[Federal Register Volume 86, Number 15 (Tuesday, January 26, 2021)]
[Notices]
[Pages 7127-7130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90944; File No. SR-CboeBZX-2021-011]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
a Monthly Fee Assessed on Members' MPIDs

January 19, 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 13, 2021, 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

[[Page 7128]]

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 Equities'') 
proposes to amend its fee schedule to establish a fee in connection 
with a Member's Market Participant Identifier(s) (``MPID''). 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 to adopt a monthly 
fee assessed on Members' MPIDs.\3\
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    \3\ The Exchange initially filed the proposed fee changes 
January 4, 2021 (SR-CboeBZX-2021-006). On January 13, 2021, 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 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\4\ no single registered 
equities exchange has more than 16% of consolidated equity market share 
and currently the Exchange represents approximately 1.5% of the U.S. 
equities market. Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow. The Exchange further 
notes that broker-dealers are not compelled to be Members of the 
Exchange, and a significant proportion of broker-dealers that trade 
U.S. equity securities have, in fact, chosen not to apply for 
membership on the Exchange.
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    \4\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (December 18, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
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    By way of background, an MPID is a four-character unique identifier 
that is approved by the Exchange and assigned to a Member for use on 
the Exchange to identify the Member firm on the orders sent to the 
Exchange and resulting executions. Members may choose to request more 
than one MPID as a unique identifier(s) for their transactions on the 
Exchange. The Exchange notes that a Member may have multiple MPIDs for 
use by separate business units and trading desks or to support 
Sponsored Participant \5\ access. Certain members currently leverage 
multiple MPIDs to obtain benefits from and added value in their 
participation on the Exchange. Multiple MPIDs provide unique benefits 
to and efficiencies for Members by allowing: (1) Members to manage 
their trading activity more efficiently by assigning different MPIDs to 
different trading desks and/or strategies within the firm; and (2) 
Sponsoring Members \6\ to segregate Sponsored Participants by MPID to 
allow for detailed client-level reporting, billing, and administration, 
and to market the ability to use separate MPIDs to Sponsored 
Participants, which, in turn, may serve as a potential incentive for 
increased order flow traded through the Sponsoring Member.
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    \5\ A Sponsored Participant is a person which has entered into a 
sponsorship arrangement with a Sponsoring Member pursuant to Rule 
11.3, which permits a Sponsored Participant to obtain authorized 
access to the System only if such access is authorized in advance by 
one or more Sponsoring Members. See Rules 1.5(x) and 11.3.
    \6\ A Sponsoring Member is a Member that is a registered broker-
dealer and that has been designated by a Sponsored Participant to 
execute, clear and settle transactions resulting from the System. 
The Sponsoring Member shall be either (i) a clearing firm with 
membership in a clearing agency registered with the Commission that 
maintains facilities through which transactions may be cleared or 
(ii) a correspondent firm with a clearing arrangement with any such 
clearing firm. See Rule 1.5(y).
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    The Exchange proposes to adopt a fee applicable to Members that use 
multiple MPIDs to facilitate their trading on the Exchange. 
Specifically, as proposed, the Exchange would assess a monthly MPID Fee 
of $350 per MPID per Member, with a Member's first MPID provided free 
of charge. The Exchange believes the proposed assessment of an MPID Fee 
aligns with the additional value and benefits provided to Members that 
choose to utilize more than one MPID to facilitate their trading on the 
Exchange. The Exchange also believes that assessing a fee on additional 
MPIDs will be beneficial because such fee will promote efficiency in 
MPID use.
    The MPID Fee will be assessed on a pro-rated basis for new MPIDs by 
charging a Member based on the trading day in the month during which an 
additional MPID becomes effective for use. If a Member cancels an 
additional MPID on or after the first business day of the month, the 
Member will be required to pay the entire MPID Fee for that month. The 
Exchange believes that this practice is appropriate to balance the 
administrative costs associated with disabling MPIDs.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\8\ which requires that Exchange rules provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its Members 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) 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed MPID Fee is consistent with 
the Act in that it is reasonable,

[[Page 7129]]

