[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36984-36987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16098]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86464; File No. SR-CboeBZX-2019-064]


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 of the 
Exchange Pursuant to BZX Rules 15.1(a) and (c)

July 24, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 11, 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\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 \4\ 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 [sic] as 
Exhibit 5.
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    \4\ 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

[[Page 36985]]

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 Total 
Volume tier.\5\
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    \5\ The Exchange initially filed the proposed fee change on July 
1, 2019 (SR-CboeBZX-2019-061). On business date July 11, 2019, 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 several equities 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, for securities at or above $1.00, 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 1 of the Fees Schedule, the 
Exchange offers Add Volume tiers that provide Members an opportunity to 
qualify for an enhanced rebate on their orders that add liquidity where 
they increase their relative ADAV \7\ as a percentage of the TCV.\8\ 
Under the current Add Volume tiers, a Member receives a per share 
rebate for qualifying orders which yield fee codes B,\9\ V,\10\ or Y 
\11\ The Exchange notes that the Add Volume tiers are designed to 
encourage Members that provide displayed liquidity on the Exchange to 
increase their order flow, thereby contributing to a deeper and more 
liquid market to the benefit of all market participants. The Exchange 
also notes that it currently does not provide for a similar tier that 
accounts for a Member's total volume (both liquidity adding and 
removing orders). The Exchange now proposes to add such a tier to its 
fee schedule.
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    \7\ ``ADAV'' means average daily volume calculated as the number 
of shares added per day. ADAV is calculated on a monthly basis.
    \8\ ``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.
    \9\ Fee code B is appended to displayed orders which add 
liquidity to Tape B and is provided a rebate of $0.0025 per share.
    \10\ Fee code V is appended to displayed orders which add 
liquidity to Tape A and is provided a rebate of $0.0020 per share.
    \11\ Fee code Y is appended to displayed orders which add 
liquidity to Tape C and is provided a rebate of $0.0020 per share.
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    Specifically, the Exchange proposes to add a new Total Volume tier 
under footnote 3 which would provide Members an additional opportunity 
to qualify for an enhanced rebate on their orders that add liquidity 
(i.e. those yielding fee code B, V, or Y). Under the proposed Total 
Volume tier, a Member would receive a rebate of $0.0033 per share for 
their qualifying orders which yield fee codes B, V, or Y where the 
Member has an ADV \12\ that is greater or equal to 1.40% of the TCV. 
Members that achieve the proposed Total Volume tier must therefore 
increase their overall order flow, both adding and removing liquidity, 
as a percentage greater than or equal to 1.40% of the TCV. The Exchange 
believes the proposed enhanced rebates for both liquidity adding and 
removing orders incentivizes increased overall order flow to the Book. 
The proposed tier provides both liquidity providing Members and Members 
executing on the Exchange an additional opportunity to receive a 
rebate. It is designed to provide Members that provide displayed 
liquidity on the Exchange a further incentive to contribute to a 
deeper, more liquid market, and Members executing on the Exchange an 
incentive to increase transactions and take such execution 
opportunities provided by such increased liquidity. The Exchange 
believes that this, in turn, benefits all Members by contributing 
towards a robust and well-balanced market ecosystem. The Exchange notes 
the proposed tier is available to all Members.
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    \12\ ``ADV'' means the average daily volume calculated as the 
number of shares added or removed, combined, per day. ADV is 
calculated on a monthly basis.
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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 believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \15\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f.(b)(5).
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    The Exchange operates in a highly-competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive or 
incentives to be insufficient. The proposed rule change reflects a 
competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange believes would enhance market quality to the benefit of all 
Members.
    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive an enhanced rebate by reaching the proposed threshold by means 
of liquidity adding and removing orders. The Exchange notes that 
relative volume-based incentives and discounts have been widely adopted 
by

[[Page 36986]]

