[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56231-56234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22833]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87299; File No. SR-CboeBYX-2019-016]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule Applicable to Members and Non-Members of the Exchange
Pursuant to BYX Rules 15.1(a) and (c)
October 15, 2019.
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 October 1, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') 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 BYX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule applicable to Members and non-
Members \3\ of the Exchange pursuant to BYX Rules 15.1(a) and (c). The
text of the proposed rule change is attached as Exhibit 5.
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\3\ A Member is defined as ``any registered broker or dealer
that has been admitted to membership in the Exchange.'' See Exchange
Rule 1.5(n).
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The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule to adopt a new Non-
Displayed Volume Tier.
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 13 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\4\ no single registered
equities exchange has more than 21% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Taker-Maker'' model
whereby it pays credits to members that remove liquidity and assesses
fees to those that add liquidity. The Exchange's Fees Schedule sets
forth the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Particularly, for
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0005 per share for orders that remove liquidity and assesses a
fee of $0.0019 per share for orders that add liquidity. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month
[[Page 56232]]
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 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
incremental incentives for Members to strive for higher or different
tier levels, which provides increasingly higher or different benefits
or discounts for satisfying increasingly more stringent criteria or
different criteria.
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\4\ See Cboe Global Markets, U.S. Equities Market Volume Summary
(September 30, 2019), available at https://markets.cboe.com/us/equities/market_statistics/.
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For example, pursuant to footnote 2 of the Fees Schedule, the
Exchange offers a Mid-Point Peg Tier that provides Members an
opportunity to receive a discounted rate for orders that yield fee code
``MM'', which is appended to non-displayed orders that add liquidity
using the Mid-Point Peg order type.\5\ To qualify for a discounted rate
for such orders, pursuant to the Mid-Point Peg Tier, a Member must add
an ADAV \6\ of greater than or equal to 0.30% of the TCV \7\ for orders
yielding a fee code MM. The Exchange notes that this tier is designed
to encourage Members that provide non-displayed Mid-Point Peg liquidity
on the Exchange to increase their order flow, thereby contributing to a
deeper and more liquid market to the benefit of all market
participants. The Exchange also notes that it currently does not
provide for a similar tier that accounts for other non-displayed order
types that add liquidity. The Exchange now proposes to add such a tier
to its fee schedule.
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\5\ An order yielding fee code MM is assessed a fee of $0.001
per share. See Rule 11.9(c)(9), which states that a Mid-Point Peg
order is a limit order that after entry into the System, the price
of the order is automatically adjusted by the System in response to
changes in the NBBO to be pegged to the mid-point of the NBBO, or,
alternatively, pegged to the less aggressive of the midpoint of the
NBBO or one minimum price variation inside the same side of the NBBO
as the order.
\6\ ``ADAV'' means average daily volume calculated as the number
of shares added per day. ADAV is calculated on a monthly basis.
\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.
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Specifically, the Exchange proposes to add a new Non-Displayed
Volume Tier under footnote 2 which would provide Members an opportunity
to qualify for a fee reduction on other non-displayed orders that add
liquidity, specifically, those yielding fee code ``HA'' \8\, as well as
an additional opportunity to qualify for a fee reduction on order
yielding fee code MM. Under the proposed Non-Displayed Volume Tier, a
Member would receive a reduction in fees by $0.0004 per share for their
qualifying orders which yield fee codes HA or MM where the Member has
an ADAV that is greater or equal to 0.075% of the TCV as orders
yielding fee codes HA, MM, or ``HI''.\9\ Members that achieve the
proposed Non-Displayed Volume Tier must therefore increase their non-
displayed, liquidity adding order flow as a percentage greater than or
equal to 0.075% of the TCV as orders yielding fee codes HA, HI, or MM.
The Exchange believes the proposed fee reduction for liquidity adding
non-displayed orders will incentivize increased overall order flow to
the Book and price-improvement opportunities. The proposed tier gives
liquidity providing Members on the Exchange an additional opportunity
to receive a discounted rate. It is designed to provide Members that
provide non-displayed liquidity on the Exchange a further incentive to
contribute to a deeper, more liquid market, in turn providing
additional execution opportunities at improved prices as a result of
such increased, non-displayed liquidity. The Exchange believes that
this, in turn, benefits all Members by contributing towards a robust
and well-balanced market ecosystem. The Exchange notes the proposed
tier is available to all Members and is competitively achievable for
all Members that submit non-displayed order flow, in that all firms
that submit the requisite non-displayed order flow could compete to
meet the tiers.
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\8\ Fee code ``HA'' is appended to non-displayed orders that add
liquidity and are assessed $0.0024 per share.
\9\ Fee code ``HI'' is appended to non-displayed orders that add
liquidity and receive a price improvement, and are assessed a fee of
$0.0030 per share.
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In light of the proposed tier under footnote 2, the Exchange also
proposes to rename footnote 2 ``Non-Displayed Liquidity Incentives''
and move the existing Mid-Point Peg Tier into a distinct tier table
under footnote 2.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\10\ in general, and
furthers the objectives of Section 6(b)(4),\11\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of 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, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
\12\ 15 U.S.C. 78f.(b)(5).
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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.
