[Federal Register Volume 84, Number 181 (Wednesday, September 18, 2019)]
[Notices]
[Pages 49128-49131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20149]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86956; File No. SR-CboeBZX-2019-081]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fees Applicable to Securities Listed on the Exchange, as Set Forth 
in BZX Rule 14.13, Company Listing Fees

September 12, 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 30, 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

    The Exchange proposes a rule change to amend the fees applicable to 
securities listed on the Exchange, which are set forth in BZX Rule 
14.13, Company Listing Fees. Changes to the fee schedule pursuant to 
this proposal are effective upon filing.
    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
    On August 30, 2011, the Exchange received approval of rules 
applicable to the qualification, listing, and delisting of companies on 
the Exchange,\3\ which it modified on February 8, 2012 in order to 
adopt pricing for the listing of exchange traded products (``ETPs'') 
\4\ on the Exchange.\5\ On July 3, 2017, the Exchange made certain 
changes to Rule 14.13 such that there were no entry fees or annual fees 
for ETPs listed on the Exchange.\6\ Effective January 1, 2019, the 
Exchange made certain changes to Rule 14.13 in order to charge an entry 
fee for ETPs that are not Generically-Listed ETPs \7\ and to add annual 
listing fees for ETPs listed on the Exchange.\8\ The Exchange then made 
certain additional modifications to Rule 14.13 in May 2019 related to 
listings that are transferring to the Exchange and to make certain 
changes to the fees associated with Linked Securities.\9 10\ The 
Exchange submits this proposal in order to amend Rule 14.13(b)(2) in 
order to create annual pricing cap for Outcome Strategy Series, as 
defined below, that are listed on the Exchange. As part of this 
proposal to create a fee cap for Outcome Strategy Series, the Exchange 
is also proposing to make a corresponding numbering change to make 
current Rule 14.13(b)(2)(iv) become Rule 14.13(b)(2)(v) and to add 
language to proposed Rule 14.13(b)(2)(v) in order to make clear that 
ETPs that are subject to the new pricing for Outcome Strategy Series 
would not be subject to the fees applicable under Rule 14.13(b)(2)(v) 
in the same way that Legacy Listings, Auction Fee Listings, and 
Transfer Listings are not subject to such fees.
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    \3\ See Securities Exchange Act Release No. 65225 (August 30, 
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
    \4\ As defined in Rule 11.8(e)(1)(A), the term ``ETP'' means any 
security listed pursuant to Exchange Rule 14.11.
    \5\ See Securities Exchange Act Release No. 66422 (February 17, 
2012), 77 FR 11179 (February 24, 2012) (SR-BATS-2012-010).
    \6\ See Securities Exchange Act Release No. 81152 (July 14, 
2017), 82 FR 33525 (July 20, 2017) (SR-BatsBZX-2017-45).
    \7\ As defined in Rule 14.13(b)(1)(C)(i), the term 
``Generically-Listed ETPs'' means Index Fund Shares, Portfolio 
Depositary Receipts, Managed Fund Shares, Linked Securities, and 
Currency Trust Shares that are listed on the Exchange pursuant to 
Rule 19b-4(e) under the Exchange Act and for which a proposed rule 
change pursuant to Section 19(b) of the Exchange Act is not required 
to be filed with the Commission.
    \8\ See Securities Exchange Act Release No. 83597 (July 5, 
2018), 83 FR 32164 (July 11, 2018) (SR-CboeBZX-2018-46).
    \9\ As defined in Rule 14.11(d), the term ``Linked Securities'' 
includes any product listed pursuant to Rule 14.11(d), but 
specifically includes Equity Index-Linked Securities, Commodity-
Linked Securities, Fixed Income Index-Linked Securities, Futures-
Linked Securities, and Multifactor Index-Linked Securities.
    \10\ See Securities Exchange Act Release No. 85881 (May 16, 
2019), 84 FR 23607 (May 22, 2019) (SR-CboeBZX-2019-042).
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    Currently, all ETPs listed on the Exchange are subject to annual 
fees applicable under Rule 14.13(b)(2)(C)(i)-(iv). Newly listed ETPs 
receive reduced and prorated annual rates,\11\ certain other listings 
receive reduced rates,\12\ others receive a waiver of annual fees based 
on the auction volume of an issuer's ETPs listed on the Exchange,\13\ 
and all other ETPs are subject to pricing based on the consolidated 
average daily volume of the ETP in the fourth quarter of the preceding 
calendar year. As noted above, the Exchange is proposing to create a 
cap on annual fees where an issuer lists a series of ETPs that are each 
designed to provide (i) a pre-defined set of returns; (ii) over a 
specified outcome period; (iii) based on the performance of the same 
underlying instrument; and (iv) each employ the same outcome strategy 
for achieving the pre-defined

