[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43237-43240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17863]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86671; File No. SR-CboeBZX-2019-070]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fee Schedule To Institute a Derived Data API Service

August 14, 2019.
    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 August 1, 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\ 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. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the fee schedule to institute a Derived 
Data API Service. The text of the proposed rule change is attached as 
Exhibit 5 [sic].
    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 purpose of the proposed rule change is to implement a new 
pricing structure that would reduce fees changed to Distributors that 
distribute Derived Data through an Application Programming Interface 
(``API'')--i.e., the Derived Data API Service (the ``Program''). 
``Derived Data'' is pricing data or other data that (i) is created in 
whole or in part from Exchange Data, (ii) is not an index or financial 
product, and (iii) cannot be readily reverse-engineered to recreate 
Exchange Data or used to create other data that is a reasonable 
facsimile or substitute for Exchange Data. The Exchange currently 
offers a Derived Data White Label Service Program that allows 
Distributors to benefit from discounted fees when distributing Derived 
Data taken from BZX Top, which is a proprietary data product that 
provides top of book quotations and execution information for all 
equity securities traded on the Exchange.\3\ The current program is 
limited to the distribution of Derived Data to subscribers within a 
White Label Service which is a type of hosted display solution in which 
a Distributor hosts or maintains a website or platform on behalf of a 
third-party entity. The Derived Data API Service would supplement the 
current Derived Data White Label Service Program by offering discounted 
fees for Distributors that make Derived Data available through an 
API,\4\ thereby allowing Distributors to benefit from reduced fees when 
distributing Derived Data to subscribers that establish their own 
platforms rather than relying on a hosted display solution.
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    \3\ See Rule 13.8(c) [sic].
    \4\ With the proposed introduction of the Derived Data API 
Service, the Exchange would bring together the BZX Top Derived Data 
White Label Service and Derived Data API Service under the common 
heading ``Financial Product Distribution Program.'' The Financial 
Product Distribution Program would encompass both of these products.
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Current Fee Structure
    The Exchange currently charges a fee of $2,500 per month for 
external distribution of BZX Top. In addition, external distributors of 
BZX Top are charged a fee of $4 per month for each Professional User 
and $0.10 per month for each Non-Professional User. The Exchange also 
offers special pricing for Derived Data provided through a White Label 
Service, as mentioned above. This service allows Distributors to make 
Derived Data available on a platform that is branded with a third-party 
brand, or co-branded with a third party and a Distributor.\5\ The White 
Label Service Program can be used for a number of different purposes, 
including the display of information or data, or the creation of 
derivative instruments, such as swaps,\6\ swaptions,\7\ or contracts 
for difference,\8\ but is unavailable to distributors that make such 
information available through an API. Such distributors are not 
eligible for discounted Derived Data pricing today, and are instead 
liable for the fees

[[Page 43238]]

