[Federal Register Volume 84, Number 193 (Friday, October 4, 2019)]
[Notices]
[Pages 53197-53200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21588]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87166; File No. SR-CboeBYX-2019-012]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Introduce a Small 
Retail Broker Distribution Program

September 30, 2019.

I. Introduction

    On August 1, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the BYX fee schedule to introduce a Small 
Retail Broker Distribution Program (the ``Program''). The proposed rule 
change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule change 
was published for comment in the Federal Register on August 20, 
2019.\4\ The Commission received no comment letters regarding the 
proposed rule change. Under Section 19(b)(3)(C) of the Act,\5\ the 
Commission is hereby: (i) Temporarily suspending the proposed rule 
change; and (ii) instituting proceedings to determine whether to 
approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 86670 (August 14, 
2019), 84 FR 43207 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).

---------------------------------------------------------------------------

[[Page 53198]]

II. Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule to introduce a 
pricing program that would allow certain Distributors \6\ to purchase 
top of book market data from the Exchange at discounted fees. 
Currently, the Exchange offers two top of book data feeds that provide 
quote and trade information. First, the Exchange charges a fee of 
$1,000 per month for external distribution of BYX Top Feed \7\ and a 
fee of $1 per month for each Professional User and $0.025 per month for 
each Non-Professional User.\8\ Second, the Exchange charges $5,000 per 
month for external distribution of Cboe One Summary Feed \9\ and a Data 
Consolidation Fee of $1,000 per month. The Exchange also charges a fee 
$10 per month for each Professional User and $0.25 for each Non-
Professional User.
---------------------------------------------------------------------------

    \6\ A Distributor of an Exchange market data product is any 
entity that receives the Exchange market data product directly from 
the Exchange or indirectly through another entity and then 
distributes it internally or externally to a third party. See BYX 
Fee Schedule.
    \7\ BYX Top is an uncompressed data feed that offers top of book 
quotations and execution information based on equity orders entered 
in the Exchange. See Notice, supra note 4, 84 FR at 43207.
    \8\ A ``Professional User'' of an Exchange market data product 
is any user other than a Non-Professional User. See BYX Fee 
Schedule. A ``Non-Professional User'' of an Exchange market data 
product is a natural person or qualifying trust that uses data only 
for personal purposes and not for any commercial purpose and, for a 
natural person who works in the United States, is not: (i) 
Registered or qualified in any capacity with the Commission, the 
Commodities Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or 
futures contract market or association; (ii) engaged as an 
``investment adviser'' as that term is defined in Section 202(a)(11) 
of the Investment Advisors Act of 1940 (whether or not registered or 
qualified under that Act); or (iii) employed by a bank or other 
organization exempt from registration under federal or state 
securities laws to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt; or, for a natural person who works 
outside of the United States, does not perform the same functions as 
would disqualify such person as a Non-Professional User if he or she 
worked in the United States. Id.
    \9\ Cboe One Summary Feed is a data feed that offers top of book 
quotations and execution information based on equity orders 
submitted to the Exchange and its affiliated equities exchanges, 
i.e., Cboe BZX Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe 
EDGA Exchange, Inc. See Notice, supra note 4, 84 FR at 43207.
---------------------------------------------------------------------------

