[Federal Register Volume 84, Number 131 (Tuesday, July 9, 2019)]
[Notices]
[Pages 32789-32792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14491]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86283; File No. SR-CboeBZX-2019-059]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Fee Schedule Applicable to Members and Non-Members \1\ of 
the Exchange Pursuant to BZX Rules 15.1(a) and (c)

July 2, 2019.
    Pursuant to Section 19(b)(1) \2\ of the Securities Exchange Act of 
1934 (the

[[Page 32790]]

``Act'') \3\ and Rule 19b-4 thereunder,\4\ notice is hereby given that, 
on June 19, 2019, 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\ 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).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 15 U.S.C. 78a.
    \4\ 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 the fee schedule applicable to Members and non-
Members \5\ of the Exchange pursuant to BZX Rules 15.1(a) and (c). 
Changes to the fee schedule pursuant to this proposal are effective 
upon filing. The text of the proposed rule change is attached as 
Exhibit 5.
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    \5\ 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/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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 applicable to its 
equities trading platform (``BZX Equities'') to adopt a new Step-Up 
Tier, effective July 1, 2019.
    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 several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. The Exchange in particular operates a 
``Maker-Taker'' model whereby it pays credits to members that provide 
liquidity and assesses fees to those that remove 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, the Exchange provides a standard rebate of 
$0.0020 per share for orders that add liquidity \6\ and assesses a fee 
of $0.0025 per share for orders that remove liquidity. 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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    \6\ Displayed Orders which add liquidity in Tape B securities 
receive a standard rebate of $0.0025 per share.
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    For example, pursuant to footnote 2 of the Fees Schedule, the 
Exchange offers four Step-Up Tiers that provide Members an opportunity 
to qualify for an enhanced rebate on their orders that add liquidity 
where they increase their relative liquidity each month over a 
predetermined baseline. Under the current Step-Up Tiers, a Member 
receives a rebate of $0.0030 (Tier 1), $0.0031 (Tier 2 and Tier 3), or 
$0.0032 (Tier 4) per share for qualifying orders which yield fee codes 
B,\7\ V,\8\ or Y \9\ if the corresponding required criteria per tier is 
met.\10\ More specifically, Step-Up Tiers 1-4 require that Members 
reach certain Step-Up Add TCV thresholds. As currently defined in the 
BZX Equities fee schedule, Step-Up Add TCV means ADAV \11\ as a 
percentage of TCV \12\ in the relevant baseline month subtracted from 
current ADAV as a percentage of TCV.\13\ The Exchange notes that step-
up tiers are designed to encourage Members that provide displayed 
liquidity on the Exchange to increase their order flow, which would 
benefit all Members by providing greater execution opportunities on the 
Exchange.
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    \7\ Fee code B is appended to displayed orders which add 
liquidity to Tape B and is provided a rebate of $0.0025 per share.
    \8\ Fee code V is appended to displayed orders which add 
liquidity to Tape A and is provided a rebate of $0.0020 per share.
    \9\ Fee code Y is appended to displayed orders which add 
liquidity to Tape C and is provided a rebate of $0.0020 per share.
    \10\ See Cboe BZX U.S. Equities Fees Schedule, Footnote 2, Step-
Up Tiers.
    \11\ ``ADAV'' means average daily volume calculated as the 
number of shares added per day. ADAV is calculated on a monthly 
basis.
    \12\ ``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.
    \13\ The following demonstrates how Step-Up Add TCV is 
calculated: In April [sic] 2018, Member A had an ADAV of 12,947,242 
shares and average daily TCV was 9,248,029,751, resulting in an ADAV 
as a percentage of TCV of 0.14%; In February 2019, Member A had an 
ADAV of 46,826,572 and average daily TCV was 7,093,306,325, 
resulting in an ADAV as a percentage of TCV of 0.66%. Member A's 
Step-Up Add TCV from December 2018 was therefore 0.52% which makes 
Member A eligible for the existing Step-Up Tier 4 rebate. (i.e., 
0.66% (Feb 2019)-0.14% (Dec 2018), which is greater than 0.50% as 
required by current Tier 4).
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    The Exchange now proposes to amend footnote 2 to adopt a fifth 
Step-Up Tier, which would become ``Step-Up Tier 1''. Under the proposed 
Step-Up Tier 1, a Member would receive a rebate of $0.0030 per share 
for their qualifying orders which yield fee codes B, V, or Y where the 
Member has a Step-Up Add TCV from April 2019 greater or equal to 0.05%. 
Members that achieve the proposed Step-Up Tier 1 must therefore 
increase the amount of liquidity that they provide on BZX by 0.05% 
relative to their ADAV as a percentage of TCV in April 2019, thereby 
contributing to a deeper and more liquid market, which benefits all 
market participants. The proposed tier provides Members an additional 
opportunity to receive a rebate and is designed to provide Members that 
provide displayed liquidity on the Exchange a further incentive to 
increase that order flow, which would benefit all Members by providing 
greater execution opportunities on the Exchange. The Exchange notes the 
proposed tier is available to all Members.
    Lastly, in connection with the proposed change described above, the 
Exchange also proposes to renumber the existing Step-Up Tiers 
accordingly.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\14\ in general, and 
furthers the

