[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85701-85704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28657]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90743; File No. SR-CboeBZX-2020-089]


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

December 21, 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 December 10, 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 and II 
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 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'') by removing certain fee codes 
related to routed orders and by updating certain fee codes in 
connection with routing orders in SPY options to Nasdaq PHLX LLC 
(``PHLX'').\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
December 1, 2020 (SR-CboeBZX-2020-086). On December 9, 2020, the 
Exchange withdrew that filing and submitted this proposal.
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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 16% of the market share and 
currently the Exchange represents approximately 8% 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.
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    \4\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (November 23, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange assesses fees in connection with orders routed away to 
various exchanges. Currently, under the Fee Codes and Associated Fees 
section of the Fee Schedule, fee codes D1, D2, D3 and D4 are appended 
to Members' Directed ISOs, a routing option under which an intermarket 
sweep order (``ISO'') entered by a User bypasses the System and is sent 
by the System to another options exchange specified by the User.\5\ 
Specifically, these fee codes function as follows:
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    \5\ See Rule 21.9(a)(2)(D).
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     Fee code D1 is appended to Directed ISOs to Nasdaq Options 
Market LLC (``NOM''), NYSE Arca, Inc. (``ARCA'') or ISE Gemini, LLC 
(``ISE Gemini'') in Non-Penny classes and assesses a charge of $1.25 
per contract;
     fee code D2 is appended to Non-Customer Directed ISOs to 
Nasdaq BX Options (``BX'') in Non-Penny classes and assesses a charge 
of $0.95 per contract;
     fee code D3 is appended to Non-Customer Directed ISOs to 
Cboe C2 Exchange, Inc. (``C2'') or PHLX and assesses a charge of $0.95 
per contract; and
     fee code D4 is appended to Directed ISOs (unless otherwise 
specified in the Fee Schedule) and assesses a charge of $0.85 per 
contract.
    The Exchange has observed a minimal amount of volume in recent 
months in orders yielding fee codes D1, D2, D3 or D4. The Exchange 
believes that, because so few Users elect to route their orders as 
Directed ISOs, the current demand does not warrant the infrastructure 
and ongoing Systems maintenance required to support separate fee codes 
specifically applicable to Directed ISOs. Therefore, the Exchange now 
proposes to delete fee codes D1, D2, D3 and D4 in the Fee Schedule. The 
Exchange notes that Users will continue to be able to choose to route 
their orders as Directed ISOs and such orders will be assessed the fees 
currently in place for routed orders generally (i.e., fee codes RN,\6\ 
RO,\7\ RP,\8\ RQ \9\ and RR \10\) as follows:
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    \6\ Fee code RN is appended to routed Non-Customer orders in 
Penny Program classes and assesses a charge of $0.90 per contract.
    \7\ Fee code RO is appended to all routed Non-Customer orders in 
Non-Penny classes and assesses a charge of $1.25 per contract.
    \8\ Fee code RP is appended to routed Customer orders to AMEX, 
BOX, BX, Cboe, EDGX Options, ISE Mercury, MIAX or PHLX and assesses 
a charge of $0.25 per contract.
    \9\ Fee code RQ is appended to routed Customer orders in Penny 
Program classes to ARCA, C2, ISE, ISE Gemini, MIAX Emerald, MIAX 
Pearl or NOM and assesses a charge of $0.85 per contract.
    \10\ Fee code RR is appended to routed Customer orders in Non-
Penny classes to ARCA, C2, ISE, ISE Gemini, MIAX Emerald, MIAX Pearl 
or NOM and assesses a charge of $1.25 per contract.
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     A Directed ISO to which fee code D1 would have prior been 
appended (routed to NOM, ARCA or ISE Gemini in a Non-Penny class) will 
yield fee code RR, if it is a Customer order, which is appended to 
Customer orders in Non-Penny classes routed to NOM, ARCA or ISE Gemini 
(among other exchanges) and assesses a charge of $1.25 per contract, or 
will yield fee code RO, if it is a Non-Customer order, which is 
appended to routed Non-Customer

