Exchange Fee Schedule, 
Transaction Fees, which provides that Firm Proprietary and Broker 
Dealer orders that add liquidity are provided a rebate of $0.25 per 
contract in Penny Classes. See also MEMX Options Fee Schedule, which 
provides Firms and Broker Dealers that add liquidity are provided a 
rebate of $0.45 per contract in Penny Securities.
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    The Exchange believes the proposed changes to the Firm/BD/JBO Penny 
Add Volume Tiers are reasonable because they continue to provide 
opportunities for Members to receive higher rebates by providing for 
incrementally increasing volume-based criteria they can reach for. The 
Exchange believes the tiers, as modified, continue to serve as a 
reasonable means to encourage Members to increase their liquidity on 
the Exchange, particularly in connection with additional Firm/BD/JBO 
order flow to the Exchange in order to benefit from the proposed 
enhanced rebates.
    The Exchange believes the proposed criteria remain commensurate 
with the corresponding enhanced rebates, including as amended for Tier 
2. The Exchange believes the revised criteria will continue to 
encourage Members to send additional Firm/BD/JBO orders to the 
Exchange. Greater remove volume order flow may increase transactions on 
the Exchange, which the Exchange believes incentivizes liquidity 
providers to submit additional liquidity and execution opportunities. 
An overall increase in activity deepens the Exchange's liquidity pool, 
offers additional cost savings, supports the quality of price 
discovery, promotes market transparency and improves market quality for 
all investors.
    Further, the Exchange believes the proposed reduced rebate offered 
under revised Firm/BD/JBO Penny Add Volume Tier 2 is reasonable because 
Members are still eligible to receive a rebate for meeting the 
corresponding criteria, albeit at a lower amount then before. While 
Firm/BD/JBO Penny Add Volume Tier 2, as proposed, will provide a lower 
rebate than that currently offered (from $0.46 to $0.42), the Exchange 
still believes that the changes are reasonable as the tier, even as 
amended, will continue to incentivize Members to send additional Firm/
BD/JBO orders to the Exchange. As noted above, an overall increase in 
add activity may provide for deeper, more liquid markets and execution 
opportunities at improved prices, which ultimately offers additional 
cost savings, supports the quality of price discovery, promotes market 
transparency and improves market quality for all investors. Moreover, 
the Exchange is not required to maintain these tiers nor provide 
rebates. The Exchange believes the proposed changes to the rebates 
offered under these tiers still remain commensurate with the 
corresponding criteria under the respective tiers.
    The Exchange believes the proposed change is also equitable and not 
unfairly discriminatory because it applies uniformly to all Members, 
who will have the opportunity to meet the tiers' criteria and receive 
the corresponding enhanced rebate for each tier if such criteria is 
met. Without having a view of activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether these 
proposed changes would definitely result in any Members qualifying for 
the proposed rebates. While the Exchange has no way of predicting with 
certainty how the proposed changes will impact Member activity, based 
on trading activity from the prior months, the Exchange anticipates 
that up to two Members will achieve Tier 1 and up to two Members will 
achieve Tier 2. Additionally, all Members are able to increase their 
Firm/BD/JBO order flow to attempt to achieve these tiers. Should a 
Member not meet the proposed new criteria, the Member will merely not 
receive that corresponding enhanced rebate.

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. Particularly, the Exchange 
believes the proposal to increase the standard rebate for Firm/BD/JBO 
orders that add liquidity in Penny Securities will not impose any 
burden on intramarket competition because it will apply uniformly to 
all Members. All Members that submit orders yielding fee code PF will 
receive this same rebate. The Exchange believes the proposal to amend 
the Firm/BD/JBO Penny Add Volume Tiers will also not impose any burden 
on intramarket competition, as the changes will also apply to all 
Members. All Members will continue to have an opportunity to receive 
rebates under various tiers in the program. The Firm/BD/JBO Penny Add 
Volume 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.
    The Exchange does not believe that the proposed changes represent a 
significant departure from pricing currently offered by the Exchange. 
Members may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, the Exchange does 
not believe that the proposed changes will impair the ability of 
Members or competing venues to maintain their

[[Page 61514]]

competitive standing in the financial markets.
    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 13% 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 4.
    \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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-068 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-2024-068. 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-2024-068 and should be submitted 
on or before August 21, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16794 Filed 7-30-24; 8:45 am]
BILLING CODE 8011-01-P