[Federal Register Volume 86, Number 92 (Friday, May 14, 2021)]
[Notices]
[Pages 26577-26582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10178]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91831; File No. SR-CboeBZX-2021-038]


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

May 10, 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 May 3, 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, 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'') proposes 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'') in connection with certain fee codes 
and volume tiers, effective May 3, 2021.
    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 only approximately 7.5% of the market 
share.\3\ 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, which varies 
depending on the Member's capacity (Customer, Firm, Market Maker, 
etc.), whether the order adds or removes liquidity, and whether the 
order is in Penny or Non-Penny Program 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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    \3\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (April 27, 2021), available at https://markets.cboe.com/us/options/market_statistics/.
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    In particular, the Fee Codes and Associated Fees section of the Fee 
Schedule lists all available fee codes for orders on BZX Options. 
Currently, fee code PP is appended to all Non-Customer (i.e., Firm, 
Broker Dealer, Joint Back Office, Market Maker, Away Market Maker and 
Professional capacities) orders that remove liquidity in Penny 
securities and assesses a fee of $0.50. The proposed rule change amends 
fee code PP so that it applies only to Market Maker, Away Market Maker 
and Professional orders that remove liquidity in Penny securities (the 
rate of $0.50 remains the same), and adopts fee code PD, which would 
apply to Firm, Broker Dealer and Joint Back Office orders that remove 
liquidity in Penny securities and also assesses the same rate of $0.50. 
In order to reflect the

[[Page 26578]]

amended description for fee code PP, the proposed rule change updates 
the title of the ``Non-Customer Penny Take Volume Tiers'' in footnote 3 
of the Fee Schedule, which are, and will continue to be, applicable to 
fee code PP, to the ``Market Maker, Away Market Maker and Professional 
Penny Take Volume Tiers''.
    In particular, the proposed rule change restructures fee code PP to 
create a remove Penny liquidity fee code specific to Firm, Broker 
Dealer and Joint Back Office (PD) in order to adopt tiered pricing 
specific to these capacities (along with the remove Penny liquidity 
Customer fee code (PC)). As such, the proposed rule change adopts new 
Customer, Firm, Broker Dealer and Joint Back Office Take Volume Tiers 
in footnote 14 \4\ of the Fee Schedule, which, as proposed, are 
applicable to new fee code PD and existing fee code PC.\5\ 
Specifically, proposed Tier 1 offers an additional rebate of $0.01 per 
contract for qualifying orders (i.e., yielding fee code PD or PC) where 
a Member has (1) a Step-Up ADRV \6\ in Customer orders from March 2021 
greater than or equal to 35,000 contracts, and (2) a Step-Up ADRV in 
Firm, Broker Dealer or Joint Back Office orders from March 2021 greater 
than or equal to 10,000 contracts. Proposed Tier 2 offers an additional 
rebate of $0.02 per contract for qualifying orders where a Member has 
(1) a Step-Up ADRV in Customer orders from March 2021 greater than or 
equal to 70,000 contracts, and (2) Member has a Step-Up ADRV in Firm, 
Broker Dealer or Joint Back Office orders from March 2021 greater than 
or equal to 20,000 contracts. The Exchange believes that a tiered 
pricing program specific to Firm, Broker Dealer and Joint Back Office 
(as well as Customer) capacities may better facilitate the agency order 
flow executed particularly by these market participants on the 
Exchange. The Exchange recognizes that these types of Members can 
provide a different type of order flow than that of liquidity 
providers, such as Market Makers and Professionals. Particularly, Firm, 
Broker Dealer and Joint Back Office Members can be an important source 
of liquidity as they specifically facilitate Customer trading activity. 
Customer order flow, in turn, is important as it continues to attract 
liquidity to the Exchange. Enhanced liquidity on the Exchange benefits 
all market participants by providing more trading opportunities, 
signaling an increase in Market-Maker activity, which facilitates 
tighter spreads. This may cause an additional corresponding increase in 
order flow from other market participants, contributing overall towards 
a robust and well-balanced market ecosystem.