[[Page 32791]]

objectives of Section 6(b)(4),\15\ in particular, as it is designed to 
provide for the equitable allocation of reasonable dues, fees and other 
charges among its Members and other persons using 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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    \14\ 15 U.S.C. 78f.
    \15\ 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 an enhanced rebate. The Exchange notes that relative volume-
based incentives and discounts have been widely adopted by 
exchanges,\16\ including the Exchange,\17\ 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 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 maker-
taker 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.\18\
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    \16\ See e.g., NYSE Arca Equities, Fees and Charges, Step-Up 
Tiers.
    \17\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 2, Step-Up Tiers 1-4.
    \18\ 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 1 is a 
reasonable means to encourage Members to increase their liquidity on 
the Exchange based on increasing their relative volume above a 
predetermined baseline. Particularly, the Exchange believes that 
adopting a tier with less stringent criteria compared to existing Step-
Up Tiers 2-4 (now Step-Up Tiers 3-5), and an alternative criteria to 
Step-Up Tier 1 (now Step-Up Tier 2), will encourage those Members who 
could not achieve the existing tiers previously to increase their order 
flow as compared to April 2019 as a means to receive the new tier's 
enhanced rebate. 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 discovery, promoting market transparency and improving 
investor protection. The Exchange also believes that proposed rebate is 
reasonable based on the difficulty of satisfying the tier's criteria, 
using April 2019 as the predetermined baseline and ensures the proposed 
rebate and threshold appropriately reflects the incremental difficulty 
to achieve the existing Step-Up Tiers. The proposed rebate amount also 
does not represent a significant departure from the rebates currently 
offered under the Exchange's existing Step-Up Tiers. Indeed, the rebate 
amount is the same offered as existing Step-Up Tier 1 (now Step-Up Tier 
2) (i.e., $0.0030 per share) and slightly less than the rebates offered 
under Step-Up Tiers 2-4 (now Step-Up Tiers 3-5) (i.e., $0.0031-$0.0032 
per share).
    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 tier and have a reasonable 
opportunity to meet the tier's criteria, which as noted above is less 
stringent than other existing step-up tiers. Without having a view of 
Member's activity on other markets and off-exchange venues, the 
Exchange has no way of knowing whether this proposed rule change would 
result in any Members qualifying for this tier. However, the Exchange 
believes the proposed tier would provide an incentive for Members to 
submit additional adding liquidity to qualify for the proposed rebate. 
The Exchange also notes that the proposal 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 apply to all Members that meet the required criteria under 
proposed Step-Up Tier 1.

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.'' \19\
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    \19\ 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 [sic] 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 
providing displayed order flow to the Exchange. Greater liquidity 
benefits all market participants on the Exchange by providing more 
trading opportunities and encourages Members to send orders, thereby 
contributing to robust levels of liquidity, 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 director their order flow, including 12 other equities exchanges 
and off-exchange venues, including 32 alternative trading systems. 
Additionally, the Exchange represents a small percentage of the overall 
market. Based on publicly available information,

[[Page 32792]]

no single equities exchange has more than 18% of the market share.\20\ 
Therefore, no exchange possesses significant pricing power in the 
execution of option [sic] 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\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 14, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \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 (DC 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 \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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-059 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-2019-059. 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-2019-059 and should be submitted 
on or before July 30, 2019.

    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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14491 Filed 7-8-19; 8:45 am]
 BILLING CODE 8011-01-P