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 market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in highly competitive market. The Exchange 
is only one of several equity venues to which market participants may 
direct 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., The Nasdaq Stock Market LLC Rules, Equity 7, Sec. 
118, which generally provides for rebates (or discounts) for 
participant adding and removing orders that together reach certain 
thresholds of the TCV.
    \17\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 1, Add Volume Tier, Market Depth Tier, which has an ADV 
component to its required criteria.
    \18\ See e.g., The Nasdaq Stock Market LLC Rules, Equity 7, Sec. 
118. Particularly, Nasdaq offers a rebate of $0.0029 per share where 
a Member has (i) shares of liquidity accessed in all securities 
through one or more of its Nasdaq Market Center MPIDs that represent 
more than 0.70% of Consolidated Volume during the month, and (ii) 
shares of liquidity provided in all securities through one or more 
of its Nasdaq Market Center MPIDs that represent more than 0.50% of 
Consolidated Volume during the month.
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    Moreover, the Exchange believes the proposed Total Volume tier is a 
reasonable means to encourage Members to increase their overall order 
flow to the Exchange based on increasing their daily total volume (ADV) 
above a percentage of the total volume (TCV). Particularly, the 
Exchange believes that adopting a Total Volume tier based on a Member's 
adding and removing orders will encourage liquidity providing Members 
to provide for a deeper, more liquid market, and Members executing on 
the Exchange to increase transactions and take such execution 
opportunities provided by increased liquidity. In turn, these increases 
benefit all Members by contributing towards a robust and well-balanced 
market ecosystem. Increased overall order flow benefits all investors 
by deepening the Exchange's liquidity pool, providing greater execution 
incentives and opportunities, offering additional flexibility for all 
investors to enjoy cost savings, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection. The proposed rebate 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 rebate 
amount offered under existing Add Volume Tier 6 (also applicable to 
orders yielding fee code B, V, or Y), for which a Member must have a 
daily volume add (ADAV) of 1.25% or greater than the TCV to receive a 
rebate of $0.0032 per share. The Exchange believes the proposed tier is 
in line with this existing tier, as the natural next highest rebate for 
a related Add Volume tier would be $0.0033 for daily add volume at a 
percentage anywhere greater than 1.25% of the TCV. The Exchange, 
however, notes that it instead proposes this same rebate for reaching a 
daily add or remove volume at percentage greater than 1.25% (i.e. 
1.40%, as proposed), which, as stated, incentivizes overall order flow 
(liquidity providing and liquidity taking orders) to the Exchange.
    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 Total Volume tier, and would have 
the opportunity to meet the tier's criteria and would receive the 
proposed rebate if such criteria is met. Given previous months' data, 
the Exchange notes that none of its Members would have reached this 
proposed tier in recent past months had the proposed tier been in 
place. Accordingly, the proposed tier is designed as an incentive 
applicable to all Members to submit additional order flow in order to 
meet the new criteria and achieve the proposed rebate. 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. However, the 
Exchange believes multiple Member types will be able to achieve the 
proposed tier, including liquidity providers and broker-dealers, each 
providing distinct types of order flow to the Exchange to the benefit 
of all market participants. For example, broker-dealer customer order 
flow provides more trading opportunities, which attracts Market Makers. 
Increased Market Maker activity facilitates tighter spreads which 
potentially increases order flow from other market participants. The 
Exchange also notes that the proposed tier will not adversely impact 
any Member's pricing or their ability to qualify for other rebate 
tiers. Rather, should a Member not meet the proposed criteria, the 
Member will merely not receive an enhanced rebate. Furthermore, the 
proposed rebate would uniformly apply to all Members that meet the 
required criteria under proposed Total Volume tier.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional order flow to a 
public exchange, thereby promoting market depth, execution incentives 
and enhanced execution opportunities, as well as price discovery and 
transparency for all Members. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering competition among orders, which promotes 
``more efficient pricing of individual stocks for all types of orders, 
large and small.'' \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 not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies to all Members equally in that all Members are eligible 
for the proposed tier, have a reasonable opportunity to meet the tier's 
criteria and will all receive the proposed rebate if such criteria is 
met. Additionally the proposed change is designed to attract additional 
order flow to the Exchange. The Exchange believes that the proposed 
tier would incentivize market participants to direct both liquidity 
providing and executable order flow to the Exchange. Greater overall 
order flow benefits all market participants on the Exchange by 
providing more trading opportunities and continuing to encourage 
Members to send orders, thereby contributing towards a robust and well-
balanced market ecosystem, which benefits all market participants.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in

[[Page 36987]]

furtherance of the purposes of the Act. As previously discussed, the 
Exchange operates in a highly competitive market. Members have numerous 
alternative venues that they may participate on and direct their order 
flow, including 12 other equities exchanges and off-exchange venues, 
including 32 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 23% 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 28, 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 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from Members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \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-2019-064 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-2019-064. 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-2019-064 and should be submitted 
on or before August 20, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16098 Filed 7-29-19; 8:45 am]
 BILLING CODE 8011-01-P