    Under the Exchange's proposal, Distributors that qualify for the 
Program would be charged a discounted fee of $250 per month for the 
distribution of BYX Top and $3,500 per month for the distribution of 
Cboe One Summary Feed. Distributors that qualify for the Program would 
also be charged a discounted Data Consolidation Fee of $350 for Cboe 
One Summary Feed. The Exchange would continue to charge the current 
Professional and Non-Professional User fees for both data feeds.
    In order to qualify for the Program, a Distributor must meet the 
following criteria for each respective data feed: (i) Distributor is a 
broker-dealer distributing BYX Top Data to Non-Professional Data Users 
with whom the broker-dealer has a brokerage relationship; (ii) more 
than 50% of the Distributor's total subscriber population must consist 
of Non-Professional subscribers, inclusive of any subscribers not 
receiving BYX Top Data/Cboe One Summary Feed; and (iii) Distributor 
distributes BYX Top Data/Cboe One Summary Feed to no more than 5,000 
Non-Professional Data Users.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\10\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\11\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (''SRO'') 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. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(C).
    \11\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Exchange asserts that the proposed fees for the Program ``are 
reasonable as they represent a significant cost reduction for smaller, 
primarily regional, retail brokers that provide top of book data from 
BYX and its affiliated exchanges to their retail investor clients.'' 
\12\ The Exchange also asserts that the ``proposed fees are equitable 
and not unfairly discriminatory as the proposed fee structure is 
designed to decrease the price and increase the availability of U.S. 
equities market data to retail investors.'' \13\ Finally, the Exchange 
states that while the proposed fees are limited to smaller firms that 
distribute data to no more than 5,000 Non-Professional data users, it 
does not believe that the proposed fees for the Program are inequitable 
or unfairly discriminatory.\14\
---------------------------------------------------------------------------

    \12\ See Notice, supra note 4, 84 FR at 43210.
    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\15\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \16\
---------------------------------------------------------------------------

    \15\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \16\ See id.
---------------------------------------------------------------------------

    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \17\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \18\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\19\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the establishment of the Program is 
consistent with the statutory requirements applicable to a national 
securities exchange under the Act. In particular, the Commission will 
consider whether the proposed rule change satisfies the standards under 
the Act and the rules thereunder requiring, among other things, that an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
not permit unfair discrimination between customers, issuers, brokers or 
dealers; and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\20\
---------------------------------------------------------------------------

    \20\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest,

[[Page 53199]]

for the protection of investors, and otherwise in furtherance of the 
purposes of the Act, to temporarily suspend the proposed rule 
changes.\21\
---------------------------------------------------------------------------

    \21\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \22\ and 19(b)(2)(B) of the Act \23\ to determine whether 
the proposed rule change should be approved or disapproved. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \25\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \26\ and
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \27\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As noted above, the proposal establishes new discounted fees for 
Distributors of the Exchange's two top of book data feeds. The 
Commission notes that the Exchange's statements in support of the 
proposed rule change are general in nature and lack detail and 
specificity. The Exchange states that it operates in a highly 
competitive environment, and its ability to price top of book data 
products is constrained by (i) competition among other national 
securities exchanges that offer similar data products to their 
customers; and (ii) real-time consolidated data disseminated by the 
securities information processors.\28\ The Exchange also states that 
the proposed Program would reduce fees charged to small retail brokers 
that provide access to two top of book data products, the BYX Top Feed 
and the Cboe One Summary Feed.\29\ However, the rationale provided does 
not address how the proposed fee is an equitable allocation of 
reasonable fees other than to note that large brokers and vendors 
currently benefit from lower fees and enterprise licenses and that the 
proposed fees would ``ensure that small retail brokers that distribute 
top of book data to their retail investor customers could also benefit 
from reduced pricing . . .'' \30\
---------------------------------------------------------------------------

    \28\ See Notice, supra note 4, 84 FR at 43211.
    \29\ See id. at 43209.
    \30\ See id. at 43211.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \31\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\32\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\33\
---------------------------------------------------------------------------

    \31\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \32\ See id.
    \33\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and open market and the national market system, protect investors and 
the public interest, and not be unfairly discriminatory; or not impose 
an unnecessary or inappropriate burden on competition.\34\
---------------------------------------------------------------------------

    \34\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 25, 2019. 
Rebuttal comments should be submitted by November 8, 2019. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\35\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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-CboeBYX-2019-012 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-CboeBYX-2019-012. 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

[[Page 53200]]

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-
CboeBYX-2019-012 and should be submitted on or before October 25, 2019. 
Rebuttal comments should be submitted by November 8, 2019.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\36\ that File No. SR-CboeBYX-2019-012 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(3)(C).
    \37\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21588 Filed 10-3-19; 8:45 am]
 BILLING CODE 8011-01-P


