[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36627-36630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89047; File No. SR-CboeBZX-2020-048]


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

June 11, 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 June 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.
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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. (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

[[Page 36628]]

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'').\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
June 1, 2020 (SR-CboeBZX-2020-046). On June 2, 2020, the Exchange 
withdrew that filing and submitted this filing.
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    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 19% of the market share and 
currently the Exchange represents only approximately 9% of the market 
share.\4\ 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. The Exchange's fee schedule sets 
forth standard rebates and rates applied per contract. For example, the 
Exchange assesses a standard rebate of $0.25 per contract for Customer 
orders that add liquidity in Penny Pilot Securities and a standard 
rebate of $0.85 per contract 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.
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    \4\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (May 29, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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    For example, the Exchange currently offers four Customer Non-Penny 
Pilot Add Volume Tiers under footnote 12 of the fee schedule which 
provide enhanced rebates between $0.92 and $1.05 per contract for 
qualifying Customer orders which meet certain add liquidity thresholds 
and yield fee code NY.\5\ Under the current Customer Non-Penny Pilot 
Add Volume Tiers, a Member may receive an enhanced rebate where the 
Member has an ADAV \6\ in Customer orders, or Customer and Market Maker 
and/or Firm orders greater or equal to a specified percentage of OCV. 
\7\ The Exchange now proposes to adopt a Customer Non-Penny Pilot Add 
Volume Tier 5.
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    \5\ Orders yielding fee code NY are Customer orders that add 
liquidity in Non-Penny Pilot securities and are offered a rebate of 
$0.85.
    \6\ ``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.
    \7\ ``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.
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    The Exchange believes the proposed Customer Non-Penny Pilot Add 
Volume Tier will provide Members an additional opportunity to receive 
an enhanced rebate for meeting the corresponding proposed criteria. The 
Exchange believes the proposed tier, along with the existing tiers, 
also provide an incremental incentive for Members to strive for the 
highest tier levels, which provide increasingly higher rebates for such 
transactions. Particularly, the Exchange proposes to add new Customer 
Non-Penny Pilot Add Volume Tier 5, which would provide an enhanced 
rebate of $1.06 per contract on qualifying orders (i.e., yielding fee 
code NY) where a Member has (1) an ADAV in Customer orders greater than 
or equal to 2.00% of average OCV; and (2) an ADAV in Customer Non-Penny 
orders greater than or equal to 1.00% of average OCV. The proposed tier 
provides an additional opportunity for Members to achieve an increased 
enhanced rebate on their Customer Non-Penny liquidity adding orders 
(NY) by reaching a new Customer Non-Penny Pilot tier. Specifically, the 
proposed fee change is designed to encourage overall Customer liquidity 
adding order flow (both Penny and Non-Penny orders). The Exchange 
believes that incentivizing more Customer order flow will create more 
trading opportunities, which, in turn attracts Market-Makers. A 
resulting increase in Market-Maker activity may facilitate tighter 
spreads, which may lead to additional increase of order flow in Non-
Penny orders from other market participants, further contributing to a 
deeper, more liquid market to the benefit of all market participants by 
creating a more robust and well-balanced market ecosystem.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\8\ in general, and furthers the requirements 
of 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 facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers. 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.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive a higher rebate by providing additional 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\

[[Page 36629]]

