[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Notices]
[Pages 43905-43907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15559]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89319; File No. SR-CboeBZX-2020-055]


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

July 14, 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 July 1, 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 the fee schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/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 applicable to its 
equities trading platform (``BZX Equities'') to add two additional 
tiers to the supplemental incentive program of the Add Volume Tiers.
    The Exchange first notes that it operates in a highly-competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. The Exchange in particular operates a 
``Maker-Taker'' model whereby it pays credits to members that provide 
liquidity and assesses fees to those that remove liquidity. The 
Exchange's fee schedule sets forth the standard rebates and rates 
applied per share for orders that provide and remove liquidity, 
respectively. Particularly, for orders priced at or above $1.00, the 
Exchange provides a standard rebate of $0.0025 per share for orders 
that add liquidity and assesses a fee of $0.0030 per share for orders 
that remove liquidity. 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.
    One of the tiered pricing models is set forth in Footnote 1 of the 
fee schedule (Add Volume Tiers), which provides Members an opportunity 
to qualify for an enhanced rebate on their orders that add liquidity on 
the Exchange and meet certain criteria. For example, a set of criteria 
is applied to displayed orders that add liquidity in Tape B securities 
(i.e., orders that yield fee code B) \3\ called the supplemental 
incentive program tier. The supplemental incentive program tier 
provides an additional enhanced rebate of $0.0001 to Members that add 
Tape B ADV of greater than or equal to 0.50% of the Tape B TCV.
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    \3\ Fee code B is appended to displayed orders which add 
liquidity to Tape B and is provided a rebate of $0.00250.
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    The Exchange now proposes to add two additional tiers to the 
supplemental incentive program tiers. A set of criteria for proposed 
Supplemental Incentive Program--Tape A would be applied to displayed 
orders that add liquidity in Tape A (i.e., orders that yield fee code V 
\4\). A set of criteria for proposed Supplemental Incentive Program--
Tape C would be applied to displayed orders that add liquidity in Tape 
C (i.e., orders that yield fee code Y \5\). The proposed Supplemental 
Incentive Program--Tape A would provide an additional enhanced rebate 
of $0.0001 to Members that add Tape A ADV of greater than or equal to 
0.50% of Tape A TCV. Similarly, proposed Supplemental Incentive 
Program--Tape C would provide an additional enhanced rebate of $0.0001 
to Members that add Tape C ADV of greater than or equal to 0.50% of 
Tape C TCV. Based on these proposed changes, the Exchange also proposes 
to clarify which fee codes are applicable to each of the supplemental 
incentive program tiers, and also to rename the existing supplemental 
incentive program tier to Supplemental Incentive Program--Tape B.
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    \4\ Fee code V is appended to displayed orders which add 
liquidity to Tape A and is provided a rebate of $0.00250.
    \5\ Fee code Y is appended to displayed orders which add 
liquidity to Tape C and is provided a rebate of $0.00250.
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    The Exchange believes the proposed new tiers will encourage Members 
to increase their Displayed liquidity in Tape A and C securities on the 
Exchange.
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, issuers and other persons 
using its facilities. 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 changes 
reflect a competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange

[[Page 43906]]

believes would enhance market quality to the benefit of all Members.
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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 proposed changes to the 
supplemental incentive program are reasonable because they will provide 
an additional opportunity for Members to receive an enhanced rebate. 
The Exchange notes that volume-based incentives and discounts have been 
widely adopted by exchanges,\8\ including the Exchange,\9\ 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 the value to an exchange's 
market quality. Additionally, as noted above, the Exchange operates in 
highly competitive market. The Exchange is only one of several equity 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. It is also only 
one of several maker-taker exchanges. Competing equity exchanges offer 
similar tiered pricing structures to that of the Exchange, including 
schedules of rebates and fees that apply based upon members achieving 
certain volume thresholds. These competing pricing schedules, moreover, 
are presently comparable to those that the Exchange provides, including 
the pricing of comparable tiers.\10\
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    \8\ See e.g., Nasdaq Price List, Rebate to Add Displayed 
Liquidity.
    \9\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 1, Add Volume Tiers.
    \10\ See e.g., Nasdaq Price List, Rebate to Add Displayed 
Liquidity, Rebate to Add Displayed Liquidity, Shares Executed at or 
Above $1.00, Added by Firm, which offers an additional rebate of 
$0.0001 in Tape B (other than Supplemental Orders or Designated 
Retail orders).
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    The Exchange believes that the proposal represents an equitable 
allocation of rebates and is not unfairly discriminatory because all 
Members are eligible for the proposed tiers and have a reasonable 
opportunity to meet the tier's criteria. The Exchange also notes that 
the proposal will not adversely impact any Member's pricing or their 
ability to qualify for other rebate tiers. Rather, should a Member not 
meet the proposed criteria, the Member will merely not receive an 
enhanced rebate. Furthermore, the proposed rebate would apply to all 
Members that meet the applicable required criteria.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
not [sic] 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 changes 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.'' \11\
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    \11\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange believes the proposed rule change does not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
changes apply to all Members equally in that all Members are eligible 
for the proposed tiers and will all receive the applicable proposed 
rebate if such criteria is met. Additionally, the proposed change is 
designed to attract additional order flow to the Exchange. The Exchange 
believes that the proposed changes the supplemental incentive program 
tiers will incentivize Members to grow their volume on the Exchange and 
add volume in Tape A and C securities. 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 
participants.
    Next, the Exchange believes the proposed rule changes do not impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and direct their order flow, including 13 other equities exchanges and 
off-exchange venues, including 32 alternative trading systems. 
Additionally, the Exchange represents a small percentage of the overall 
market. Based on publicly available information, no single equities 
exchange has more than 20% of the market share.\12\ Therefore, no 
exchange possesses significant pricing power in the execution of order 
flow. Indeed, participants can readily choose to send their orders to 
other exchange and off-exchange venues if they deem fee levels at those 
other venues to be more favorable. Moreover, the Commission has 
repeatedly expressed its preference for competition over regulatory 
intervention in determining prices, products, and services in the 
securities markets. Specifically, in Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \13\ 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'. . . .''.\14\ 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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    \12\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 26, 2020), available at http://markets.cboe.com/us/equities/market_share/.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may

[[Page 43907]]

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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2020-055 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-2020-055. 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-2020-055, and should be 
submitted on or before August 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15559 Filed 7-17-20; 8:45 am]
BILLING CODE 8011-01-P


