[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Notices]
[Pages 2473-2476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00349]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90863; File No. SR-CboeBZX-2021-004]


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

January 6, 2021.

    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 4, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 the 
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 the fee schedule applicable to its 
equities trading platform (``BZX Equities'') to update the Standard 
Rates and Enhanced Rates provided under the Lead Market Maker (``LMM'') 
Liquidity Provision Rates, effective January 4, 2021. The Exchange 
believes the proposed changes will better incentivize LMMs to meet the 
Standard and Enhanced Minimum Performance Standards where their average 
aggregate daily auction volume is 1,000,000 shares or less.
    The Exchange first notes that its listing business operates in a 
highly-competitive market in which market participants, which includes 
issuers of securities, LMMs, and other liquidity providers, can readily 
transfer their listings, opt not to participate, or direct order flow 
to competing venues if they deem fee levels, liquidity provision 
incentive programs, or any other factor at a particular venue to be 
insufficient or excessive. The proposed rule changes reflect a 
competitive pricing structure designed to incentivize market 
participants to participate as LMMs in the Exchange's LMM Program, 
which the Exchange believes will enhance market quality in all 
securities listed on the Exchange and encourage issuers to list new 
products and transfer existing products to the Exchange.
    The Exchange currently offers daily incentives for LMMs in Exchange 
Traded Products (``ETPs'') listed on the Exchange for which the LMM 
meets certain Minimum Performance Standards.\3\ Such daily incentives 
are

[[Page 2474]]

determined based on the number of Cboe-listed ETPs for which the LMM 
meets such Minimum Performance Standards and the average auction volume 
across such securities. Generally speaking, the more LMM Securities \4\ 
for which the LMM meets the Minimum Performance Standards and the 
higher the auction volume across those ETPs, the greater the total 
daily payment to the LMM. Such daily incentive Standard Rates are 
structured as follows:
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    \3\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum 
Performance Standards'' means a set of standards applicable to an 
LMM that may be determined from time to time by the Exchange. Such 
standards will vary between LMM Securities depending on the price, 
liquidity, and volatility of the LMM Security in which the LMM is 
registered. The performance measurements will include: (A) Percent 
of time at the NBBO; (B) percent of executions better than the NBBO; 
(C) average displayed size; and (D) average quoted spread. For 
additional detail, see Original LMM Filing.
    \4\ As defined in Rule 11.8(e)(1)(D), the term ``LMM Security'' 
means an ETP that has an LMM.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average aggregate daily auction volume in LMM Securities
                                                          ----------------------------------------------------------------------------------------------
                                                                                                                                              3,000,001
                                                             0-10,000      10,001-        100,001-         500,001-          1,000,001-       or greater
---------------------------------------------------------------------------100,000---------500,000---------1,000,000----------3,000,000-----------------
Daily Incentive for each Qualified Security 1-5..........          $10           $25             $40              $50               $150            $200
Daily Incentive for each Qualified Security 6-25.........           10            25              25               30                100             150
Daily Incentive for each Qualified Security 26-50........           10            10              20               25                 75             100
Daily Incentive for each Qualified Security 51-100.......           10            10              15               20                 50              75
Daily Incentive for each Qualified Security Greater Than            10            10              15               15                 25              50
 100.....................................................
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    By way of example, if an LMM has 30 LMM Securities, each of which 
is a Qualified ETP,\5\ 10 of which each have an average daily auction 
volume of 5,000 shares (combined between the opening and closing 
auction), 10 of which each have an average daily auction volume of 
50,000 shares (combined between the opening and closing auction), and 
10 of which each have an average daily auction volume of 200,000 shares 
(combined between the opening and closing auction), then the LMM would 
fall into the fifth column (10 * 5,000 + 10 * 50,000 + 10 * 200,000 = 
2,550,000 average aggregate daily auction volume). As such, the LMM 
would receive $150 each for five Qualified ETPs, $100 each for 
Qualified ETPs 6-25, and $75 each for Qualified ETPs 26-30. This would 
result in a daily payment of ($150 * 5) + ($100 * 20) + ($75 * 5) = 
$3,125 to the LMM.
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    \5\ As provided in footnote 14 of the Fee Schedule, a 
``Qualified ETP'' is an ETP for which an LMM is a Qualified LMM.
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    LMMs that meet a more stringent set of standards also receive 
enhanced daily incentives (i.e., the Enhanced Rates), as follows:

