[Federal Register Volume 85, Number 13 (Tuesday, January 21, 2020)]
[Notices]
[Pages 3437-3440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00804]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87960; File No. SR-CboeBYX-2020-001]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
January 14, 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 January 2, 2020, 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 and II
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 ``BYX'') 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/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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule to amend the rate
for liquidity adding orders that yield fee code ``MM''.\3\
Additionally, the Exchange proposes to remove Non-Displayed Liquidity
Incentives and replace them with Step-Up Tiers.
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\3\ ``MM'' is appended to non-displayed orders that add
liquidity using Mid-Point Peg.
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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 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 16% 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.
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\4\ See Cboe Global Markets, U.S. Equities Market Volume Summary
(December 26, 2019), available at https://markets.cboe.com/us/equities/market_statistics/.
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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 Fee Schedule sets forth the
standard rebates and rates applied per share for orders that remove and
provide 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
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.
Proposed Change To Replace Non-Displayed Liquidity Incentives With
Step-Up Tiers
In response to the competitive environment, the Exchange 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 by offering
increasingly higher discounts or enhanced benefits for satisfying
increasingly more stringent criteria or different criteria. For
example, pursuant to footnote 2 of the Fee Schedule, the Exchange
currently offers a Mid-Point Peg Tier that provides Members with a
reduced fee of $0.0005 for liquidity adding orders that yield fee code
``MM'', which generally has a fee of $0.0010. To qualify for the Mid-
Point Peg Tier, a Member must have an ADAV \5\ of greater than or equal
to 0.30% of the TCV.\6\ Also pursuant to footnote 2 of the Fee
Schedule, the Exchange offers a Non-Displayed Volume Tier that provides
Members with a reduced fee of $0.0004 for liquidity adding orders that
yield fee code ``HA'',\7\ which generally has a fee of $0.00240, or
``MM'', which as noted above generally has a fee of $0.0010. To qualify
for the Non-Displayed Volume Tier, a Member must have an ADAV of
greater than or equal to 0.075% of the TCV as Non-Displayed Orders that
yield fee codes ``HA'', ``HI'',\8\ or ``MM''. The aforementioned Non-
Displayed Liquidity Incentives are designed to encourage Members that
provide non-displayed liquidity adding orders on the Exchange to
increase their order flow, thereby contributing to a deeper and more
liquid market to the benefit of all market participants.
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\5\ ADAV means average daily volume calculated as the number of
shares added per day. ADAV is calculated on a monthly basis.
\6\ 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.
\7\ ``HA'' is appended to non-displayed orders that add
liquidity.
\8\ ``HI'' is appended to non-displayed orders that receive
price improvement and add liquidity.
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The Exchange now proposes to remove the existing tiers related to
Non-Displayed Liquidity Incentives on the Exchange, and to instead
offer ``Step-Up Tiers''. Specifically, the Exchange proposes to remove
the Mid-Point Peg
[[Page 3438]]
Tier and Non-Displayed Volume Tier described above. In place of the
existing Non-Displayed Liquidity Incentives, the Exchange proposes to
offer Step-Up Tiers that will provide Members an opportunity to receive
a discounted rate from the standard fee assessment for displayed
liquidity adding orders that yield fee codes ``B'',\9\ ``V'',\10\ or
``Y''.\11\ The Exchange proposes criteria under Tier 1 of the Step-Up
Tiers that would offer a reduced fee of $0.0016 for liquidity adding
orders that yield fee code ``B'', ``V'', or ``Y'', which generally have
a fee of $0.0019. To qualify for proposed Tier 1, the Member must have
a ``Step-Up Add TCV'' from December 2019 of greater than or equal to
0.05%. The Exchange proposes to add a definition of ``Step-Up Add TCV''
to the Fee Schedule which would mean ADAV as a percentage of TCV in the
relevant baseline month subtracted from current ADAV as a percentage of
TCV. The Exchange notes that this definition is consistent with the
definitions in the Fees Schedules of the Exchange's affiliated
exchanges.\12\
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\9\ ``B'' is appended to displayed orders that add liquidity to
BYX (Tape B).
\10\ ``V'' is appended to displayed orders that add liquidity to
BYX (Tape A).
\11\ ``Y'' is appended to displayed order that add liquidity to
BYX (Tape C).
\12\ See Cboe BZX U.S. Equities Exchange Fee Schedule,
Definitions; Cboe EDGX U.S. Equities Exchange Fee Schedule,
Definitions.