normally applicable for the distribution of BZX Top, as listed at the 
beginning of this paragraph.
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    \5\ The Distributor maintains control of the application's data, 
entitlements and display.
    \6\ A swap is a derivative contract in which two parties agree 
to exchange financial instruments.
    \7\ A swaption, or swap option, is an option to enter into a 
swap at a specified time.
    \8\ A contract for difference is an agreement to exchange the 
difference between the current value of an asset and its future 
value. If the price increases, the seller pays the buyer the amount 
of the increase. If the price decreases, the buyer pays the seller 
the amount of the decrease.
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Discounted Fees for Derived Data API Service
    As proposed, a Distributor that provides a Derived Data API Service 
for Derived Data taken from BZX Top would be liable for the following 
fees instead of the fees normally applicable for the distribution of 
BZX Top. Instead of the regular fee for external distribution, 
Distributors would be charged a tiered External Subscriber Fee based on 
the number of API Service Platforms (i.e., ``External Subscribers'') 
that receive Derived Data from the Distributor through a Derived Data 
API Service. As proposed, Distributors would continue to be charged a 
fee of $2,500 per month for each External Subscriber if the Distributor 
makes Derived Data available to 1-5 External Subscribers. Distributors 
that make Derived Data available to additional External Subscribers 
would benefit from discounted pricing based on the number of External 
Subscribers. Specifically, the external distribution fee would be 
lowered by 20% to $2,000 per month for each External Subscriber if the 
Distributor makes Derived Data available to 6-20 External Subscribers, 
and further lowered another 20% to $1,500 per month for each External 
Subscriber if the Distributor makes Derived Data available to 21 or 
more External Subscribers. As is the case under the Derived Data White 
Label Service, the External Subscriber Fee would be non-progressive and 
based on the number of External Subscribers that receive Derived Data 
from the Distributor. For example, a Distributor providing Derived Data 
based on BZX Top to six External Subscribers that are API Service 
Platforms would be charged a monthly fee of $12,000 (i.e., 6 External 
Subscribers x $2,000 each). The Exchange would continue to charge a 
monthly Professional User fee of $4 per month for each Professional 
User that accesses Derived Data through an API Service. The current 
Non-Professional User fee of $0.10 per month would be eliminated when 
participating in the Derived Data API Service, further reducing costs 
for Distributors that provide access to such data to downstream 
investors.
    With the proposed introduction of the Derived Data API Service, the 
Exchange would bring together the Derived Data White Label Service and 
Derived Data API Service under the common heading ``Financial Product 
Distribution Program.'' The Financial Product Distribution Program 
would encompass both of these products. Similar to the Derived Data 
White Label Service, the Derived Data API Service would be entirely 
optional, in that it applies only to Distributors that opt to use 
Derived Data from BZX Top to create an API Service, as described 
herein. It does not impact or raise the cost of any other Exchange 
product, nor does it affect the cost of BZX Top, except in instances 
where Derived Data is made available on an API Service. A Distributor 
that provides a White Label Service or API Service for Derived Data 
taken from BZX Top would be liable for the fees associated with the 
White Label Service or API Service instead of the fees normally 
applicable for the distribution of BZX Top. A Distributor that provides 
a White Label Service or API Service for BZX Top data that is not 
Derived Data or distributes Derived Data through a platform other than 
a White Label Service or API Service would be liable for the fees 
normally applicable for the distribution of BZX Top.
Market Background
    The market for top of book data is highly competitive as national 
securities exchanges compete both with each other and with the 
securities information processors (``SIPs'') to provide efficient, 
reliable, and low cost data to a wide range of investors and market 
participants. In fact, Regulation NMS requires all U.S. equities 
exchanges to provide their best bids and offers, and executed 
transactions, to the two registered SIPs for dissemination to the 
public. Top of book data is therefore widely available to investors 
today at a relatively modest cost. National securities exchanges may 
also disseminate their own top of book data, but no rule or regulation 
of the Commission requires market participants to purchase top of book 
data from an exchange. In an effort to widen distribution to market 
participants that use equities market data to compute pricing for 
certain derivatives instruments, national securities exchanges 
including the Exchange, its affiliate, Cboe EDGX Exchange Inc., and The 
Nasdaq Stock Market LLC (``Nasdaq'') offer discounted pricing for 
Derived Data that is created using their top of book products. The 
Program would therefore compete with similar products offered by other 
national securities exchanges that offer discounted fees to market 
participants that purchase Derived Data.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(4),\10\ 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 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.\11\ Specifically, the 
proposed rule change 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. In addition, the 
proposed rule change is consistent with Rule 603 of Regulation NMS,\12\ 
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.
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    \11\ 15 U.S.C. 78k-1.
    \12\ See 17 CFR 242.603.
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    In adopting Regulation NMS, the Commission granted SROs 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. The 
Exchange believes that the proposed fee change would further broaden 
the availability of U.S. equity market data to investors, consistent 
with the principles of Regulation NMS.
    The Exchange operates in a highly competitive environment. Indeed, 
there are thirteen registered national securities exchanges that trade 
U.S. equities and offer associated top of book market data products to 
their customers. The national securities exchanges also compete with 
the SIPs for market data customers. 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

[[Page 43239]]

