[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2237-2240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00532]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82475; File No. SR-CboeBZX-2017-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for the BZX Depth Market Data Product

January 9, 2018.
    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 December 27, 2017, 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 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the Market Data section of 
its fee schedule to introduce new fees for Non-Display Usage of BZX 
Depth.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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

[[Page 2238]]

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 parts 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 the Market Data section of its fee 
schedule to introduce new fees for Non-Display Usage \5\ of BZX Depth. 
BZX Depth is an uncompressed market data feed that provides depth-of-
book quotations and execution information based on equity orders 
entered into the System.\6\ The Exchange currently charges subscribers 
to BZX Depth a fee of $5,000 per month for Non-Display Usage of BZX 
Depth by its Trading Platforms.\7\ Non-Display Usage is defined as 
``any method of accessing a Market Data product that involves access or 
use by a machine or automated device without access or use of a display 
by a natural person or persons.'' \8\ Trading Platforms include 
registered National Securities Exchanges, Alternative Trading Systems 
(``ATSs''), and Electronic Communications Networks (``ECNs'') as those 
terms are defined in the Exchange Act and regulations and rules 
thereunder. Previously, subscribers of BZX Depth that used the feed for 
Non-Display purposes but did not utilize the feed within a Trading 
Platform were charged the existing Distributors fees.
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    \5\ See the Exchange's fee schedule available at http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \6\ See Exchange Rule 13.8(a).
    \7\ A Trading Platform is defined as ``any execution platform 
operated as or by a registered National Securities Exchange (as 
defined in Section 3(a)(1) of the Exchange Act), an Alternative 
Trading System (as defined in Rule 300(a) of Regulation ATS), or an 
Electronic Communications Network (as defined in Rule 600(b)(23) of 
Regulation NMS).'' See the Exchange's fee schedule available at 
http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \8\ See the Exchange's fee schedule available at http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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    Forms of Non-Display Use include, but are not limited to, 
algorithmic or automated trading, order routing, surveillance, order 
management, risk management, clearance and settlement activities, and 
account maintenance.\9\ Non-Display Usage does not include any use of 
BZX Depth that relates solely to transportation, dissemination, and 
redistribution of BZX Depth, or that results in the output of BZX Depth 
solely for display. Non-display uses of data for non-trading purposes 
benefits data recipients by allowing users to automate functions, to 
achieve greater speed and accuracy, and to reduce costs of labor. While 
some non-trading uses do not directly generate revenues, they can 
substantially reduce a data recipient's costs by automating many 
functions. Those functions can be carried out in a more efficient and 
accurate manner, with reduced errors and labor costs.
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    \9\ See e.g., Nasdaq Rule IM-7023-1(c), U.S. Non-Display 
Information.
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    The Exchange now proposes to adopt a separate fee of $2,000 per 
month to cover other forms of Non-Display Usage other than through a 
Trading Platform. The proposed fee would be assessed in addition to 
existing Distributor \10\ fees and would supplement the existing Non-
Display Usage fee for Trading Platforms. Specifically, subscribers who 
are subject to the Non-Display Usage by Trading Platform fee but also 
utilize BZX Depth for other Non-Display purposes would be subject to 
both fees. However, subscribers who utilize BZX Depth for other Non-
Display purposes and not within a Trading Platform would be subject 
only to the proposed fee for Non-Display Use.
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    \10\ A ``Distributor'' is defined as ``any entity that receives 
the Exchange Market Data product directly from the Exchange or 
indirectly through another entity and then distributes it internally 
or externally to a third party.'' See the Exchange's fee schedule 
available at http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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    Certain subscribers that use an Exchange approved Managed Non-
Display Service Provider would be exempt from proposed Non-Display 
Usage Fee. To be approved as Managed Non-Display Service Provider, the 
Distributor must host subscriber's applications that utilize BZX Depth 
must within the Managed Non-Display Service Provider's space/cage; 
fully manage and control access to BZX Depth, and not permit further 
redistribution of the Exchange Data internally or externally.\11\ In 
order to qualify for the exemption, the subscriber must meet the 
following requirements:
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    \11\ See e.g., Securities Exchange Act Release No. 76900 at fn. 
8 (January 14, 2016), 81 FR 3506 (January 21, 2016) (SR-NYSE-2016-
02). In this filing, the NYSE discontinued fees related to managed 
non-display for NYSE OpenBook. Id.
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     Any subscriber applications that utilize BZX Depth must be 
hosted within the Managed Non-Display Service Provider's space/cage;
     the subscriber's access to BZX Depth is fully managed and 
controlled by the Managed Non-Display Service Provider, and no further 
redistribution of the Exchange Data internally or externally is 
permitted; and
     the subscriber is supported solely by one Managed Non-
Display Service Provider, is not hosted by multiple Managed Non-Display 
Service Providers, and does not have their own data center-hosted 
environment that also receives BZX Depth.
    The Exchange intends to implement the proposed fee changes on 
January 2, 2018.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4),\13\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its members and other recipients of 
Exchange data. The Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
recipients of Exchange data. The Exchange believes the proposed fees 
are competitive with those charged by other venues and, therefore, 
reasonable and equitably allocated to recipients.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \14\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\15\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory. In adopting Regulation NMS, the Commission granted 
self-regulatory organizations and broker-dealers increased authority 
and flexibility to offer new and unique market data to the public. It 
was believed that this authority would expand the amount of data 
available to consumers, and also spur innovation and competition for 
the provision of market data.
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    \14\ 15 U.S.C. 78k-1.
    \15\ See 17 CFR 242.603.
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    In addition, the proposed fees would not permit unfair 
discrimination because all of the Exchange's