In particular, the Exchange believes the proposed tier is
reasonable because it provides an additional opportunity for Members to
receive a discounted rate by reaching the proposed threshold by means
of liquidity adding non-displayed orders. The Exchange notes that
relative volume-based incentives and discounts have been widely adopted
by exchanges,\13\ including the Exchange,\14\ and are reasonable,
equitable and non-discriminatory because they are open to all members
on an equal basis and provide additional benefits or discounts that are
reasonably related to (i) the value to an exchange's market quality and
(ii) associated higher levels of market activity, such as higher levels
of liquidity provision and/or growth patterns. Additionally, as noted
above, the Exchange operates in highly competitive market. The Exchange
is only one of several equity venues to which market participants may
direct
[[Page 56233]]
their order flow, and it represents a small percentage of the overall
market. It is also only one of several taker-maker exchanges. Competing
equity exchanges offer similar tiered pricing structures to that of the
Exchange, including schedules of rebates and fees that apply based upon
members achieving certain volume and/or growth thresholds. These
competing pricing schedules, moreover, are presently comparable to
those that the Exchange provides, including the pricing of comparable
tiers.\15\
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\13\ See e.g., The Nasdaq Stock Market LLC Rules, Equity 7, Sec.
118(a)(1), which generally provides for discounts for participants'
non-displayed orders that together reach certain thresholds of
consolidated volume.
\14\ See e.g., Cboe BYX U.S. Equities Exchange Fee Schedule,
Footnote 1, Add/Remove Volume Tiers, which has an ADV component to
its required criteria for certain volume-adding and/or removing
orders.
\15\ See supra note 13. For example, Nasdaq offers a rebate of
$0.0030 per share where a member with shares of liquidity provided
in all securities through one or more of its Nasdaq Market Center
MPIDs that represent more than 0.75% of Consolidated Volume during
the month and member provides a daily average of at least 5 Million
shares of non-displayed liquidity. The Exchange notes that this is
substantially similar to the proposed
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Moreover, the Exchange believes the proposed Non-Display Volume
Tier is a reasonable means to encourage Members to increase their
overall non-displayed order flow to the Exchange based on increasing
their daily total added volume (ADAV) above a percentage of the total
volume (TCV). Particularly, the Exchange believes that adopting a Non-
Displayed Volume Tier based on a Member's non-displayed adding orders
will encourage non-displayed liquidity providing Members to provide for
a deeper, more liquid market, and, as a result, increased execution
opportunities at improved price levels and, thus, overall order flow.
The Exchange believes that these increases benefit all Members by
contributing towards a robust and well-balanced market ecosystem.
Increased overall order flow benefits all investors by deepening the
Exchange's liquidity pool, providing 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
proposed discount (i.e., fee reduction) per share amount also does not
represent a significant departure from the rebates currently offered,
or required criteria, under the Exchange's existing tiers. For example,
the fee assessed under the existing Mid-Point Peg Tier, for which, as
stated, a Member must have a daily volume add (ADAV) of 0.30% or
greater than the TCV, is $0.0005 per share. In other words, under this
tier, Members receive a $0.0005 ``discount'' from the standard $0.001
assessed for orders yielding fee code MM, which is comparable to the
proposed $0.0004 discount offered under the proposed Non-Displayed
Volume Tier.
The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
Members are eligible for the proposed Non-Displayed Volume Tier, and
would have the opportunity to meet the tier's criteria and would
receive the proposed rebate if such criteria is met. Given previous
months' data, the Exchange notes that one of its Members would have
reached this proposed tier in recent past months had the proposed tier
been in place. Accordingly, the proposed tier is designed as an
incentive to any and all Members interested in meeting the tier
criteria to submit additional non-displayed order flow to achieve the
proposed discount. Without having a view of activity on other markets
and off-exchange venues, the Exchange has no way of knowing whether
this proposed rule change would definitely result in any Members
qualifying for this tier. While the Exchange has no way of predicting
with certainty how the proposed tier will impact Member activity, the
Exchange anticipates that at up to five Members will be able to compete
for and reach the proposed tier. The Exchange anticipates that these
will include multiple Member types, including liquidity providers and
broker-dealers, each providing distinct types of order flow to the
Exchange to the benefit of all market participants. For example,
broker-dealer customer order flow provides more trading opportunities,
which attracts Market Makers. Increased Market Maker activity
facilitates tighter spreads which potentially increases order flow from
other market participants. The Exchange also notes that the proposed
tier will not adversely impact any Member's pricing or their ability to
qualify for other rebate tiers. Rather, should a Member not meet the
proposed criteria, the Member will merely not receive an enhanced
rebate. Furthermore, the proposed rebate would uniformly apply to all
Members that meet the required criteria under proposed Non-Displayed
Volume 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 intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Rather, as discussed above, the Exchange believes that the proposed
change would encourage the submission of additional order flow to a
public exchange, thereby promoting market depth, execution incentives
and enhanced execution opportunities, as well as price discovery and
transparency for all Members. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \16\
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\16\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange believes the proposed rule change does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
change applies to all Members equally in that all Members are eligible
for the proposed tier, have a reasonable opportunity to meet the tier's
criteria and will all receive the proposed rebate if such criteria is
met. Additionally the proposed change is designed to attract additional
order flow to the Exchange. The Exchange believes that the proposed
tier would incentivize market participants to direct non-displayed
liquidity and, as a result, executable and price-improving order flow,
to the Exchange. Greater overall order flow benefits all market
participants on the Exchange by providing more trading opportunities
and continuing to encourage Members to send orders, thereby
contributing towards a robust and well-balanced market ecosystem, which
benefits all market participants.
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.
Members have numerous alternative venues that they may participate on
and direct their order flow, including 12 other equities exchanges and
off-exchange venues and alternative trading systems. Additionally, the
Exchange represents a small percentage of the overall market. Based on
publicly available information, no single equities exchange has more
than 21% 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
[[Page 56234]]
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 has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from Members or other interested
parties.
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-CboeBYX-2019-016 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-CboeBYX-2019-016. 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBYX-2019-016 and should be submitted
on or before November 12, 2019.
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22833 Filed 10-18-19; 8:45 am]
BILLING CODE 8011-01-P