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    \4\ As a result, the proposed change moves the Index License 
Surcharge Fees table, currently in footnote 14, to new footnote 15, 
and also reflects this update by amending footnote 14, currently 
appended to fee codes BM, BN, BO, GM, GN and GO in the Fee Codes and 
Associated Fees section, to footnote 15.
    \5\ Orders yielding fee code PC are Customer orders that remove 
liquidity in Penny Securities and are assessed a fee of $0.50.
    \6\ ``ADRV'' means average daily removed volume calculated as 
the number of contracts removed, per day.
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    The proposed rule change also adds fee codes PC and PD to footnote 
5 of the Fee Schedule, which provides a Routing Firm Member with the 
rebate that corresponds to orders that yield certain fee codes (PY, PA, 
PF, PN, NY, NA, NF, or NN).\7\ A Routing Firm Member is a Member that 
acts as an options routing firm on behalf of one or more other Exchange 
Members and is able to route orders to the Exchange and to immediately 
give up the party (a party other than the Routing Firm itself or the 
Routing Firm's own clearing firm who will accept and clear any 
resulting transaction). Because the Routing Firm is responsible for the 
decision to route an order to the Exchange, the Exchange believes that 
such Member should be provided the rebate when orders that yield fee 
code PC or PD are executed. In connection with this change, the 
Exchange also proposes to append footnote 5 to fee codes PC and PD in 
the Fee Codes and Associated Fees table of the Fee Schedule.
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    \7\ Fee codes NA, NF, NN and NY are appended to liquidity adding 
orders in Non-Penny Pilot [sic] securities that are Professional, 
Firm/Broker Dealer/Joint Back Office, Away Market-Maker and Customer 
orders, respectively. Fee codes PA, PF, PN and PY are appended to 
liquidity adding orders in Penny Securities that are Professional, 
Firm/Broker Dealer/Joint Back office, Away Market-Maker and Customer 
orders, respectively.
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    The Exchange also proposes to restructure its NBBO Setter Tiers 
under footnote 4 of the Fee Schedule. Currently, the Exchange offers 
five NBBO Setter Tiers that provide additional rebates between $0.01 
and $0.05 per contract for qualifying orders (i.e., that yield fee code 
PM, PN, XM or XN \8\ and establish a new NBBO) where a Member meets 
certain liquidity thresholds. First, the proposed rule change 
eliminates the following tiers:
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    \8\ Orders yielding fee code PM are Market Maker orders that add 
liquidity in Penny Securities and are offered a rebate of $0.29, 
orders yielding fee code PN are Away Market Maker orders that add 
liquidity in Penny Securities and are offered a rebate of $0.26, 
orders yielding fee code XM are Market Maker orders in XSP options 
that add liquidity and are offered a rebate of $0.29, and orders 
yielding fee code XN are Away Market Maker orders in XSP that add 
liquidity and are offered a rebate of $0.26.
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     Tier 1, which currently provides an additional rebate of 
$0.01 per contract per qualifying order (i.e., yielding fee code PM, 
PN, XM or XN \9\ and establishes a new NBBO) where a Member has (1) an 
ADAV in Non-Customer orders greater than or equal to 0.20% of average 
OCV and (2) an ADAV in Firm, Market Maker or Away Market Maker orders 
that establish a new NBBO greater than or equal 0.05% of average OCV;
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    \9\ Orders yielding fee code PM are Market Maker orders that add 
liquidity in Penny Securities and are offered a rebate of $0.29, 
orders yielding fee code PN are Away Market Maker orders that add 
liquidity in Penny Securities and are offered a rebate of $0.26, 
orders yielding fee code XM are Market Maker orders in XSP options 
that add liquidity and are offered a rebate of $0.29, and orders 
yielding fee code XN are Away Market Maker orders in XSP that add 
liquidity and are offered a rebate of $0.26.