[[Page 2239]]

subscribers will be subject to the proposed fees on an equivalent 
basis. BZX Depth is distributed and purchased on a voluntary basis, in 
that neither the Exchange nor market data distributors are required by 
any rule or regulation to make this data available. Accordingly, 
Distributors and Users can discontinue use at any time and for any 
reason, including due to an assessment of the reasonableness of fees 
charged. Firms have a wide variety of alternative market data products 
from which to choose, such as similar proprietary data products offered 
by other exchanges and consolidated data. Moreover, the Exchange is not 
required to make any proprietary data products available or to offer 
any specific pricing alternatives to any customers.
    In addition, the fees that are the subject of this rule filing are 
constrained by competition. As explained below in the Exchange's 
Statement on Burden on Competition, the existence of alternatives to 
BZX Depth further ensures that the Exchange cannot set unreasonable 
fees, or fees that are unreasonably discriminatory, when subscribers 
can elect such alternatives. That is, the Exchange competes with other 
exchanges (and their affiliates) that provide similar market data 
products. If another exchange (or its affiliate) were to charge less to 
consolidate and distribute its similar product than the Exchange 
charges to consolidate and distribute BZX Depth, prospective Users 
likely would not subscribe to, or would cease subscribing to, BZX 
Depth.
    The Exchange notes that the Commission is not required to undertake 
a cost-of-service or rate-making approach. The Exchange believes that, 
even if it were possible as a matter of economic theory, cost-based 
pricing for non-core market data would be so complicated that it could 
not be done practically.\16\
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    \16\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, it is 
impossible to regulate market data prices in isolation from prices 
charged by markets for other services that are joint products. Cost-
based rate regulation would also lead to litigation and may distort 
incentives, including those to minimize costs and to innovate, 
leading to further waste. Under cost-based pricing, the Commission 
would be burdened with determining a fair rate of return, and the 
industry could experience frequent rate increases based on 
escalating expense levels. Even in industries historically subject 
to utility regulation, cost-based ratemaking has been discredited. 
As such, the Exchange believes that cost-based ratemaking would be 
inappropriate for proprietary market data and inconsistent with 
Congress's direction that the Commission use its authority to foster 
the development of the national market system, and that market 
forces will continue to provide appropriate pricing discipline. See 
Appendix C to NYSE's comments to the Commission's 2000 Concept 
Release on the Regulation of Market Information Fees and Revenues, 
which can be found on the Commission's website at http://www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities 
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200 
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Establish an 
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative 
December 1, 2014).
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    The proposed Non-Display fee for usage other than through a Trading 
Platform for BZX Depth is equitable and reasonable as the Exchange 
believes the proposed fee represents the value of the data provided by 
the feed and its use by market participants. The proposed fee changes 
reflects changing trends in the ways in which the industry uses market 
data. The proposed fee comport with the proliferation of the use of 
data for various non-display purposes and by non-display trading 
applications. It recognizes industry changes that have evolved as a 
result of numerous technological advances, the advent of trading 
algorithms and automated trading, different investment patterns, a 
plethora of new securities products, unprecedented levels of trading, 
decimalization, internationalization and developments in portfolio 
analysis and securities research. The Exchange believes the proposed 
fee reflects the value of the data provided.
    The Exchange notes that fees for non-display use have become 
