[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18290-18292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06740]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88487; File No. SR-CboeBZX-2020-027]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Fee Schedule To Institute a Fee Code Applicable to the 
Cboe Market Close

March 26, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 19, 2020, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the fee schedule to institute a fee code 
applicable to the Cboe Market Close. 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 the fee schedule applicable to its 
equities trading platform (``BZX Equities'') to introduce a fee code 
for orders that participate in the Cboe Market Close.\3\ As proposed, 
orders executed in the Cboe Market Close would yield fee code ``MC.'' 
There would be no transaction fees associated with such orders.
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    \3\ The Exchange initially filed the proposed fee changes on 
March 5, 2020 (SR-CboeBZX-2020-022). On March 13, 2020, the Exchange 
withdrew that filing and re-filed (SR-CboeBZX-2020-024). On March 
19, 2020, the Exchange withdrew that filing and submitted this 
filing.
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    The Exchange plans to implement the Cboe Market Close on March 6, 
2020 as part of its ongoing efforts to improve market structure for the 
benefit of investors.\4\ The Cboe Market Close is an innovative closing 
match process for non-BZX Listed Securities that is designed to match 
buy and sell Market-On-Close (``MOC'') orders at the official closing 
price for such security published by the primary listing market. The 
Exchange is introducing the Cboe Market Close in response to requests 
from market participants, particularly buy-side firms, for an 
alternative to the primary listing exchanges' closing auctions that 
still provides an execution at a security's official closing price. 
Cboe Market Close is designed in response to industry persistence and 
interest in an alternative to the listing market's closing auction.
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    \4\ The Commission approved the Cboe Market Close on January 21, 
2020. See Securities Exchange Act Release No. 88008 (January 21, 
2020) 85 FR 4726 (January 27, 2020) (the ``Approval Order'') (SR-
BatsBZX-2017-34).
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    As noted in the Approval Order, BZX stated that the fees for Cboe 
Market Close would be set and maintained over time at a rate less than 
the fee charged by the applicable listing exchange for its own 
respective closing mechanism. Accordingly, in conjunction with the 
upcoming implementation of the Cboe Market Close, the Exchange proposes 
to introduce a new fee code for orders that are executed in the Cboe 
Market Close, which would yield fee code ``MC.'' As proposed, there 
would be no fee to participate in the Cboe Market Close, thereby 
providing cost effective executions at the official closing price on a 
public exchange, and facilitating the execution of those orders at a 
lower rate than such orders would be charged in a primary listing 
markets' closing auction.\5\
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    \5\ For example, Nasdaq offers tiered fees for both MOC and 
Limit-on-Close (``LOC'') order executions in its closing auction 
process ranging from $0.0008 to $0.0016 per executed share. See 
Nasdaq Crossing Network, Execution Fees for the Nasdaq Closing 
Cross, Tiers A through G of the Nasdaq Price List. NYSE offers 
tiered fees for MOC order executions in its closing auction process 
ranging from $0.0004 to $0.0010. See Executions at the Close Equity 
Per Share Charge--per transaction (both sides)--of the NYSE Price 
List.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4),\7\ 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 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. The 
proposed rule change reflects a competitive pricing structure designed 
to incentivize market participants to direct their MOC orders to the 
Cboe Market Close, which the Exchange believes would facilitate the 
execution of those orders at the official closing price.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposal is reasonable 
because it provides Members a free alternative for executing MOC orders 
at the official closing price. Currently, market participants may 
execute MOC orders on public exchanges at the official closing price 
only by participating in the primary listing market's closing auction. 
As noted in the Approval Order, BZX stated that the fees for Cboe 
Market Close would be set and maintained over time at a rate less than 
the fee charged by the applicable listing exchange for its own 
respective closing mechanism. Accordingly, the proposal would allow all 
Members to participate in the Cboe Market Close without charge, and 
therefore at a price that is less than the applicable closing auction 
fees that would be incurred on the primary listing exchanges.\8\ The 
Exchange also believes the proposal is reasonable because fostering 
price

