[Federal Register Volume 84, Number 224 (Wednesday, November 20, 2019)]
[Notices]
[Pages 64149-64153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87539; File No. SR-CboeBYX-2019-020]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fee Schedule

November 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 November 1, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the

[[Page 64150]]

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 BYX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the fee schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule in connection with 
its Add Volume Tiers.
    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 13 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\3\ no single registered 
equities exchange has more than 18% of the market share. Thus, in such 
a low-concentrated and highly competitive market, no single equities 
exchange possesses significant pricing power in the execution of order 
flow. The Exchange in particular operates a ``Taker-Maker'' model 
whereby it pays credits to members that remove liquidity and assesses 
fees to those that add 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 $0.0005 per share for orders that remove liquidity and assesses a 
fee of $0.0019 per share for orders that add liquidity. The Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow, or discontinue to reduce use of certain categories of products, 
in response to fee changes. Accordingly, competitive forces constrain 
the Exchange's transaction fees, and market participants can readily 
trade on competing venues if they deem pricing levels at those other 
venues to be more favorable. 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 incremental incentives for Members to strive for higher or 
different tier levels by offering increasingly higher discounts or 
enhanced benefits for satisfying increasingly more stringent criteria 
or different criteria.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume Summary 
(October 25, 2019), available at https://markets.cboe.com/us/equities/market_statistics/.
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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 
receive a discounted rate from the standard fee assessment for 
liquidity adding orders that yield fee codes ``B'',\4\ ``V'' \5\ and 
``Y''.\6\ The Add Volume Tiers currently offer five different tiers 
that vary in levels of criteria difficulty and incentive opportunities 
in which Members may qualify for discounted rates for such orders. The 
Exchange notes that these tiers are designed to encourage Members that 
provide displayed, liquidity adding orders on the Exchange to increase 
their order flow, thereby contributing to a deeper and more liquid 
market to the benefit of all market participants.
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    \4\ Appended to displayed orders that add liquidity to BYX (Tape 
B), and assessed a fee of $0.0019.
    \5\ Appended to displayed orders that add liquidity to BYX (Tape 
A), and assessed a fee of $0.0019.
    \6\ Appended to displayed orders that add liquidity to BYX (Tape 
C), and assessed a fee of $0.0019.
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    Specifically, the Exchange proposes to amend Add Volume Tier 4, 
which currently provides Members an opportunity to qualify for a 
reduced fee of $0.0016 for orders yielding fee codes B, V, and Y where 
a Member has an ADAV \7\ of greater than or equal to 0.25% of the 
TCV,\8\ and a Step-Up ADAV \9\ of greater than or equal to 0.05% of the 
TCV from April 2017 baseline. The Exchange proposes to remove the 
requirement that a Member have a Step-Up ADAV of greater than or equal 
to 0.05% of the TCV from April 2017 baseline, and slightly decrease the 
fee reduction rate from the current $0.0016 to a proposed rate of 
$0.0017. The Exchange notes that the proposed change to this tier's 
criteria is designed to make it easier to achieve by removing the Step-
Up ADAV component. As a result, the proposed criteria would become the 
least difficult tier to achieve in comparison to current Add Volume 
Tiers 1 through 3. Therefore, to maintain the Add Volume Tiers in order 
of incremental difficulty and corresponding rates, the Exchange moves 
this proposed criteria and fee reduction rate to Tier 1 (and updates 
the subsequent Tier numbers).
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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\ ``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV.
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    The Exchange notes that the proposed change to this tier is 
designed to make the tier criteria easier to reach by removing the 
Step-Up ADAV component of the criteria. The Exchange believes that by 
easing the tier criteria difficulty it will encourage those Members who 
could not previously achieve current Tier 4 to increase their order 
flow as a means to receive the tier's proffered fee reduction. The 
Exchange also notes that the proposed decrease in the current fee 
reduction rate is commensurate with the proposed decrease in the tier's 
criteria. The Exchange believes the proposed criteria modification for 
displayed, liquidity adding orders will incentivize increased overall 
order flow to the Book and gives liquidity providing Members on the 
Exchange an additional opportunity to receive a discounted rate. It is 
designed