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     Tier 4, which currently provides an additional rebate of 
$0.04 per contract per qualifying order where a Member has (1) an ADAV 
in Non-Customer orders greater than or equal to 1.80% of average OCV, 
(2) an ADAV in Non-Customer Non-Penny orders greater than or equal to 
0.20% of average OCV, and (3) an ADAV in Firm, Market Maker or Away 
Market Maker orders that establish a new NBBO greater than or equal to 
0.50% of average OCV; and
     Tier 5, which currently provides an additional rebate of 
$0.05 per contract per qualifying order where a Member has (1) an ADAV 
in Non-Customer orders greater than or equal to 2.55% of average OCV, 
(2) an ADAV in Non-Customer Non-Penny orders greater than or equal to 
0.25% of average OCV, and (3) has an ADAV in Firm, Market Maker or Away 
Market Maker orders that establish a new NBBO greater than or equal to 
0.80% of average OCV.
    Next, the proposed rule change amends Tier 2 and Tier 3 (new Tier 1 
and Tier 2, respectively, as a result of the proposed deletion of the 
above-listed tiers). Current Tier 2 provides an additional rebate of 
$0.02 per contract per qualifying order where a Member has (1) an ADAV 
in Non-Customer orders greater than or equal to 0.40% of average OCV, 
and (2) an ADAV in Firm, Market Maker, Away Market Maker orders that 
establish a new NBBO greater than or equal to 0.15% of average OCV. 
Tier 3 currently provides an additional rebate of $0.03 per contract 
per qualifying order where a Member has (1) an ADAV in Non-Customer 
orders greater than or equal to 0.75% of average OCV, and (2) an ADAV 
in Firm, Market Maker or Away Market Maker orders that establish a

[[Page 26579]]

new NBBO greater than or equal to 0.30% of average OCV. The proposed 
rule change deletes the first prong of criteria in each of current Tier 
2 and Tier 3 (new Tier 1 and Tier 2, as proposed) and updates the 
second prong of criteria in each of current Tier 2 and Tier 3 by 
increasing the threshold of ADAV in Firm, Market Maker or Away Market 
Maker orders that establish a new NBBO as a percentage of average OCV 
from 0.15% to 0.25% in current Tier 2 (new Tier 1) and from 0.30% to 
0.45% in Tier 3 (new Tier 2). The proposed rule change also decreases 
the additional rebate in current Tier 2 (new Tier 1) from $0.02 to 
$0.01 and in current Tier 3 (new Tier 2) from $0.03 to $0.02.
    The Exchange also proposes to restructure its Market Maker Penny 
Add Volume Tiers under footnote 6 of the Fee Schedule. The Exchange 
currently offers 13 Market Maker Penny Add Volume Tiers that provide 
enhanced rebates between $0.33 and $0.48 per contract for qualifying 
Market Maker orders (i.e., that yield fee code PM or XM) where a Member 
meets certain liquidity thresholds. First, it proposes to consolidate 
the Market Maker Penny Add Volume Tiers by eliminating the following 
tiers:
     Tier 3, which currently offers an enhanced rebate of $0.40 
per contract for qualifying orders (i.e., yielding fee code PM or XM) 
where a Member has (1) an ADAV \10\ in Market Maker orders greater than 
or equal to 0.15% of average OCV,\11\ and (2) an ADRV in Market Maker 
orders greater than or equal to 0.15% of average OCV;
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    \10\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added, per day.