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                                                                              Average aggregate daily auction volume in LMM Securities
                                                          ----------------------------------------------------------------------------------------------
                                                                                                                                              3,000,001
                                                             0-10,000      10,001-        100,001-         500,001-          1,000,001-       or greater
---------------------------------------------------------------------------100,000---------500,000---------1,000,000----------3,000,000-----------------
Daily Incentive for each Enhanced Security 1-5...........        $2.50         $6.25             $10           $12.50             $37.50             $50
Daily Incentive for each Enhanced Security 6-25..........         2.50          6.25            6.25             7.50                 25           37.50
Daily Incentive for each Enhanced Security 26-50.........         2.50          2.50               5             6.25              18.75              25
Daily Incentive for each Enhanced Security 51-100........         2.50          2.50            3.75                5              12.50           18.75
Daily Incentive for each Enhanced Security Greater Than           2.50          2.50            3.75             3.75               6.25           12.50
 100.....................................................
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    Using the same example as above, where the LMM has 30 LMM 
Securities, 10 of which are Enhanced ETPs, which have 2,550,000 shares 
of average aggregate daily auction volume in LMM Securities, the issuer 
would fall into the fifth column. As such, the LMM would receive an 
additional $37.50 for each of its first five Enhanced ETPs and an 
additional $25 each for Enhanced ETPs 6-10. This would result in an 
additional daily payment of ($37.50 * 5) + ($25 * 5) = $312.50 to the 
LMM.
Proposed Changes
    The Exchange proposes to amend the Standard Rates and Enhanced 
Rates discussed above. First, the Exchange proposes to eliminate the 
sixth column of both the Standard Rates and Enhanced Rates so that 
average aggregate daily auction volume of 1,000,001 shares or more is 
considered the highest average aggregate daily auction volume column.
    Second, the Exchange proposes to reduce the Standard Rates payments 
for average aggregate daily auction volume of 1,000,001 shares or more 
for each row of Qualified Security ranges. Specifically, the Exchange 
proposes to reduce the payments in the fifth column as follows: $100 
Daily Incentive for each Qualified Security 1-5, $70 Daily Incentive 
for each Qualified Security 6-25, $50 Daily Incentive for each 
Qualified Security 26-50, $25 Daily Incentive for each Qualified 
Security 51-100, and $20 Daily Incentive for each Qualified Security 
greater than 100.
    For instance, using the same example as above, where the LMM has 30 
LMM Securities, 10 of which each have an average daily auction volume 
of 5,000 shares, 10 of which each have an average daily auction volume 
of 50,000 shares, and 10 of which each have an average daily auction 
volume of 200,000 shares, then the LMM would fall into the fifth column 
(10 * 5,000 + 10 * 50,000 + 10 * 200,000 = 2,550,000 average aggregate 
daily auction volume). As such, under the proposed Standard Rates the 
LMM would receive $100 each for Qualified ETPs 1-5, $70 each for 
Qualified ETPs 6-25, and $50 each for Qualified ETPs 26-30. This would 
result in a daily payment of ($100 * 5) + ($70 * 20) + ($50 * 5) = 
$2,150 to the LMM.
    Third, the Exchange proposes to decrease the Enhanced Rates 
payments for securities with average aggregate daily auction volume 
over 1,000,000 shares and increase the Enhanced Rates payments for 
securities with average aggregate daily auction volume of 1,000,000 
shares or lower. Specifically, the Exchange proposes the following 
Enhanced Rates:

[[Page 2475]]



----------------------------------------------------------------------------------------------------------------
                                                Average aggregate daily auction volume in LMM Securities
                                      --------------------------------------------------------------------------
                                                                                                      1,000,001
                                         0-10,000      10,001-        100,001-         500,001-       or greater
-------------------------------------------------------100,000---------500,000---------1,000,000----------------
Daily Incentive for each Enhanced               $3         $7.50             $12              $15            $30
 Security 1-5........................
Daily Incentive for each Enhanced                3          7.50            7.50                9             21
 Security 6-25.......................
Daily Incentive for each Enhanced                3             3               6             7.50             15
 Security 26-50......................
Daily Incentive for each Enhanced                3             3            4.50                6           7.50
 Security 51-100.....................
Daily Incentive for each Enhanced                3             3            4.50             4.50              6
 Security Greater Than 100...........
----------------------------------------------------------------------------------------------------------------

    The proposed changes are designed to encourage LMMs with average 
aggregate daily auction volume of 1,000,000 shares or less to meet the 
Standard and Enhanced Minimum Performance Standards. The proposed 
changes would decrease payments in LMM securities with average 
aggregate daily auction volume of 1,000,001 shares or greater. Using 
the same example above, where the LMM has 30 LMM Securities, 10 of 
which are Enhanced ETPs, which have 2,550,000 shares of average 
aggregate daily auction volume in LMM Securities, the issuer would fall 
into the fifth column. As such, the LMM would receive an additional $30 
for each of its first five Enhanced ETPs and an additional $21 each for 
Enhanced ETPs 6-10. This would result in an additional daily payment of 
($30 * 5) + ($21 * 5) = $255 to the LMM as opposed to the $312.50 it 
would receive under the current Enhanced Rates.
    However, the proposed Enhanced Rates are also designed to increase 
payments in LMM Securities with 1,000,000 or less average aggregate 
daily auction volume. For example, if an LMM has 30 LMM Securities, 
each of which is a Qualified ETP, 10 of which each have an average 
daily auction volume of 500 shares, 10 of which each have an average 
daily auction volume of 10,000 shares, and 10 of which each have an 
average daily auction volume of 20,000 shares, then the LMM would fall 
into the third column (10 * 500 + 10 * 10,000 + 10 * 20,000 = 305,000 
average aggregate daily auction volume). As such, the LMM would receive 
$12 each for Qualified ETPs 1-5, $7.50 each for Qualified ETPs 6-25, 
and $6 each for Qualified ETPs 26-30. This would result in a daily 
payment of ($12 * 5) + ($7.50 * 20) + ($6 * 5) = $240 to the LMM. Under 
the current Enhanced Rates, the LMM would receive a daily payment of 
($10 * 5) + (6.25 * 20) + (5 * 5) = $200.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ 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. The Exchange 
also notes that its listing business operates in a highly-competitive 
market in which market participants, which includes issuers of 
securities, LMMs, and other liquidity providers, can readily transfer 
their listings, opt not to participate, or direct order flow to 
competing venues if they deem fee levels, liquidity provision incentive 
programs, or any other factor at a particular venue to be insufficient 
or excessive. The proposed rule changes reflect a competitive pricing 
structure designed to incentivize market participants to participate as 
LMMs in the Exchange's LMM Program, which the Exchange believes will 
enhance market quality in all securities listed on the Exchange and 
encourage issuers to list new products and transfer existing products 
to the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    The Exchange believes that the proposed changes to the Standard 
Rates and Enhanced Rates of the LMM Liquidity Provision Rates are 
consistent with the Act and represent a reasonable, equitable, and not 
unfairly discriminatory means to incentivize liquidity provision in 
ETPs listed on the Exchange. The marketplace for listings is extremely 
competitive and there are several other national securities exchanges 
that offer ETP listings. Transfers between listing venues occur 
frequently for numerous reasons, including market quality. This 
proposal is intended to help the Exchange compete as an ETP listing 
venue. Specifically, the Exchange believes that the proposal is 
reasonable because it believes that the proposed amendments will 
encourage LMMs with lower aggregate auction volumes to meet the 
Enhanced Minimum Performance Standards. The Exchange believes that 
incentivizing such LMMs to meet the Enhanced Minimum Performance 
Standards will increase market quality in lower volume BZX-listed ETPs. 
To the extent that market quality in any BZX-listed ETP is negatively 
impacted, competitive forces would generally dictate that the primary 
listing venue enhance their own liquidity provision programs or that 
the security would transfer to a different primary listing venue.
    The Exchange believes that the proposal represents an equitable 
allocation of payments and is not unfairly discriminatory because, 
while the proposed payments apply only to LMMs, such LMMs must meet 
rigorous Minimum Performance Standards in order to receive the 
payments. Where an LMM does not meet the Minimum Performance Standards 
for the Standard and Enhanced Rates, they will not receive the 
applicable payment. Further, registration as an LMM is available 
equally to all Members and allocation of listed ETPs between LMMs is 
governed by Exchange Rule 11.8(e)(2). If an LMM does not meet the 
Minimum Performance Standards for three out of the past four months, 
the LMM is subject to forfeiture of LMM status for that LMM Security, 
at the Exchange's discretion.
    Further, the proposed daily payment amounts would continue to be 
based specifically on the Exchange's revenue model. For ETPs with 
greater auction volume, the Exchange generally makes more money and, 
thus, is able to offer LMMs with LMM Securities that have higher 
average aggregate daily auction