[[Page 49129]]

set of returns (each an ``Outcome Strategy ETP'' and, collectively, an 
``Outcome Strategy Series''). The Exchange is proposing that such 
annual fees will be capped at $16,000 per year.
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    \11\ Pursuant to Rule 14.13(b)(2)(C)(ii), where an ETP first 
lists on the Exchange or has been listed for fewer than three 
calendar months on the ETP's first trading day of the year (a ``New 
Listing''), such ETP will have an annual listing fee of $4,500. Upon 
initial listing on the Exchange, the annual listing fee applicable 
to New Listings will be prorated based on the number of trading days 
remaining in the calendar year, except that Transfer Listings will 
not be subject to an Annual Fee for the remainder of the calendar 
year following the date of listing on the Exchange.
    \12\ Pursuant to Rule 14.13(b)(2)(C)(i), where an ETP was listed 
on the Exchange prior to January 1, 2019 (a ``Legacy Listing'') or 
is a Transfer Listing, such ETP will have an annual listing fee of 
$4,000.
    \13\ Pursuant to Rule 14.13(b)(2)(C)(iii), where the average 
daily auction volume combined between the opening and closing 
auctions on the Exchange across all of an issuer's ETPs listed on 
the Exchange exceeds 500,000 shares (an ``Auction Fee Listing''), 
there is no annual listing fee for any of the issuer's ETPs listed 
on the Exchange.
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Outcome Strategy ETPs
    The Exchange currently lists a total of 18 Outcome Strategy ETPs 
from 3 separate Outcome Strategy Series. Outcome Strategy ETPs are ETPs 
that are designed to provide a particular set of returns over a 
specified outcome period based on the performance of an underlying 
instrument during the ETP's outcome period.\14\ As an example, an 
Outcome Strategy ETP would include an ETP that employs the following 
strategy (the ``Buffer Strategy''): the ETP seeks to provide investment 
returns that match the gains of a particular index (the ``Reference 
Index'') up to a maximized annual return (the ``Cap Level'') (for the 
example below, 10%) while guarding against certain declines in that 
same underlying index (the ``Buffer Level'') (for the example below, 
15%) over a particular period of time (the ``Outcome Period'') (for the 
example below, July 1st through June 30th). If over the course of the 
one-year Outcome Period from July 1st to June 30th, the Reference Index 
increases in value, the ETP would appreciate by approximately the same 
amount, up to the 10% Cap Level. If over the course of the Outcome 
Period, the Reference Index decreases in value by an amount equal to or 
less than the 15% Buffer Level, then the ETP would provide an 
approximate total return of zero. If over the course of the Outcome 
Period, the Reference Index decreases in value by an amount greater 
than the 15% Buffer Level, then the ETP would decrease in value by 
approximately the same percentage as the Reference Index, minus the 15% 
Buffer Level (if the Reference Index decreased by 20%, subtract the 15% 
Buffer Level, so the ETP would decrease by approximately 5%). Such 
outcomes would only apply for the Outcome Period from July 1st through 
June 30th and the ETP would reset at the end of the Outcome Period in 
order to employ the same Buffer Strategy for the following Outcome 
Period.\15\
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    \14\ The Exchange notes that the Commission has approved the 
listing and trading of up to 36 Outcome Strategy ETPs on the 
Exchange. See Securities Exchange Act Release No. 83679 (July 26, 
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72).
    \15\ The Exchange notes that the Cap Levels, Buffer Levels, and 
the duration of each Outcome Period will vary across Outcome 
Strategy Series, but that the concepts of providing exposure to a 
particular reference instrument with an upside cap and limited 
downside over a particular period of time generally define Outcome 
Strategy ETPs.
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    As such, the Outcome Period applicable to each ETP is particularly 
important and investors need to have more granular Outcome Periods in 
order to ensure that they are able to achieve the full Cap Level upside 
and Buffer Level downside protection. Issuers of Outcome Strategy ETPs 