[[Page 64151]]

to provide Members that submit displayed liquidity on the Exchange a 
further incentive to contribute to a deeper, more liquid market, in 
turn, providing additional execution opportunities at transparent 
prices as a result of such increased, displayed liquidity. The Exchange 
believes that this benefits all Members by enhancing overall market 
quality and contributing towards a robust and well-balanced market 
ecosystem. The Exchange notes the proposed tier is available to all 
Members and is competitively achievable for all Members that submit 
displayed order flow, in that, all firms that submit the requisite 
displayed order flow could compete to meet the tier.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\10\ in general, and 
furthers the objectives of Section 6(b)(4),\11\ 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) \12\ 
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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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 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 restructures an opportunity for Members to 
receive a discounted rate by making it easier to reach the proposed 
threshold by means of liquidity adding displayed orders. The Exchange 
notes that relative volume-based incentives and discounts have been 
widely adopted by exchanges,\13\ including the Exchange,\14\ 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 taker-maker 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.\15\
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    \13\ See e.g., The Nasdaq Stock Market LLC Rules, Equity 7, Sec. 
118(a)(1), which generally provides credits to members for 
displayed, liquidity providing orders that reach certain thresholds 
of consolidated volume.
    \14\ See e.g., Cboe BYX U.S. Equities Exchange Fee Schedule, 
Footnotes 1 and 2, Remove Volume and Non-Displayed Liquidity 
Incentive tiers provide similar incentives for volume removing 
orders and for volume adding, non-displayed orders, respectively.
    \15\ See supra note 12. For example, Nasdaq offers a rebate of 
$0.00305 per share with shares of liquidity provided in all 
securities through one or more of its Nasdaq Market Center MPIDs 
that represent more than 1.25% of Consolidated Volume during the 
month. The Exchange notes that this rebate of $0.00305 is 
substantially similar to the proposed fee reduction of $0.0017 
(which is essentially a `rebate' of $0.002 from the $0.0019 standard 
fee assessed).
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    Moreover, the Exchange believes the proposed modification to remove 
the Step-Up component from current Add Volume Tier 4 (proposed Tier 1) 
is a reasonable means to further incentivize Members to increase their 
overall displayed order flow to the Exchange based on increasing their 
daily total added volume (ADAV) above a percentage of the total volume 
(TCV). Particularly, the Exchange believes that decreasing the tier's 
criteria will encourage those Members who could not achieve the tier 
previously to increase their order flow as a means to receive the 
tier's reduced rate. The Exchange believes that easing the current Tier 
4 criteria will encourage displayed liquidity providing Members to 
provide for a deeper, more liquid market, and, as a result, increased 
priced transparency, execution opportunities, and overall order flow. 
The Exchange believes that these increases benefit all Members by 
enhancing market quality and 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. In line with the proposed ease in criteria difficulty, the 
Exchange also believes that the proposed lesser fee reduction than 
offered currently is reasonable as it is commensurate with the proposed 
decreased criteria. Similarly, moving the proposed criteria and the 
adjusted corresponding fee reduction to Tier 1 is reasonable because it 
appropriately reflects the incremental difficulty in achieving the 
existing Add Volume Tiers and the incrementally higher reduction in 
fees that correspond to each.
    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 Add 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 two of its Members reached current Tier 4 in 
the last month. 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. While the Exchange has no way of predicting with 
certainty how the proposed tier will impact Member activity, the 
Exchange anticipates that at least four Members will be able to compete 
for and reach the proposed tier. Accordingly, the Exchange believes the 
proposed criteria modification is reasonably designed as an incentive 
to any and all Members interested in meeting the tier criteria to 
submit additional displayed order flow to achieve the proposed 
discount. The Exchange anticipates that these will include multiple 
Member types, liquidity providers (e.g., wholesale firms

[[Page 64152]]

that mainly are market makers for retail orders) and broker-dealers 
(e.g., bulge bracket firms that conduct trading on behalf of 
customers), 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 rate would uniformly apply to all Members 
that meet the required criteria under the modified 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.'' \16\
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    \16\ 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 fee rate if such criteria is 
met. Additionally the proposed change is designed to attract additional 
order flow to the Exchange. The Exchange believes that the modified 
tier criteria would incentivize market participants to direct displayed 
liquidity and, as a result, executable order flow and improved price 
transparency, to the Exchange. Greater overall order flow and pricing 
transparency benefits all market participants on the Exchange by 
providing more trading opportunities, enhancing market quality, 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 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 and 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 18% of the market share.\17\ Therefore, no exchange possesses 
significant pricing power in the execution of 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.'' \18\ 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'. . . .''.\19\ 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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    \17\ See supra note 3.
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \19\ 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 \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
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBYX-2019-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 64153]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBYX-2019-020. 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-CboeBYX-2019-020 and should be submitted 
on or before December 11, 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. 2019-25104 Filed 11-19-19; 8:45 am]
 BILLING CODE 8011-01-P