[[Page 2476]]

volume higher payments. Specifically, the payment per Qualified ETP 
(and thus the total payment to an LMM) generally goes up as the CADV 
moves from left to right because as the average aggregate daily auction 
volume in LMM Securities increases, the Exchange will generate 
additional revenue and can thus support increased payments to LMMs. 
Similarly, the payments per Qualified ETP generally go down as the 
number of Qualified ETPs goes up in order to ensure that the daily 
incentive payments do not exceed the Exchange's revenue for that LMM's 
LMM Securities while still providing incentives for LMMs to take on 
additional ETPs. While the proposed changes would reduce payments to 
LMMs with higher average aggregate daily auction volume, such payments 
would still be higher than the proposed increased payments for LMMs 
with lower average aggregate daily auction volume. As such, the 
Exchange believes that the proposal is an equitable allocation of 
payments and is not unfairly discriminatory.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed change burdens competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX 
both among Members by incentivizing Members to become LMMs in BZX-
listed ETPs and as a listing venue by enhancing market quality in BZX-
listed ETPs. The marketplace for listings is extremely competitive and 
there are several other national securities exchanges that offer ETP 
listings. Transfers between listing venues occur frequently for 
numerous reasons, including market quality. This proposal is intended 
to help the Exchange compete as an ETP listing venue. Accordingly, the 
Exchange does not believe that the proposed change will impair the 
ability of issuers, LMMs, or competing ETP listing venues to maintain 
their competitive standing. The Exchange also notes that the proposed 
change is intended to enhance market quality in BZX-listed ETPs, to the 
benefit of all investors in BZX-listed ETPs. The Exchange does not 
believe the proposed amendment would burden intra-market competition as 
it would be available to all Members uniformly. Registration as an LMM 
is available equally to all Members and allocation of listed ETPs 
between LMMs is governed by Exchange Rule 11.8(e)(2). Further, if an 
LMM does not meet the Minimum Performance Standards for three out of 
the past four months, the LMM is subject to forfeiture of LMM status 
for that LMM Security, at the Exchange's discretion.

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 \9\ and paragraph (f) of Rule 19b-4 
thereunder.\10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2021-004 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-2021-004. 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-2021-004 and should be submitted 
on or before February 2, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00349 Filed 1-11-21; 8:45 am]
BILLING CODE 8011-01-P