    \11\ ``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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     Tier 4, which currently offers an enhanced rebate of $0.40 
per contract for qualifying orders where a Member has (1) an ADAV in 
Market Maker orders greater than or equal to 0.10% of average OCV, and 
(2) on BZX Equities an ADV \12\ greater than or equal to 0.60% of 
average TCV; \13\
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    \12\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \13\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan 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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     Tier 6, which currently offers an enhanced rebate of $0.41 
per contract for qualifying orders where a Member has (1) an ADAV in 
Market Maker orders greater than or equal to 0.25% of average OCV, and 
(2) an ADRV in Market Maker orders greater than or equal to 0.25% of 
average OCV;
     Tier 9, which currently offers an enhanced rebate of $0.42 
per contract for qualifying orders where a Member has (1) an ADAV in 
Market Maker orders greater than or equal to 0.35% of average OCV, and 
(2) an ADRV in Market Maker orders greater than or equal to 0.35% of 
average OCV;
     Tier 10, which currently offers an enhanced rebate of 
$0.43 per contract for qualifying orders where a Member has (1) an ADAV 
in Market Maker orders greater than or equal to 0.15% of average OCV, 
(2) a Step-Up ADAV in Market-Maker orders from September 2020 greater 
than or equal to 0.10% of average OCV, (3) on BZX Equities an ADV 
greater than or equal to 0.60% of average TCV, and (4) on BZX Equities 
a Step-Up ADV from September 2020 greater than or equal to 0.05% of 
average TCV;
     Tier 11, which currently offers an enhanced rebate of 
$0.44 per contract for qualifying orders where a Member has (1) an ADAV 
in Market Maker orders greater than or equal to 0.20% of average OCV, 
(2) a Step-Up ADAV in Market Maker orders from September 2020 greater 
than or equal to 0.15% of average OCV, (3) on BZX Equities an ADV 
greater than or equal to 0.60% of average TCV, and (4) on BZX Equities 
a Step-Up ADV from September 2020 greater than or equal to 0.10% of 
average TCV; and
     Tier 12, which currently offers an enhanced rebate of 
$0.44 per contract for qualifying orders where a Member has (1) an ADAV 
in Market Maker orders greater than or equal to 0.50% of average OCV, 
(2) an ADAV in Market Maker Non-Penny orders greater than or equal to 
0.15% of average OCV, and (3) on BZX Equities an ADV greater than or 
equal to 1.00% of average TCV.
    As a result of the elimination of the above-listed tiers, the 
proposed rule change updates current Tier 5 to new Tier 3, current Tier 
7 to new Tier 4, current Tier 8 to new Tier 5, current Tier 13 to new 
Tier 6 and current Tier 14 to new Tier 7. The criteria and enhanced 
rebates offered under each of these tiers remains the same, save for 
Tier 8 (new Tier 5). The proposed rule change updates the criteria in 
current Tier 8 (new Tier 5), in which a Member must have an ADAV in 
Market Maker orders greater than or equal to 0.50% of average OCV, by 
decreasing the threshold of ADAV in Market Maker orders as a percentage 
of average OCV from 0.50% to 0.45%. The current enhanced rebate offered 
under current Tier 8 (new Tier 5) remains the same ($0.42). Finally, 
the proposed rule change amends the Market Maker Penny Add Volume Tiers 
by adopting new Tier 8, which offers an enhanced rebate of $0.48 per 
contract for qualifying orders where a Member has an ADAV in Market 
Maker orders greater or equal to 1.50% of average OCV.
    The Exchange proposes to eliminate the above-listed Market Maker 
Penny Add Volume Tiers and NBBO Setter Tiers as it no longer wishes to, 
nor is it required to, maintain such tiers. More specifically, the 
proposed rule change deletes these tiers as the Exchange would rather 
consolidate the Market Maker Penny Add Volume Tiers and NBBO Setter 
Tiers, many of which have not been achieved in several months, and 
redirect resources and funding into other programs and tiers intended 
to incentivize increased order flow.
    The Exchange believes that the proposed updates to and addition of 
tiers under the Market Maker Add Volume Penny Tiers and the NBBO Setter 
Tiers are intended to continue to encourage increased Market Maker 
order flow as well as NBBO setting order flow to the Exchange, which 
may facilitate tighter spreads and more price improvement 
opportunities, signaling increased activity from other market 
participants, and thus ultimately contributing to deeper and more 
liquid markets and a more robust and well-balanced market ecosystem on 
the Exchange, to the benefit of all market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\14\ in general, and 
furthers the objectives of Section 6(b)(4),\15\ 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) \16\ 
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,

[[Page 26580]]

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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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 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 volume-based incentives and discounts 
have been widely adopted by exchanges,\17\ including the Exchange,\18\ 
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.