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 a 
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\
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    \10\ See e.g., BOX Options Fee Schedule, Section 1(A)(1) [sic], 
which offers tiered rebates for Public Customer orders in Non Penny 
Pilot Classes for members that reach certain thresholds of ``maker'' 
customer volume in multiply-listed options classes ranging from 
$0.15 to $0.60; Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 1, Customer Volume Tiers, which provide tiered rebates for 
Customer Non-Penny and Penny orders where Members meet certain 
volume thresholds, ranging from $0.10 to $0.21.
    \11\ See e.g., The Exchange's Fee Schedule, Footnotes 1 and 12, 
Customer Penny Pilot and Non-Penny Pilot Volume Tiers which provide 
enhanced rebates for Customer orders where Members meet certain 
volume thresholds ranging from $0.35 to $1.05.
    \12\ See supra note 10.
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    Moreover, the Exchange believes proposed Customer Non-Penny Pilot 
Add Volume Tier 5 is a reasonable means to encourage Members to 
increase their liquidity on the Exchange, specifically their Customer 
add volume order flow. The Exchange believes that adopting an 
additional tier under the Customer Non-Penny Pilot Add Volume Tiers 
will encourage Members to increase their general Customer liquidity 
adding order flow (both in Penny and Non-Penny securities) on the 
Exchange in order to achieve the proposed increased enhanced rebate on 
their qualifying orders (i.e., yielding fee code NY). Increased 
Customer liquidity benefits all investors by attracting Market-Makers, 
which facilitates tighter spreads, signaling additional corresponding 
order flow (thus, more execution opportunities) from other types of 
market participants. This overall increase in activity deepens the 
Exchange's liquidity pool, offers additional cost savings, supports the 
quality of price discovery, promotes market transparency and improves 
market quality, for all investors.
    The Exchange also believes that the proposed enhanced rebate is 
reasonable based on the difficulty of satisfying the tier's criteria 
and ensures the proposed rebate and criteria thresholds appropriately 
reflect the incremental difficulty to achieve the existing Customer 
Non-Penny Pilot Add Volume Tiers. The proposed criteria under Tier 5 
remains in line with the incremental increases in ADAV as a percentage 
of average OCV from Tier 1 through Tier 3 for Customer orders or for 
both Customer orders plus other firm-type orders. For example, the 
proposed criteria in Tier 5 poses an incremental increase in difficulty 
from Tier 4 (which may be met if a Member adds an ADAV in Customer 
orders greater than or equal to 2.10% of average OCV) as the sum of 
overall Customer orders greater than or equal to 2.00% of average OCV 
plus Customer Non-Penny orders greater than or equal to 1.00% of 
average OCV presents a two-pronged criteria with thresholds that hover 
around or are higher than thresholds in preceding tiers. Thus, the 
Exchange believes the two criteria in proposed Tier 5 pose, in total, 
an incrementally more difficult tier that Members may strive to 
achieve. As such, the Exchange believes the enhanced rebate of $1.06 
offered under proposed Tier 5, over the $1.05 enhanced rebate offered 
under Tier 4, is a reasonable, incremental increase that corresponds to 
the incremental increase in difficulty in achieving proposed Tier 5.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because all 
Members will be eligible for the proposed tier and the corresponding 
enhanced rebate will apply uniformly to all Members that reach the 
proposed tier criteria. That is, the proposed tiers are designed as an 
incentive to any and all Members interested in meeting the tier 
criteria to submit additional order flow to the Exchange and each will 
receive the proposed enhanced rebate if the tier criteria is met. 
Further, the Exchange offers similar tiered pricing to Firm, Broker 
Dealer, Joint-Back Office,\13\ Away Market Maker,\14\ and Market Maker 
\15\ orders for liquidity adding volume and corresponding rebates for 
their qualifying Non-Penny Pilot orders.
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    \13\ See the Exchange's Fee Schedule, Footnote 8, Firm, Broker 
Dealer, and Joint Back Office Non-Penny Pilot Add Volume Tiers, 
wherein Tier 4 offers a rebate of up to $0.82 per contract to 
Members satisfying the tier.
    \14\ See the Exchange's Fee Schedule, Footnote 11, Away Market 
Maker Non-Penny Pilot Add Volume Tiers, wherein Tier 2 offers a 
rebate of up to $0.52 per contract to Members satisfying the tier.
    \15\ See the Exchange's Fee Schedule, Footnote 7, Market Maker 
Non-Penny Pilot Add Volume Tiers, wherein the applicable tiers offer 
rebates ranging from $0.45 up to $0.88 per contract.
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    Additionally, the Exchange believes that a couple of Members have a 
reasonable opportunity to satisfy the tier's criteria, which is more 
stringent than other existing Customer Non-Penny Pilot Add Volume 
Tiers. While the Exchange has no way of knowing whether this proposed 
rule change would definitively result in any particular Market Maker 
qualifying for the proposed tier, the Exchange anticipates at least one 
or two Members meeting, or being reasonably able to meet, the proposed 
criteria; however, the proposed tier is open to any Member that 
satisfies the tier's criteria. The Exchange believes the proposed tier 
could provide an incentive for other Members to submit additional 
liquidity on the Exchange to qualify for the proposed enhanced rebate. 
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 the corresponding enhanced rebate.

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.'' \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 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, 
the Exchange believes that adopting a tier with additional criteria to 
the existing Customer Non-Penny Pilot Add Volume Tiers will encourage 
Members to increase their order flow in Non-Penny securities on the 
Exchange. 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

[[Page 36630]]

discovery, promoting market transparency and improving investor 
protection. Also, as indicated above, the Exchange does not believe 
that the proposed rule change would impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act as it offers similar tiered pricing to Firm, Broker 
Dealer, Joint-Back Office,\17\ Away Market Maker,\18\ and Market Maker 
\19\ orders for liquidity adding volume and corresponding rebates for 
their qualifying Non-Penny Pilot orders.
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    \17\ See supra note 13.
    \18\ See supra note 14.
    \19\ See supra note 15.
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    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 19% of the market 
share.\20\ 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.'' \21\ 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'. . . .'' \22\ 
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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    \20\ Supra note 4.
    \21\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \22\ 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 \23\ and paragraph (f) of Rule 19b-4 \24\ 
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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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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-2020-048 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-2020-048. 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-2020-048 and should be submitted 
on or before July 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12986 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P