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orders in Non-Penny classes and also assesses a charge of $1.25 per 
contract;
     a Directed ISO to which fee code D2 would have prior been 
appended (Non-Customer to BX in a Non-Penny class) will yield fee code 
RO;
     a Directed ISO to which fee code D3 would have prior been 
appended (Non-Customer to C2 or PHLX) will yield fee code RN, if in a 
Penny class, which is appended to Non-Customer orders routed in Penny 
classes and assesses a charge of $0.90 per contract, or will yield fee 
code RO, if it is in a Non-Penny class; and
     a Directed ISO to which fee code D4 would have prior been 
appended (unless otherwise specified) may yield any of fee codes RN, 
RO, RP, RQ and RR, depending on whether the order is a (1) routed 
Customer order in a Penny class (to which fee code RP, which assess a 
charge of $0.25 per contract, or RQ, which assesses a charge of $0.85 
per contract, could apply depending on the away exchange), (2) a routed 
Customer order in a Non-Penny class (to which fee code RP or RR could 
apply depending on the away exchange), (3) is a routed Non-Customer 
order in a Penny class (to which fee code RN will apply), or (4) is a 
routed Non-Customer order in a Non-Penny Class (to which fee code RO 
will apply).
    The Exchange also proposes to update fee codes RP and RQ in 
connection with routed Customer orders in SPY options to PHLX. 
Currently, fee code RP is appended to routed Customer orders to NYSE 
American (``AMEX''), BOX Options Exchange (``BOX''), BX, Cboe Exchange, 
Inc. (``Cboe''), Cboe EDGX Exchange, Inc. (``EDGX Options''), ISE 
Mercury, LLC (``ISE Mercury''), MIAX Options Exchange (``MIAX'') or 
PHLX and assesses a charge of $0.25 per contract. Fee code RQ is 
appended to routed Customer orders in Penny Program classes to ARCA, 
C2, ISE, ISE Gemini, MIAX Emerald Exchange (``MIAX Emerald''), MIAX 
Pearl Exchange (``MIAX Pearl''), or NOM and assesses a charge of $0.85 
per contract. The Exchange notes that its current approach to routing 
fees is to set forth in a simple manner certain sub-categories of fees 
that approximate the cost of routing to other options exchanges based 
on the cost of transaction fees assessed by each venue as well as costs 
to the Exchange for routing (i.e., clearing fees, connectivity and 
other infrastructure costs, membership fees, etc.) (collectively, 
``Routing Costs''). The Exchange then monitors the fees charged as 
compared to the costs of its routing services and adjusts its routing 
fees and/or sub-categories to ensure that the Exchange's fees do indeed 
result in a rough approximation of overall Routing Costs, and are not 
significantly higher or lower in any area. Currently, PHLX assesses a 
charge of $0.42 per contract for Customer orders in SPY options that 
remove liquidity.\11\ As described above, the Exchange currently 
assesses a flat routing fee of $0.25 per contract for Customer orders 
routed to PHLX which yield fee code RP. This structure does not 
currently take into account the $0.42 per contract fee assessed by PHLX 
for Customer orders in SPY options. Therefore, in order to assess fees 
more in line with the Exchange's current approach to routing fees, that 
is, in a manner that approximates the cost of routing to Customer 
orders in SPY options to PHLX, along with other away options exchanges, 
based on the general cost of transaction fees assessed by the sub-
category of away options exchanges for such orders (as well as the 
Exchange's Routing Costs), the Exchange proposes to exclude Customer 
orders is SPY options routed to PHLX from orders that yield fee code RP 
and are assessed a charge of $0.25 per contract and, instead, add 
Customer orders routed to PHLX in SPY options only to orders that yield 
fee code RQ \12\ and are assessed a charge of $0.85 per contract.
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    \11\ See Nasdaq Phlx Options 7 Pricing Schedule, Section 3 
``Rebates and Fees for Adding and Removing Liquidity in SPY'', Part 
A.
    \12\ The Exchange notes that SPY options are part of the Penny 
Program.
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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,\13\ in general, and 
furthers the objectives of Section 6(b)(4),\14\ 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 believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \15\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f.(b)(5).
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    As described above, 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. The Exchange notes that other options exchanges currently 
approximate routing fees in a similar manner as the Exchange's current 
approach.\16\
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    \16\ See e.g., NYSE Arca Options Fees and Charges, ``Routing 
Fees'', which provides routing fees of ``$0.11 per contract on 
orders routed and executed on another exchange, plus (i) any 
transaction fees assessed by the away exchange (calculated on an 
order-by-order basis since different away exchanges charge different 
amounts) or (ii) if the actual transaction fees assessed by the away 
exchange(s) cannot be determined prior to the execution, the highest 
per contract charge assessed by the away exchange(s) for the 
relevant option class and type of market participant (e.g., 
Customer, Firm, Broker/Dealer, Professional Customer or Market 
Maker).''
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    In particular, the Exchange believes the proposed rule change to 
remove fee codes D1, D2, D3 and D4 is reasonable as the Exchange has 
observed a minimal amount of volume in orders yielding fee codes D1, 
D2, D3 or D4 and, therefore, the current use of Directed ISO orders 
does not warrant the infrastructure and ongoing Systems maintenance 
required to support separate fee codes specifically applicable to 
Directed ISOs, a type of routing option Users may elect for their 
orders. As such, the Exchange also believes that is reasonable and 
equitable to assess Directed ISO orders as it already does for all 
other routed orders, as applicable (i.e., fee codes RN, RO, RP, RQ and 
RR).\17\ The Exchange notes that the use of Directed ISOs, as well as 
routing through the Exchange, is optional. The Exchange believes that 
the proposed rule change is equitable and not unfairly discriminatory 
because Users will continue to have the option to elect to route their 
orders as Directed ISOs and such routed orders will be automatically 
and uniformly assessed the applicable charges already in place for all 
other routed orders.
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    \17\ See supra notes 6-10.
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    The Exchange believes the proposed rule change to amend fee codes 
RP and RQ to account for PHLX's current assessment of fees for Customer 
orders in SPY options is reasonable because it