generally issue the products in at least quarterly versions of each 
strategy. In the example above, which referred only to the July 1st to 
June 30th Outcome Period, an issuer would likely also want to list ETPs 
employing the Buffer Strategy with at least quarterly Outcome Periods, 
which would include October 1st through September 30th, January 1st 
through December 31st, and April 1st through March 31st. The issuer may 
also elect to list ETPs employing the Buffer Strategy in order to 
provide monthly Outcome Periods, meaning that there would be twelve 
separate ETPs listed on the Exchange that each employ the same Buffer 
Strategy, but have different Outcome Periods. Again, this provide [sic] 
investors with more precision when deciding which Outcome Strategy ETP 
to purchase among the Outcome Strategy Series.
    With this in mind, the Exchange is proposing to cap the maximum 
listing fee per year for an Outcome Strategy Series at $16,000. Using 
the example above, if the issuer listed ETPs employing the Buffer 
Strategy with quarterly Outcome Periods, the annual fee on a per ETP 
basis would be $4,000. If the issuer chose to list ETPs with monthly 
Outcome Periods, the annual fee on a per ETP basis would be $1,333.33. 
Assuming that each of these ETPs would otherwise be subject to the 
Exchange's maximum annual listing fee of $7,000, the reduction in 
annual listing fees on a per ETP basis would be $3,000 and $5,666.67, 
respectively.
Implementation Date
    The Exchange proposes to implement these amendments upon filing.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\16\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\17\ in 
particular, as it is designed to provide for the equitable allocation 
of reasonable dues, fees and other charges among its issuers. The 
Exchange also notes that its ETP listing business operates in a highly-
competitive market in which ETP issuers can readily transfer their 
listings if they deem fee levels or any other factor at a particular 
venue to be insufficient or excessive. The proposed rule changes 
reflect a competitive pricing structure designed to incentivize issuers 
to list new products and transfer existing products to the Exchange, 
which the Exchange believes will enhance competition both among ETP 
issuers and listing venues, to the benefit of investors.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fee Cap Is an Equitable Allocation of Fees
    The Exchange believes that the proposed cap on fees for Outcome 
Strategy Series and the associated changes is equitable because it is 
available to all issuers and applies equally to all Outcome Strategy 
Series. Outcome Strategy ETPs are unique and are a recent innovation in 
the ETP space. The Exchange believes that providing a fee cap for such 
ETPs is a more reasonable and equitable approach than the current fee 
structure based on the unique features that create the need to offer 
multiple ETPs based on the same strategy.
    The Exchange notes that the proposed fee structure is a cap on fees 
for Outcome Strategy Series and will only act to leave static or reduce 
fees for ETPs listed on the Exchange. Further, this proposal will 
decrease the fees associated with listing ETPs with multiple Outcome 
Periods on the Exchange, which will reduce the barriers to entry into 
the space and incentivize enhanced competition among issuers of Outcome 
Strategy ETPs, to the benefit of investors.
The Proposed Fee Cap Is Not Unfairly Discriminatory
    The Exchange also believes that the proposed cap on fees for 
Outcome Strategy Series and the associated changes is not unfairly 
discriminatory because, while it only applies to Outcome Strategy ETPs, 
it represents a significantly improved approach to annual listing fees 
for ETPs that by their nature require multiple listings. As noted 
above, Outcome Strategy ETPs are a recent innovation and warrant 
revisiting the ETP listing pricing model. Listing numerous ETPs with 
different Outcome Periods allows investors the opportunity to choose 
the Outcome Strategy ETP with the most appropriate Outcome Period for 
their investment purposes. Providing a cap on annual listing fees for 
such ETPs will ensure that listing fees will not be the basis for such 
additional Outcome Periods not being available to investors. The 
Exchange also notes that the