commonplace in the industry. Several exchanges impose them as does the 
UTP, CTA/CQ, and OPRA Plans. In addition, the fee proposed is less than 
similar fees currently charged by other exchanges for their depth-of-
book data products. For example, NYSE Arca, Inc. (``NYSE Arca'') and 
the New York Stock Exchange, Inc. (``NYSE'') charge $5,000 and $6,000 
per month, respectively, for its depth-of-book data used for non-
display purposes.\17\
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    \17\ See the non-display fees for NYSE OpenBook and NYSE 
ArcaBook in the NYSE and NYSE Arca fee schedules available at http://www.nyxdata.com/nysedata/default.aspx?tabid=518&folder=207656.
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    The proposed fee is also equitable and reasonable in that it 
ensures that heavy users of the BZX Depth pay an equitable share of the 
total fees. Currently, External Distributors pay higher fees than 
Internal Distributors based upon their assumed higher usage levels. The 
Exchange believes that non-display users are generally high users of 
the data, using it to power a trading algorithms and other trading 
relates systems for millions or even billions of trading messages per 
day.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange's ability to price BZX Depth is constrained by: (i) 
Competition among exchanges, other trading platforms, and Trade 
Reporting Facilities (``TRF'') that compete with each other in a 
variety of dimensions; (ii) the existence of inexpensive real-time 
consolidated data and market-specific data and free delayed data; and 
(iii) the inherent contestability of the market for proprietary data.
    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    In addition, BZX Depth competes with a number of alternative 
products. For instance, BZX Depth does not provide a complete picture 
of all trading activity in a security. Rather, the other national 
securities exchanges, the several TRFs of FINRA, and ECNs that produce 
proprietary data all produce trades and trade reports. Each is 
currently permitted to produce depth-of-book information products, and 
many currently do, including Nasdaq, NYSE, and NYSE Arca.
    In sum, the availability of a variety of alternative sources of 
information imposes significant competitive pressures on Exchange data 
products and the Exchange's compelling need to attract order flow 
imposes significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, the Exchange 
considered the competitiveness of the market for proprietary data and 
all of the implications of that competition. The Exchange believes that 
it has considered all relevant factors and has not

[[Page 2240]]

considered irrelevant factors in order to establish fair, reasonable, 
and not unreasonably discriminatory fees and an equitable allocation of 
fees among all Users. The existence of alternatives to BZX Depth, 
including existing similar feeds by other exchanges, consolidated data, 
and proprietary data from other sources, ensures that the Exchange 
cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when subscribers can elect these alternatives or choose 
not to purchase a specific proprietary data product if its cost to 
purchase is not justified by the returns any particular vendor or 
subscriber would achieve through the purchase.
    The Exchange believes the adoption of the fee for Non-Display Usage 
for BZX Depth would increase competition amongst the exchanges that 
offer depth-of-book products. In addition, the proposed Non-Display 
Usage fee is less than similar fees currently charged by the NYSE and 
NYSE Arca for their depth-of-book data.\18\
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    \18\ See supra note 17.
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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 neither solicited nor received written 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 \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ 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.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-2017-018 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 CboeBZX-2017-018. 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 CboeBZX-2017-018 and should be submitted on 
or before February 6, 2018.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00532 Filed 1-12-18; 8:45 am]
 BILLING CODE 8011-01-P


