[Federal Register Volume 85, Number 12 (Friday, January 17, 2020)]
[Notices]
[Pages 3096-3099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00681]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87946; File No. SR-CboeBZX-2020-001]


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

January 13, 2020.
    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 January 2, 2020, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend its 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/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (``BZX Options''), effective January 2, 2020.
    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 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 22% of the market share and 
currently the Exchange represents less than 8% of the market share.\3\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange, including the Exchange, possesses significant 
pricing power in the execution of option order flow. 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (December 26, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange assesses a standard 
rebate of $0.29 per contract for Market Maker orders that add liquidity 
in Penny Pilot Securities \4\ and $0.40 per contract for such orders in 
non-Penny Pilot Securities. Additionally, 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 an incremental incentive for Members to strive for 
higher tier levels, which provides increasingly higher benefits or 
discounts for satisfying increasingly more stringent criteria. For 
example, the Exchange currently offers nine Market Maker Penny Pilot 
Add Volume Tiers (``MM Penny Add Tiers'') under footnote 6, which 
provide an enhanced rebate between $0.33 and $0.46 per contract for 
qualifying Market Maker orders which meet certain add liquidity 
thresholds and yield fee code PM.
---------------------------------------------------------------------------

    \4\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------

    Under the current MM Penny Add Tiers, a Member receives an enhanced 
rebate where the Member has an ADV, ADAV, or ADRV (depending on the 
Tier) \5\ in Market Maker orders greater than or equal to a specified 
percentage of OCV \6\ or TCV \7\ (currently in Tier 4).

[[Page 3097]]

The Exchange proposes to adopt new MM Penny Add Tier 9 and, 
accordingly, relocate current MM Penny Add Tier 9 to a new Tier 10. The 
Exchange believes the proposed MM Penny Add Tier will provide Members 
an additional opportunity and alternative means to receive an enhanced 
rebate for meeting the corresponding proposed criteria. The Exchange 
believes the proposed tier, along with the existing tiers, also 
provides an incremental incentive for Members to strive for the highest 
tier levels, which provide increasingly higher discounts for such 
transactions. Specifically, the Exchange proposes to adopt a new MM 
Penny Add Tier 9 (and subsequently move current Tier 9 to a new Tier 
10), which would provide an enhanced rebate of $0.44 per contract where 
a Member: (1) Has an ADAV in Market Maker orders greater than or equal 
to 0.10% of average OCV; (2) has on BZX Equities an ADV greater than or 
equal to 0.60% of average TCV; and (3) has a step-up ADAV in Market 
Maker orders from December 2019 greater than or equal to 0.05% of 
average OCV. As such, under the proposed Tier, the Exchange is adopting 
an additional set of criteria that Members could meet to achieve an 
enhanced rebate. Particularly, Members must additionally satisfy a (i) 
ADAV threshold as it relates to a percentage of OCV, that is less 
stringent than such criteria under current Tier 9 (relocated to new 
Tier 10), (ii) cross-asset threshold, which is designed to incentivize 
Members to achieve certain levels of participation on both the 
Exchange's options and equities platform (``BZX Equities'') and (iii) a 
step-up ADAV threshold, which is designed to encourage growth (i.e., 
Members must increase their relative liquidity each month over a 
predetermined baseline (in this case the month being December 2019)). 
Overall, the proposed enhanced rebate and corresponding criteria is 
designed to encourage Members to increase their order flow, thereby 
contributing to a deeper and more liquid market, which benefits all 
market participants and provides greater execution opportunities on the 
Exchange.
---------------------------------------------------------------------------

    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added, ``ADRV'' means average daily removed 
volume calculated as the number of contracts removed, and ``ADV'' 
means average daily volume calculated as the number of contracts 
added or removed, combined, per day. ADAV, ADRV and ADV are 
calculated on a monthly basis.
    \6\ ``OCC Customer Volume'' or ``OCV'' means the total equity 
and ETF options volume that clears in the Customer range at the 
Options Clearing Corporation (``OCC'') for the month for which the 
fees apply, excluding volume on any day that the Exchange 
experiences an Exchange System Disruption and on any day with a 
scheduled early market close.
    \7\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Section 6 of the Act,\8\ in general, and Section 6(b)(4),\9\ 
in particular, as it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive higher rebates by providing a different set of criteria they 
can reach for. The Exchange notes that volume-based incentives and 
discounts have been widely adopted by exchanges,\10\ including the 
Exchange,\11\ and are reasonable, equitable and non-discriminatory 
because they are open to all Members on an equal basis. They also 
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 options venues to which market participants may direct 
their order flow, and it represents a small percentage of the overall 
market. Competing options 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 
pricing incentives tied to comparable tiers.\12\
---------------------------------------------------------------------------

    \10\ See, e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.01 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
    \11\ See, e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnote 7, Market Maker Non-Penny Pilot Volume Tiers which provide 
comparable enhanced rebates for Market Maker orders where Members 
meet certain volume thresholds.
    \12\ See supra note 11.
---------------------------------------------------------------------------

