[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36627-36630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12986]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89047; File No. SR-CboeBZX-2020-048]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
June 11, 2020.
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 2, 2020, 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'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend its Fee 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
[[Page 36628]]
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 for its equity
options platform (``BZX Options'').\3\
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\3\ The Exchange initially filed the proposed fee changes on
June 1, 2020 (SR-CboeBZX-2020-046). On June 2, 2020, the Exchange
withdrew that filing and submitted this filing.
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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 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 19% of the market share and
currently the Exchange represents only approximately 9% 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. The Exchange's fee schedule sets
forth standard rebates and rates applied per contract. For example, the
Exchange assesses a standard rebate of $0.25 per contract for Customer
orders that add liquidity in Penny Pilot Securities and a standard
rebate of $0.85 per contract in Non-Penny Pilot Securities.
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.
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\4\ See Cboe Global Markets U.S. Options Market Month-to-Date
Volume Summary (May 29, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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For example, the Exchange currently offers four Customer Non-Penny
Pilot Add Volume Tiers under footnote 12 of the fee schedule which
provide enhanced rebates between $0.92 and $1.05 per contract for
qualifying Customer orders which meet certain add liquidity thresholds
and yield fee code NY.\5\ Under the current Customer Non-Penny Pilot
Add Volume Tiers, a Member may receive an enhanced rebate where the
Member has an ADAV \6\ in Customer orders, or Customer and Market Maker
and/or Firm orders greater or equal to a specified percentage of OCV.
\7\ The Exchange now proposes to adopt a Customer Non-Penny Pilot Add
Volume Tier 5.
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\5\ Orders yielding fee code NY are Customer orders that add
liquidity in Non-Penny Pilot securities and are offered a rebate of
$0.85.
\6\ ``ADAV'' means average daily added volume calculated as the
number of contracts added, ``ADRV'' means average daily removed
volume calculated as the number of contracts removed, and ``ADV''
means average daily volume calculated as the number of contracts
added or removed, combined, per day.
\7\ ``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.
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The Exchange believes the proposed Customer Non-Penny Pilot Add
Volume Tier will provide Members an additional opportunity to receive
an enhanced rebate for meeting the corresponding proposed criteria. The
Exchange believes the proposed tier, along with the existing tiers,
also provide an incremental incentive for Members to strive for the
highest tier levels, which provide increasingly higher rebates for such
transactions. Particularly, the Exchange proposes to add new Customer
Non-Penny Pilot Add Volume Tier 5, which would provide an enhanced
rebate of $1.06 per contract on qualifying orders (i.e., yielding fee
code NY) where a Member has (1) an ADAV in Customer orders greater than
or equal to 2.00% of average OCV; and (2) an ADAV in Customer Non-Penny
orders greater than or equal to 1.00% of average OCV. The proposed tier
provides an additional opportunity for Members to achieve an increased
enhanced rebate on their Customer Non-Penny liquidity adding orders
(NY) by reaching a new Customer Non-Penny Pilot tier. Specifically, the
proposed fee change is designed to encourage overall Customer liquidity
adding order flow (both Penny and Non-Penny orders). The Exchange
believes that incentivizing more Customer order flow will create more
trading opportunities, which, in turn attracts Market-Makers. A
resulting increase in Market-Maker activity may facilitate tighter
spreads, which may lead to additional increase of order flow in Non-
Penny orders from other market participants, further contributing to a
deeper, more liquid market to the benefit of all market participants by
creating a more robust and well-balanced market ecosystem.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\8\ in general, and furthers the requirements
of Section 6(b)(4),\9\ in particular, as it is designed to provide for
the equitable allocation of reasonable dues, fees and other charges
among its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers. 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.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes the proposed tier is
reasonable because it provides an additional opportunity for Members to
receive a higher rebate by providing additional criteria they can reach
for. The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges,\10\ including the Exchange,\11\
[[Page 36629]]
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 a
highly competitive market. 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. Competing options
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 pricing incentives tied to
comparable tiers.\12\
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\10\ See e.g., BOX Options Fee Schedule, Section 1(A)(1) [sic],
which offers tiered rebates for Public Customer orders in Non Penny
Pilot Classes for members that reach certain thresholds of ``maker''
customer volume in multiply-listed options classes ranging from
$0.15 to $0.60; Cboe EDGX U.S. Options Exchange Fee Schedule,
Footnote 1, Customer Volume Tiers, which provide tiered rebates for
Customer Non-Penny and Penny orders where Members meet certain
volume thresholds, ranging from $0.10 to $0.21.
\11\ See e.g., The Exchange's Fee Schedule, Footnotes 1 and 12,
Customer Penny Pilot and Non-Penny Pilot Volume Tiers which provide
enhanced rebates for Customer orders where Members meet certain
volume thresholds ranging from $0.35 to $1.05.
\12\ See supra note 10.