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The proposed Tier 1 under the Step-Up Tiers is designed to provide
Members that submit displayed liquidity on the Exchange a further
incentive to contribute to a deeper, more liquid market, in turn,
providing additional execution opportunities at transparent prices as a
result of such increased, displayed liquidity. Further, while the
Exchange proposes to eliminate the Non-Displayed Liquidity Incentives,
as discussed in further detail below, the Exchange also proposes to
reduce the current fee assessed to non-displayed liquidity adding
orders yielding fee code ``MM''. Therefore, the Exchange will offer
similarly reduced fees to orders yielding fee code ``MM'' under the
proposed amendment as currently offered to such orders under the Non-
Displayed Liquidity Incentives. The Exchange believes that this
benefits all Members by enhancing overall market quality and
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 displayed order
flow, in that, all firms that submit the requisite displayed order flow
could compete to meet the tier.
Proposed Change to Fee Code ``MM''
As stated above, the Exchange currently charges fees for liquidity
adding orders that yield fee code ``MM'' of $0.0010 in securities
priced at or above $1.00. Orders yielding fee code ``MM'' in securities
priced below $1.00 are not assessed a fee. The Exchange now proposes to
reduce the current fee of $0.0010 per share to $0.0005 per share for
orders yielding fee code ``MM'' in securities priced at or above $1.00.
Orders yield fee code ``MM'' in securities priced below $1.00 would
continue to be free. As the proposed fee for orders yielding fee code
``MM'' is lower than the current fee for such orders, the Exchange
believes the proposed amendment will encourage Members to increase
their liquidity on the Exchange. Further, as ``MM'' orders would no
longer be able to receive reduced fees under the Non-Displayed
Liquidity Incentives, the proposed fee change to the ``MM'' fee code
would offer another means for such orders to receive a similar fee
reduction that would require no minimum ADAV. Therefore, ``MM'' orders
would be eligible to receive a reduced fee of $0.0005 on a less
stringent basis.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(4),\14\ 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 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. 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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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
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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 amendment to
replace the Non-Displayed Liquidity Incentives with Step-Up Tiers is
reasonable because it provides an additional opportunity for Members to
receive a discounted fee by means of liquidity-adding displayed orders.
The Exchange notes that relative volume-based incentives and discounts
have been widely adopted by other exchanges,\15\ 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 of 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 equity venues to which market
participants may direct 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.\16\
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\15\ See, e.g., Cboe BZX Equities Exchange Fee Schedule,
Footnote 2, Step-Up Tiers, Tier 1, which offers an enhanced rebate
for certain volume-adding orders; see also NYSE Arca Equities, Fees
and Charges, Step Up Tiers.
\16\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up
Tiers which offers rebates between $0.0022-$0.0034 per share if the
corresponding required criteria per tier is met. NYSE Arca Equities'
Step Up Tiers similarly require Members to increase their relative
liquidity each month over a predetermined baseline.
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Moreover, the Exchange believes the proposed Step-Up Tier is a
reasonable means to encourage Members to increase their overall
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 Step-Up Tier based
on a Member's displayed adding orders will encourage 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
[[Page 3439]]
will 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 $0.0010 assessed fee for orders yielding fee code ``MM''.
Orders yielding fee code ``B'', ``V'', and ``Y'' generally have a fee
of $0.00190, and therefore the proposed discount offered under Tier 1
(i.e., $0.0016) is comparable to the discount currently offered under
the Mid-Point Peg Tier.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because all
Members are eligible for the proposed Step-Up Tiers, and would have the
opportunity to meet the Tier 1 criteria and receive the proposed fee
reduction if such criteria is met. The proposed tier is designed as an
incentive to any and all Members interested in meeting the tier
criteria to submit additional 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 ten 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 a
reduced fee. Furthermore, the proposed fee would uniformly apply to all
Members that meet the required criteria under proposed Step-Up Tiers.
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 displayed 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.'' \17\
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\17\ 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 fee rate if such criteria is
met. Additionally the proposed change is designed to attract additional
order flow to the Exchange. The Exchange believes that the modified
tier criteria would incentivize market participants to direct displayed
liquidity and, as a result, executable order flow and improved price
transparency, to the Exchange. Greater overall order flow and pricing
transparency benefits all market participants on the Exchange by
providing more trading opportunities, enhancing market quality, 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 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 16% of the market share.\18\ Therefore, no exchange possesses
significant pricing power in the execution of 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.'' \19\ 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' . . . .''.\20\ Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or
[[Page 3440]]
appropriate in furtherance of the purposes of the Act.
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\18\ See supra note 5 [sic].
\19\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\20\ 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 is effective upon filing pursuant to
Section 19(b)(3)(A) \21\ of the Act and subparagraph (f)(2) of Rule
19b-4 \22\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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 shall institute proceedings under
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-CboeBYX-2020-001 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 No. SR-CboeBYX-2020-001. 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 No. SR-CboeBYX-2020-001, and should be submitted
on or before February 11, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00804 Filed 1-17-20; 8:45 am]
BILLING CODE 8011-01-P