[[Page 85703]]

is reasonably designed to assess routing fees in line with the 
Exchange's current approach to routing fees. That is, the proposed rule 
change is intended to include Customer orders in SPY options routed to 
PHLX in the most appropriate sub-category of fees that approximates the 
cost of routing to a group of away options exchanges (including PHLX) 
based on the cost of transaction fees assessed by each venue as well as 
Routing Costs to the Exchange. The Exchange believes that the proposed 
rule change is equitable and not unfairly discriminatory because all 
Members' Customer orders in SPY routed to PHLX will automatically yield 
fee code RQ and uniformly be assessed the corresponding fee.

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 competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change will impose any burden on intramarket 
competition because all Members Directed ISO order will automatically 
and uniformly be assessed the current fees already in place for routed 
orders, as applicable (i.e., fee codes RN, RO, RP, RQ and RR).\18\ 
Likewise, all Members' Customer orders in SPY routed to PHLX will 
automatically yield fee code RQ and uniformly be assessed the 
corresponding fee.
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    \18\ See supra notes 6-10.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that other options exchange approximate routing costs in a 
similar manner as the Exchange's current approach.\19\ Also, 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 16% 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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    \19\ See supra note 16.
    \20\ See 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, because it establishes a due, fee, or other charge imposed 
by the Exchange.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
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    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.

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-2020-089 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-2020-089. 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make

[[Page 85704]]

available publicly. All submissions should refer to File Number SR-
CboeBZX-2020-089 and should be submitted on or before January 19, 2021.

    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. 2020-28657 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P