[[Page 49130]]

incremental ongoing regulatory burden associated with listing an 
additional Outcome Strategy ETP is reduced as compared to the 
incremental regulatory burden associated with listing additional non-
Outcome Strategy ETPs. Specifically, each Outcome Strategy ETP in an 
Outcome Strategy Series is based on the same reference instrument, 
utilizes the same investment strategy, has nearly identical holdings to 
the other Outcome Strategy ETPs in the Outcome Strategy Series, and, to 
the extent that such Outcome Strategy ETPs are listed pursuant to an 
exchange rule filing, subject to the same continued listing obligations 
related to permissible holdings and portfolio limitations. As such, any 
testing, monitoring, or surveillance for compliance with continued 
listing standards and obligations applicable to a particular Outcome 
Strategy ETP will be nearly identical across the entirety of the 
Outcome Strategy Series, allowing the Exchange's regulatory personnel 
to leverage the same processes across each Outcome Strategy ETP, which 
substantially reduces the regulatory burden applicable for each Outcome 
Strategy ETP. Accordingly, the Exchange believes that the proposed cap 
on listing fees on Outcome Strategy ETPs is not unfairly discriminatory 
due to their unique operation.
    Further, the Exchange notes that an issuer will only receive the 
benefit of the annual fee cap if they accrue greater than $16,000 in 
listing fees for a particular Outcome Strategy Series. The Exchange 
notes that the proposed fee structure is a cap on fees for Outcome 
Strategy Series and will only act to leave static or reduce fees for 
ETPs listed on the Exchange. This proposal will decrease the fees 
associated with listing ETPs with monthly Outcome Periods on the 
Exchange, which will reduce the barriers to entry into the space and 
incentivize enhanced competition among issuers of Outcome Strategy 
ETPs, also to the benefit of investors.
The Proposed Fee Cap Is Reasonable
    The Exchange believes that the proposed cap on fees for Outcome 
Strategy Series and the associated changes is a reasonable means to 
incentivize issuers to list (or transfer) Outcome Strategy ETPs on the 
Exchange. The marketplace for listings is extremely competitive and 
there are several other national securities exchanges that offer ETP 
listings. Transfers between listing venues occur frequently \18\ for 
numerous reasons, including listing fees. The proposed rule changes 
reflect a competitive pricing structure designed to incentivize issuers 
to list new products and transfer existing products to the Exchange, 
which the Exchange believes will enhance competition both among ETP 
issuers and listing venues, to the benefit of investors.
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    \18\ For example, 16 ETPs transferred their listings to the 
Exchange on May 13, 2019. See http://ir.cboe.com/~/media/Files/C/
CBOE-IR-V2/press-release/2019/cboe-welcomes-16-barclays-etns.pdf.
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    The Exchange believes that this proposal represents a significantly 
improved approach to annual listing fees for ETPs that by their nature 
require multiple listings. The proposed fee structure is a cap on fees 
for Outcome Strategy Series and will only act to leave static or reduce 
fees for ETPs listed on the Exchange. This proposal is intended to help 
the Exchange compete as an ETP listing venue.
    Based on the foregoing, the Exchange believes that the proposed 
rule changes are consistent with the Act.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed change burdens competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX as 
a listing venue by providing better pricing for Outcome Strategy 
Series. The marketplace for listings is extremely competitive and there 
are several other national securities exchanges that offer ETP 
listings. Transfers between listing venues occur frequently \19\ for 
numerous reasons, including listing fees. This proposal is intended to 
help the Exchange compete as an ETP listing venue. Accordingly, the 
Exchange does not believe that the proposed change will impair the 
ability of issuers or competing ETP listing venues to maintain their 
competitive standing. The Exchange also notes that the proposed change 
represents a competitive pricing structure designed to incentivize 
issuers to list new products and transfer existing products to the 
Exchange, which the Exchange believes will enhance competition both 
among ETP issuers and listing venues, to the benefit of investors. The 
Exchange believes that such proposed changes will directly enhance 
competition among ETP listing venues by reducing the costs associated 
with listing on the Exchange for Outcome Strategy ETPs. Similarly, the 
Exchange believes that reducing [sic] putting a cap on such ETPs will 
enhance competition both among listing venues of Outcome Strategy ETPs 
and among issuers and issuances of Outcome Strategy ETPs through an 
overall reduction of annual fees for listing such products. As such, 
the proposal is a competitive proposal designed to enhance pricing 
competition among listing venues and implement pricing for listings 
that better reflects the revenue and expenses associated with listing 
ETPs on the Exchange.
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    \19\ For example, 16 ETPs transferred their listings to the 
Exchange on May 13, 2019. See http://ir.cboe.com/~/media/Files/C/
CBOE-IR-V2/press-release/2019/cboe-welcomes-16-barclays-etns.pdf.
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    The Exchange does not believe the proposed amendments would burden 
intramarket competition as they would be available to all issuers 
uniformly.

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 \20\ and paragraph (f) of Rule 19b-4 \21\ 
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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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

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     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-081 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-2019-081. 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-2019-081 and should be submitted 
on or before October 9, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20149 Filed 9-17-19; 8:45 am]
 BILLING CODE 8011-01-P