    Moreover, the Exchange believes the proposed Market Maker Tier 9 is 
a reasonable means to encourage Members to increase their liquidity on 
the Exchange and also their participation on BZX Equities. The Exchange 
believes that adopting a tier with alternative criteria to the existing 
Market Maker Volume Tiers may encourage those Members who could not 
previously achieve the criteria under the existing Market Maker Volume 
Tiers to increase their order flow on BZX Options and Equities. For 
example, the proposed tier would provide an opportunity for Members who 
have an ADAV in Market Makers Orders of at least 0.10% of average OCV, 
but less than the more stringent 0.75% of average OCV (the requirement 
under current Tier 9, i.e., new Tier 10), to receive a higher rebate 
than they may currently receive but slightly lower than the rebate they 
would receive for reaching the more stringent criteria under current 
Tier 9 (new Tier 100), if they otherwise meet the threshold requirement 
based on BZX Equities participation and can grow a modest amount since 
December 2019. Similarly, for Market Makers that participate on both 
BZX Options and Equities, and do not currently meet the 0.75% ADAV 
threshold under current Tier 9 (i.e., new Tier 10), but can or do meet 
the proposed equities ADV threshold, the proposed tier may incentivize 
those participants to grow their options volume in order to receive 
enhanced rebates. Increased liquidity benefits all investors by 
deepening the Exchange's liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. The Exchange also believes that proposed enhanced 
rebate is reasonable based on the difficulty of satisfying the tier's 
criteria and ensures the proposed rebate and threshold appropriately 
reflects the incremental difficulty to achieve the existing Market 
Maker Volume Tiers. The proposed enhanced rebate amount also does not 
represent a significant departure from the enhanced rebates currently 
offered under the Exchange's existing Market Maker Volume Tiers. 
Indeed, the proposed enhanced rebate amount ($0.44) is incrementally 
higher than current Tiers 7 and 8 ($0.42), which the Exchange believes 
offers slightly less stringent criteria than the proposed Tier 9, but 
is incrementally lower than the rebate offered under existing Tier 9 
(i.e., new Tier 10) ($0.46), which the Exchange believes is more 
stringent than the proposed criteria under proposed Tier 9. The 
Exchange also notes that the proposed rebate remains within the range 
of the enhanced rebates offered under the current Market Maker Volume 
Tiers (i.e., $0.33-$0.46).
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Market Makers. Additionally a number of Market 
Makers have a reasonable opportunity to satisfy the tier's criteria, 
which the Exchange believes is less stringent than the existing Market 
Maker Volume Tier 9 (new Tier 10). While the Exchange has no way of 
knowing whether this proposed rule change would definitively result in 
any particular Market Maker qualifying for the

[[Page 3098]]

proposed tier, the Exchange anticipates up to three Market Makers 
meeting, or being reasonably able to meet, the proposed criteria. The 
Exchange believes the proposed tier could provide an incentive for 
other Members to submit additional liquidity on BZX Options and 
Equities to qualify for the proposed enhanced rebate. To the extent a 
Member participates on the Exchange but not on BZX Equities, the 
Exchange does believe that the proposal is still reasonable, equitably 
allocated and non-discriminatory with respect to such Member based on 
the overall benefit to the Exchange resulting from the success of BZX 
Equities. Particularly, the Exchange believes such success allows the 
Exchange to continue to provide and potentially expand its existing 
incentive programs to the benefit of all participants on the Exchange, 
whether they participate on BZX Equities or not. The proposed pricing 
program is also fair and equitable in that membership in BZX Equities 
is available to all market participants, which would provide them with 
access to the benefits on BZX Equities provided by the proposed change, 
even where a member of BZX Equities is not necessarily eligible for the 
proposed enhanced rebate on the Exchange.
    The Exchange lastly notes that it does not believe the proposed 
tier will adversely impact any Member's pricing or ability to qualify 
for other tiers. Rather, should a Member not meet the proposed 
criteria, the Member will merely not receive the proposed enhanced 
rebate, and has nine alternative choices to aim to achieve under the 
Market Maker Volume Tiers. Furthermore, the proposed enhanced rebate 
would apply to all Members that meet the required criteria under 
proposed Market Maker Volume Tier 9.

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 liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities 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.'' \13\
---------------------------------------------------------------------------

    \13\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    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 uniformly to market participants. As discussed above, to 
the extent a Member participates on the Exchange but not on BZX 
Equities, the Exchange notes that the proposed change can provide an 
overall benefit to the Exchange resulting from the success of BZX 
Equities. Such success enables the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on BZX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in BZX Equities is available to all market 
participants. Additionally, the proposed change is designed to attract 
additional order flow to the Exchange and BZX Equities. Greater 
liquidity benefits all market participants on the Exchange by providing 
more trading opportunities and encourages Members to send orders, 
thereby contributing to robust levels of liquidity, which benefits all 
market participant.
    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 director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 22% of the market 
share.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of option 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.'' \15\ 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'. . . .''.\16\ 
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.
---------------------------------------------------------------------------

    \14\ See supra note 1.
    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \16\ 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)).
---------------------------------------------------------------------------

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 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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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

[[Page 3099]]

to determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-001 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-2020-001. 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-2020-001 and should be submitted 
on or before February 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00681 Filed 1-16-20; 8:45 am]
BILLING CODE 8011-01-P