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Moreover, the Exchange believes proposed Customer Non-Penny Pilot
Add Volume Tier 5 is a reasonable means to encourage Members to
increase their liquidity on the Exchange, specifically their Customer
add volume order flow. The Exchange believes that adopting an
additional tier under the Customer Non-Penny Pilot Add Volume Tiers
will encourage Members to increase their general Customer liquidity
adding order flow (both in Penny and Non-Penny securities) on the
Exchange in order to achieve the proposed increased enhanced rebate on
their qualifying orders (i.e., yielding fee code NY). Increased
Customer liquidity benefits all investors by attracting Market-Makers,
which facilitates tighter spreads, signaling additional corresponding
order flow (thus, more execution opportunities) from other types of
market participants. This 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.
The Exchange also believes that the proposed enhanced rebate is
reasonable based on the difficulty of satisfying the tier's criteria
and ensures the proposed rebate and criteria thresholds appropriately
reflect the incremental difficulty to achieve the existing Customer
Non-Penny Pilot Add Volume Tiers. The proposed criteria under Tier 5
remains in line with the incremental increases in ADAV as a percentage
of average OCV from Tier 1 through Tier 3 for Customer orders or for
both Customer orders plus other firm-type orders. For example, the
proposed criteria in Tier 5 poses an incremental increase in difficulty
from Tier 4 (which may be met if a Member adds an ADAV in Customer
orders greater than or equal to 2.10% of average OCV) as the sum of
overall Customer orders greater than or equal to 2.00% of average OCV
plus Customer Non-Penny orders greater than or equal to 1.00% of
average OCV presents a two-pronged criteria with thresholds that hover
around or are higher than thresholds in preceding tiers. Thus, the
Exchange believes the two criteria in proposed Tier 5 pose, in total,
an incrementally more difficult tier that Members may strive to
achieve. As such, the Exchange believes the enhanced rebate of $1.06
offered under proposed Tier 5, over the $1.05 enhanced rebate offered
under Tier 4, is a reasonable, incremental increase that corresponds to
the incremental increase in difficulty in achieving proposed Tier 5.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because all
Members will be eligible for the proposed tier and the corresponding
enhanced rebate will apply uniformly to all Members that reach the
proposed tier criteria. That is, the proposed tiers are designed as an
incentive to any and all Members interested in meeting the tier
criteria to submit additional order flow to the Exchange and each will
receive the proposed enhanced rebate if the tier criteria is met.
Further, the Exchange offers similar tiered pricing to Firm, Broker
Dealer, Joint-Back Office,\13\ Away Market Maker,\14\ and Market Maker
\15\ orders for liquidity adding volume and corresponding rebates for
their qualifying Non-Penny Pilot orders.
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\13\ See the Exchange's Fee Schedule, Footnote 8, Firm, Broker
Dealer, and Joint Back Office Non-Penny Pilot Add Volume Tiers,
wherein Tier 4 offers a rebate of up to $0.82 per contract to
Members satisfying the tier.
\14\ See the Exchange's Fee Schedule, Footnote 11, Away Market
Maker Non-Penny Pilot Add Volume Tiers, wherein Tier 2 offers a
rebate of up to $0.52 per contract to Members satisfying the tier.
\15\ See the Exchange's Fee Schedule, Footnote 7, Market Maker
Non-Penny Pilot Add Volume Tiers, wherein the applicable tiers offer
rebates ranging from $0.45 up to $0.88 per contract.
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Additionally, the Exchange believes that a couple of Members have a
reasonable opportunity to satisfy the tier's criteria, which is more
stringent than other existing Customer Non-Penny Pilot Add Volume
Tiers. While the Exchange has no way of knowing whether this proposed
rule change would definitively result in any particular Market Maker
qualifying for the proposed tier, the Exchange anticipates at least one
or two Members meeting, or being reasonably able to meet, the proposed
criteria; however, the proposed tier is open to any Member that
satisfies the tier's criteria. The Exchange believes the proposed tier
could provide an incentive for other Members to submit additional
liquidity on the Exchange to qualify for the proposed enhanced rebate.
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 the 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 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 liquidity to a
public exchange, thereby promoting market depth, price discovery and
transparency and enhancing order execution opportunities 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 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 uniformly to market participants. As discussed above,
the Exchange believes that adopting a tier with additional criteria to
the existing Customer Non-Penny Pilot Add Volume Tiers will encourage
Members to increase their order flow in Non-Penny securities on the
Exchange. Increased liquidity benefits all investors by deepening the
Exchange's liquidity pool, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
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discovery, promoting market transparency and improving investor
protection. Also, as indicated above, the Exchange does not believe
that the proposed rule change would impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as it offers similar tiered pricing to Firm, Broker
Dealer, Joint-Back Office,\17\ Away Market Maker,\18\ and Market Maker
\19\ orders for liquidity adding volume and corresponding rebates for
their qualifying Non-Penny Pilot orders.
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\17\ See supra note 13.
\18\ See supra note 14.
\19\ See supra note 15.
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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 director their order flow, including 15 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 19% of the market
share.\20\ 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.'' \21\ 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'. . . .'' \22\
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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\20\ Supra note 4.
\21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\22\ 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 \23\ and paragraph (f) of Rule 19b-4 \24\
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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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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-2020-048 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-2020-048. 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-CboeBZX-2020-048 and should be submitted
on or before July 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12986 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P