[Federal Register Volume 84, Number 232 (Tuesday, December 3, 2019)]
[Notices]
[Pages 66245-66248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87629; File No. SR-CboeBZX-2019-086]


Self-Regulatory Organizations; Cboe BZX 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

November 26, 2019.

I. Introduction

    On October 1, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX 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 October 21, 
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.
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    \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. 87312 (October 15, 
2019), 84 FR 56235 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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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 
the Cboe One Summary Feed \7\ from the Exchange at discounted fees. 
Currently, the Exchange charges $5,000 per month for external 
distribution of Cboe One Summary Feed, 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.\8\
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    \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 BZX 
Fee Schedule.
    \7\ 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 EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe 
BYX Exchange, Inc. See Notice, supra note 4, 84 FR at 56235.
    \8\ A ``Professional User'' of an Exchange market data product 
is any user other than a Non-Professional User. See BZX 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.
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    Under the Exchange's proposal, Distributors that qualify for the 
Program would be charged a discounted fee of $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

[[Page 66246]]

continue to charge the current Professional and Non-Professional User 
fees for Cboe One Summary Feed.
    In order to qualify for the Program, a Distributor must meet the 
following criteria: (i) Distributor is a broker-dealer distributing 
Cboe One Summary Feed 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 
Cboe One Summary Feed; and (iii) Distributor distributes 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,\9\ 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,\10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
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    A fee change to introduce the Program was originally filed on 
August 1, 2019. That proposal, CboeBZX-2019-069, was published for 
comment in the Federal Register on August 20, 2019.\11\ The Commission 
received no comment letters regarding the proposed rule change. On 
September 30, 2019, the Division of Trading and Markets (the 
``Division''), acting on behalf of the Commission by delegated 
authority, issued an order temporarily suspending CboeBZX-2019-069 
pursuant to Section 19(b)(3)(C) of the Act \12\ and simultaneously 
instituting proceedings under Section 19(b)(2)(B) of the Act \13\ to 
determine whether to approve or disapprove that proposal.\14\
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    \11\ See Securities Exchange Act Release No. 86667 (August 14, 
2019), 84 FR 43233.
    \12\ 15 U.S.C. 78s(b)(3)(C).
    \13\ 15 U.S.C. 78s(b)(2)(B).
    \14\ See Securities Exchange Act Release No. 87164 (September 
30, 2019), 84 FR 53208.
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    The Exchange continues to assert 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 BZX and its affiliated exchanges to their retail 
investor clients.'' \15\ 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.'' \16\ 
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.\17\
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    \15\ See Notice, supra note 4, 84 FR at 56237.
    \16\ Id. at 56238.
    \17\ Id.
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    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.\18\ 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.'' \19\
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    \18\ 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'').
    \19\ See id.
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    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; \20\ (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; \21\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\22\
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    \20\ 15 U.S.C. 78f(b)(4).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78f(b)(8).
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    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.\23\
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    \23\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\24\
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    \24\ 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).
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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) \25\ and 19(b)(2)(B) of the Act \26\ 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.
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    \25\ 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.
    \26\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\27\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \27\ 15 U.S.C. 78s(b)(2)(B).
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     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,'' \28\
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    \28\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange

[[Page 66247]]

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,'' \29\ and
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    \29\ 15 U.S.C. 78f(b)(5).
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     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].'' \30\
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    \30\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal establishes new discounted fees for 
Distributors of the Exchange's Cboe One Summary data feed. 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 these 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.\31\ The Exchange also states that the proposed Program 
would reduce fees charged to small retail brokers that provide access 
to the Cboe One Summary Feed.\32\ The Exchange notes that it has one 
distributor that qualifies and is taking advantage of the Program's 
pricing,\33\ and notes that Program's fees are often lower than 
Nasdaq's fees.\34\ The Exchange also notes that ``[w]hile there is no 
`exact science' to choosing one eligibility threshold compared to 
another, the Exchange believes that having more Non-Professional Data 
Users across a firm's entire business . . . is indicative of a broker-
dealer that is primarily engaged in the business of serving retail 
investors.'' \35\ The Exchange states that larger broker-dealers and/or 
vendors benefit from lower subscriber fees and enterprise licenses, 
that Distributors that provide data to more than 5,000 Non-Professional 
data users ``enjoy cost savings compared to competitor products,'' 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 . . .'' \36\
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    \31\ See Notice, supra note 4, 84 FR at 56239.
    \32\ See id. at 56237.
    \33\ See id. at 56236.
    \34\ See id. at 56238-39.
    \35\ See id. at 56238.
    \36\ Id.
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    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.'' \37\ 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,\38\ 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.\39\
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    \37\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \38\ See id.
    \39\ See id.
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    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.\40\
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    \40\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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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 December 24, 2019. 
Rebuttal comments should be submitted by January 7, 2020. 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.\41\
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    \41\ 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).
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    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-CboeBZX-2019-086 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-2019-086. 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-2019-086 and should be submitted 
on or before December 24, 2019. Rebuttal comments should be submitted 
by January 7, 2020.

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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\42\ that File No. SR-CboeBZX-2019-086 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.
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    \42\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(57) and (58).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26056 Filed 12-2-19; 8:45 am]
 BILLING CODE 8011-01-P