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competition for the execution of MOC orders may facilitate the ability 
for smaller and mid-size brokers to better compete for investors' MOC 
order flow. In turn, greater choice among, and participation by, 
broker-dealers in handling MOC orders should inure to the benefit of 
end investors. Further, the Exchange believes the proposal may increase 
execution quality competition for MOC orders by incentivizing other 
venues, including the primary listing exchanges, to continue to 
innovate and compete to attract MOC orders to their venues.
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    \8\ For example, Nasdaq offers tiered fees for executions in its 
closing auction process ranging from $0.0008 to $0.0016 per executed 
share. See Tiers A through G of the Nasdaq fee schedule http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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    Additionally, the Exchange believes the proposal is equitable and 
not unfairly discriminatory because it would apply equally to all 
Members who choose to participate in the Cboe Market Close. The 
proposed fee change is designed to allow broad participation in the 
Cboe Market Close, and there would be no differentiation in fees 
charged to Members. Rather, the Exchange's proposal would allow all 
Members to participate in the Cboe Market Close without charge. In 
turn, this would allow any interested Member to participate in the Cboe 
Market Close on an equal and non-discriminatory basis.
    Lastly, while the Exchange's proposal offers participation in the 
Cboe Market Close at no cost to Members, the Exchange will continue to 
surveil for potentially manipulative activities and will enhance its 
surveillance procedures and work with other SROs to detect and prevent 
manipulative activity through the use of Cboe Market Close.

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 MOC orders to a public 
exchange for execution at the official closing price.
    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 allows all Members to participate in the Cboe Market Close 
without charge. The proposal is designed to encourage Members to 
participate in the Cboe Market Close, which the Exchange believes will 
benefit all Members by fostering price competition for the execution of 
MOC orders at the official closing price, and may facilitate the 
ability for smaller and mid-size brokers to better compete for 
investors' MOC order flow. In turn, greater choice among, and 
participation by, broker-dealers in handling MOC orders should inure to 
the benefit of end investors.
    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. The purpose of 
Cboe Market Close is to increase competition for the execution of MOC 
orders. Specifically, the Exchange believes the proposal may increase 
competition for MOC orders by incentivizing other venues, including the 
primary listing exchanges, to continue to innovate and compete to 
attract MOC orders to their venues.\9\ Further, as previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and direct their MOC order flow, including primary listing markets and 
off-exchange venues and alternative trading systems.\10\
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    \9\ Supra note 3.
    \10\ Id.
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    Lastly, the proposal is offered in conjunction with the launch of 
the Cboe Market Close which is designed to enhance competition for the 
execution of MOC orders at the official closing price. Market 
participants may only execute at the official closing price on a public 
exchange is through the primary listing market auction. Generally, more 
than 70% of execution volume at the official closing price occurs on 
the primary listing exchange. Therefore, the proposal is designed to 
enhance competition among exchanges by offering market participants an 
alternative option to execute MOC orders at the official closing price. 
Furthermore, market participants can readily choose to send their MOC 
orders to primary listing markets and off-exchange venues if they deem 
fee levels at those other venues to be more favorable. For example, 
recent studies have shown that Trade Reporting Facility (``TRF'') 
volumes using the primary closing auction price have reached as high as 
30% on some occasions.\11\
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    \11\ See BZX Statement in Support of the Division's Order 
Approving a Rule to Introduce Cboe Market Close, at 16 (April 12, 
2018).
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    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.'' \12\ 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'. . . .''.\13\ 
Accordingly, the Exchange does not believe the proposal imposes any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \13\ 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 neither solicited nor received comments on the 
proposed rule change.

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 \14\ and paragraph (f) of Rule 19b-4 \15\ 
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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-CboeBZX-2020-027 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-2020-027. 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-2020-027, and should be 
submitted on or before April 22, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06740 Filed 3-31-20; 8:45 am]
 BILLING CODE 8011-01-P