investors and listed companies.'' \13\ The proposed fee change is a 
result of the competitive environment, as the Exchange seeks to amend 
its fees to attract additional subscribers for one of its proprietary 
top of book data offerings through the introduction of a Derived Data 
API Service.
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    The Exchange believes that it is reasonable to introduce reduced 
fees for the use of Derived Data on API Services as the proposed fee 
reduction would facilitate cost effective access to market information 
that is used primarily to create certain derivative instruments rather 
than to trade U.S. equity securities. The fees that are the subject of 
this rule filing are constrained by competition, and it is this 
competition that is driving the proposed fee change. Indeed, the 
Program is designed to allow the Exchange to compete more effectively 
for market data distributors that purchase market information to offer 
Derived Data to investors. The existence of alternatives to the Program 
ensures that the Exchange cannot set unreasonable or unfairly 
discriminatory fees, as subscribers are free to elect such 
alternatives. That is, the Exchange competes with other exchanges that 
provide similar market data products and pricing programs. As mentioned 
above, Derived Data is primarily purchased for the creation of certain 
derivative instruments rather than for the trading of U.S. equity 
securities. As a result, distributors of Derived Data do not need a 
consolidated view of the market across multiple exchanges, and 
generally purchase such data from a single exchange. If a competing 
exchange were to charge less for a similar product than the Exchange 
charges under the proposed fee structure, prospective subscribers may 
choose not subscribe to, or cease subscribing to, the Program. The 
Exchange believes that lowering the cost of accessing Derived Data may 
make the Exchange's market information more attractive, and encourage 
additional Distributors to subscribe to BZX Top market data instead of 
competitor products. Distributors can discontinue use at any time and 
for any reason, including due to an assessment of the reasonableness of 
fees charged. Furthermore, firms have a wide variety of alternative 
market data products from which to choose, such as similar proprietary 
data products offered by other national securities exchanges, including 
those that choose to offer discounted fees for the distribution of 
Derived Data in an effort to compete for this business.
    The proposed rule change would provide an alternate fee structure 
for providing BZX Top market data to Distributors that make Derived 
Data available to External Subscribers via API Services. As proposed, 
if a Distributor uses an API Service to distribute Derived Data, the 
Distributor will be charged a fee that is tiered based on the number of 
External Subscribers that are provided access to that data instead of 
the higher fee normally charged for external distribution. The Exchange 
believes that this fee is equitable and not unfairly discriminatory 
because the Exchange will apply the same fees to any similarly situated 
Distributors that elect to participate in the Program based on the 
number of External Subscribers provided access to Derived Data through 
an API Service, with Distributors providing access to six or more 
External Subscribers receiving a discount compared to the current 
pricing applicable for external distribution of BZX Top. The Exchange 
believes that it is equitable and not unfairly discriminatory to begin 
providing discounted rates to Distributors that provide access to at 
least six External Subscribers as the discounted rates are designed to 
incentivize firms to grow the number of External Subscribers that 
purchase Derived Data from the Exchange. The Exchange understands that 
Distributors that may provide this sort of API Service typically serve 
a relatively larger number of External Subscribers, and would therefore 
be able to meet the proposed threshold by providing Derived Data taken 
from BZX Top to those customers.
    The Exchange would also continue to charge a small fee for 
Professional Users but would eliminate Non-Professional User fees for 
data provided under the Program. The Exchange believes that it is 
equitable and not unfairly discriminatory to charge a fee for 
Professional Users but no fee for Non-Professional Users. Non-
Professional Users are already subject to a heavily discounted fee for 
BZX Top market data relative to Professional Users. Differential fees 
for Professional and Non-Professional Users are widely used by the 
Exchange and other exchanges for their proprietary market data as this 
reduces costs for retail investors and makes market data more broadly 
available. The Exchange believes that eliminating fees for Non-
Professional Users that access Derived Data from Distributors pursuant 
to the Program is consistent with longstanding precedent indicating 
that it is consistent with the Act to provide reasonable incentives to 
retail investors that rely on the public markets for their investment 
needs.
    Furthermore, the proposed fees will only apply to Distributors that 
elect to participate in the Program by distributing Derived Data 
through an API Service. BZX Top market data 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. Distributors of BZX Top are not required to participate 
in the proposed Program, which is merely an alternative option being 
proposed by the Exchange to potentially lower costs for market data 
that is Derived Data. As previously explained, the Exchange currently 
offers discounted fees for Distributors that distribute Derived Data on 
a While [sic] Label Service. Expanding the universe of customers that 
can benefit from discounted fees for distributing Derived Data would 
serve to further increase the accessibility of the Exchange's market 
data products.

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

    The Exchange does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
operates in a highly competitive environment, and its ability to price 
these data products is constrained by: (i) Competition among exchanges 
that offer similar data products, and pricing options, to their 
customers; and (ii) the existence of inexpensive real-time consolidated 
data disseminated by the SIPs. Top of book data is disseminated by both 
the SIPs and the thirteen equities exchanges. There are therefore a 
number of alternative products available to market participants and 
investors. In this competitive environment potential subscribers are 
free to choose which competing product to purchase to satisfy their 
need for market information. Often, the choice comes down to price, as 
broker-dealers or vendors look to purchase the cheapest top of book 
data product, or quality, as market participants seek to purchase data 
that represents significant market liquidity. In order to better 
compete for this segment of the market, the Exchange is proposing to 
reduce fees charged to Distributors that distribute Derived Data 
through an API. The Exchange believes that this would facilitate 
greater access to such data, ultimately benefiting investors that are 
provided access to such data.

[[Page 43240]]

    The proposed fees apply to data derived from BZX Top, which is 
subject to competition from both the SIPs and exchanges that offer 
similar products, including but not limited to those that choose to 
provide similar pricing options for Derived Data. A number of national 
securities exchanges, including the Exchange, its affiliated Cboe U.S. 
equities exchanges, and Nasdaq offer pricing discounts for Derived Data 
today. These pricing programs reduce the cost of accessing top of book 
market information that is used, among other things, to create 
derivative instruments rather than to trade U.S. equity securities. In 
order to better compete for this segment of the market, the Exchange is 
proposing to expand the programs that it offers to include a Derived 
Data API Service, allowing additional market data customers to benefit 
from discounted pricing. The Exchange does not believe that the 
proposed price reduction for Derived Data offered through an API would 
cause any unnecessary or inappropriate burden on intermarket 
competition as other exchanges and data vendors are free to lower their 
prices to better compete with the Exchange's offering. The Exchange 
believes that the proposed rule change is pro-competitive as it seeks 
to offer pricing incentives to customers to better position the 
Exchange as it competes to attract additional market data subscribers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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 \14\ and paragraph (f) of Rule 19b-4 \15\ 
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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-2019-070 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-2019-070. 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-2019-070, and should be 
submitted on or before September 10, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17863 Filed 8-19-19; 8:45 am]
 BILLING CODE 8011-01-P