equitable, and not unfairly discriminatory. In particular, the Exchange 
believes that the proposed fee is reasonable because it is reasonably 
aligned with the benefits provided to Members that choose to utilize 
multiple MPIDs to facilitate their trading on the Exchange. While each 
Member must have an MPID to participate on the Exchange, additional 
MPIDs are optional and will be assessed the proposed fee. Additional 
MPIDs currently allow for Members to realize certain benefits from and 
added value to their participation on the Exchange but also require the 
Exchange to allocate additional administrative resources to manage each 
MPID that a Member chooses to use for its trading activity. Therefore, 
the Exchange believes that it is reasonable to assess a modest fee on 
any additional MPIDs that Members choose to use to facilitate their 
trading. The Exchange again notes that it is optional for a Member to 
request and employ additional MPIDs, and a large portion (approximately 
46%) of the Exchange's Members currently utilize just the one MPID 
necessary to participate on the Exchange.
    The Exchange also believes that assessing a modest fee on 
additional MPIDs is reasonably designed to promote efficiency in MPID 
use. The Exchange notes that its affiliated equities exchanges, Cboe 
EDGX Exchange, Inc. (``EDGX'') and Cboe EDGA Exchange, Inc. (``EDGA''), 
had previously implemented an MPID Fee,\9\ and observed that, as a 
result of an MPID Fee, members were incentivized to more effectively 
administer their MPIDs and reduce the number of under-used or 
superfluous MPIDs, or MPIDs that did not contribute additional value to 
a member's participation on the exchange. Reduction of such MPIDs, in 
turn, reduces exchange resources allocated to administration and 
maintenance of those MPIDs. In particular, it was observed that within 
the first few months of introducing the previous MPID Fee on the 
Exchange's affiliated exchanges, the number of MPIDs on EDGX and EDGA 
each decreased by approximately 17%, demonstrating that Members may 
choose to be more efficient in their use of MPIDs in response to an 
MPID Fee, such as that proposed in this fee change.\10\
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    \9\ See Securities and Exchange Release Nos. 65189 (August 24, 
2011), 76 FR 53990 (August 30, 2011) (SR-EDGX-2011-26); and 65188 
(August 24, 2011), 76 FR 53988 (August 30, 2011) (SR-EDGA-2011-27). 
The Exchange notes that its affiliated exchanges' prior MPID Fees 
expired as a result of the integration with BATS technology, 
acquired by Cboe Global Markets, Inc. in 2017.
    \10\ The reduction in MPIDs may also demonstrate that Members 
are free to cancel MPIDs on the Exchange and choose, instead, to 
utilize unique identifiers associated with participation on other 
exchanges.
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    The Exchange further believes the proposed MPID Fee is reasonable 
because the amount assessed is less than the analogous fees charged by 
at least one other market; namely, Nasdaq Stock Market LLC 
(``Nasdaq'').\11\ The Exchange's proposed MPID Fee at $350 a month per 
MPID, with no charge associated with a Members' first MPID, is lower 
than Nasdaq's MPID fee of $550 per MPID, which is charged for all MPIDs 
used by a Nasdaq member, including a member's first MPIDs. 
Additionally, the Exchange believes that charging a full-month's fee 
for an additional MPID cancelled on or after the first business day of 
the month is reasonable in that it reasonably accounts for the 
administrative costs associated with disabling such MPIDs, and is a 
practice consistent with Nasdaq's similar cancellation policy in 
connection with its MPID fees.\12\
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    \11\ See Nasdaq Price List, MPID Fees, available at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
    \12\ See id.
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    The Exchange believes that the proposed MPID Fee is equitable and 
not unfairly discriminatory because it will apply equally to all 
Members that choose to employ two or more MPIDs based on the number of 
additional MPIDs that they use to facilitate their trading on the 
Exchange. As stated, additional MPIDs beyond a Member's first MPID are 
optional, and Members may choose to trade using such additional MPIDs 
to achieve additional benefits and added value to support their 
individual business needs. Moreover, the Exchange believes the proposed 
fee is equitable and not unfairly discriminatory because it is 
proportional to the potential value or benefit received by Members with 
a greater number of MPIDs. That is, those Members that choose to employ 
a greater number of additional MPIDs have the opportunity to more 
effectively manage firm-wide trading activity and client-level 
administration, as well as potentially appeal to customers through the 
use of separate MPIDs, which may result in increased order flow through 
a Sponsoring Member. A Member may request at any time that the Exchange 
terminate an MPID, including MPIDs that may be under-used or 
superfluous, or that do not contribute additional value to a Member's 
participation on the Exchange.

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 competition that is not necessary in 
furtherance of the purposes of the Act because the proposed MPID Fee 
will apply equally to all Members that choose to employ additional 
MPIDs and equally to each additional MPID. As stated, additional MPIDs 
are optional and Members may choose to utilize additional MPIDs, or 
not, based on their view of the additional benefits and added value 
provided by utilizing the single MPID necessary to participate on the 
Exchange. The Exchange believes the proposed fee will be assessed 
proportionately to the potential value or benefit received by Members 
with a greater number of MPIDs and notes that a Member may request at 
any time that the Exchange terminate any MPID, including those that may 
be under-used or superfluous, or that do not contribute additional 
value to a Member's participation on the Exchange.
    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, 
including competition for exchange memberships. Members have numerous 
alternative venues that they may participate on, including 15 other 
equities exchanges, as well as off-exchange venues, including over 50 
alternative trading systems.\13\ The Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single equities exchange has more than 16% market 
share.\14\ Indeed, participants can readily choose to submit their 
order flow to other exchange and off-exchange venues if they deem fee 
levels at those other venues to be more favorable.\15\ In addition to 
this the Exchange notes that at least one other exchange currently has 
MPID fees in place,\16\ which have been previously filed with the 
Commission. 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

[[Page 7130]]

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.'' 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' . . . .''. 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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    \13\ See U.S. Securities and Exchange Commission Alternative 
Trading Systems (``ATS'') List (December 4, 2020), available at 
https://www.sec.gov/foia/docs/atslist.htm.
    \14\ See supra note 4.
    \15\ See e.g., supra note 10.
    \16\ See supra note 11.
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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 is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act \17\ and subparagraph (f)(2) of Rule 
19b-4 thereunder,\18\ because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) of the Act \19\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-CboeBZX-2021-011 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 No. SR-CboeBZX-2021-011. 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 No. SR-CboeBZX-2021-011, and should be submitted 
on or before February 16, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01584 Filed 1-25-21; 8:45 am]
BILLING CODE 8011-01-P