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    \17\ See, e.g., NYSE Arca Options Fee Schedule, Discount in Take 
Liquidity Fees for Professional Customer and Non-Customer Liquidity 
Removing Interest tiers, which provide discounted amounts between 
$0.02 and $0.04 per contract for members reaching certain thresholds 
of customer posted interest and professional/non-customer liquidity 
removing interest; and Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.01 and $0.17 per contract for Market Maker orders where 
Members meet certain volume thresholds;
    \18\ See, e.g., BZX Options Fee Schedule, footnote 6, Market 
Maker Penny Add Volume Tiers; footnote 4, NBBO Setter Tiers; and 
footnote 8, Firm, Broker Dealer, and Joint Back Office Non-Penny Add 
Volume Tiers.
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    In particular, the Exchange believes that proposed fee code PD, 
applicable to Firm, Broker Dealer and Joint Back Office orders that 
remove liquidity in Penny Securities, is reasonable, equitable and not 
unfairly discriminatory because current fee code PP already applies in 
the same manner to such Members' orders, and assesses the same rate 
($0.50), as proposed fee code PD. Like fee code PP, proposed fee code 
PD and its corresponding rate will apply automatically and uniformly to 
all qualifying orders. The proposed rule change merely splits up the 
Member capacities to which fee code PP currently applies across two fee 
codes so that the Exchange may create a tiered pricing program specific 
to Firm, Broker Dealer and Joint Back Office orders that remove Penny 
liquidity (along with the remove Penny liquidity Customer fee code 
(PC)). In addition to this, the Exchange believes that it is 
reasonable, equitable and not unfairly discriminatory to allow Routing 
Firm Members to receive the corresponding rebates on orders yielding 
fee codes PC and PD and identified as Designated Give Ups because these 
are the primary rebates in place on the Exchange and reflect the 
primary remove liquidity that the Exchange is seeking to attract from 
Routing Firms. The Fee Schedule already permits this for Designated 
Give Ups specified on orders that yield eight other fee codes. By 
providing a rebate directly to the party making the routing decision to 
direct certain orders to the Exchange (i.e., the Routing Firm), which 
is consistent with both the Exchange's historic practice and the 
purpose behind a rebate (i.e., to incentivize the order being directed 
to the Exchange), the Exchange believes that the proposed rule change 
will result in increased remove liquidity on the Exchange, to the 
benefit of all Exchange participants (as described in further detail 
below).
    The Exchange believes that a tiered pricing program specific to 
Firm, Broker Dealer and Joint Back Office (as well as Customer) orders 
that remove Penny liquidity is reasonable and equitable because it is 
designed to facilitate increased agency order flow executed 
particularly by these market participants on the Exchange. As described 
above, the Exchange recognizes that these types of Members can provide 
a different type of order flow than that of liquidity providers, such 
as Market Makers and Professionals. Particularly, Firm, Broker Dealer 
and Joint Back Office Members can be an important source of liquidity 
as they specifically facilitate Customer trading activity. Customer 
order flow, in turn, is important as it continues to attract liquidity 
to the Exchange. Enhanced liquidity on the Exchange benefits all market 
participants by providing more trading opportunities, signaling an 
increase in Market-Maker activity, which facilitates tighter spreads, 
in turn signaling a corresponding increase in order flow from other 
market participants, and ultimately contributing overall towards a 
robust and well-balanced market ecosystem.
    The Exchange also believes that the proposed criteria in Tier 1 and 
Tier 2 under the new Customer, Firm, Broker Dealer and Joint Back 
Office Penny Take Volume Tiers is reasonable as it is comparable to 
other criteria offered under similar Take Volume Tiers which also 
incorporate Step-Up average volume over a baseline month.\19\ The 
Exchange believes that incorporating Step-Up ADRV into the criteria 
under the new tiers is reasonably designed to encourage Members to 
submit remove order flow to the Exchange. The Exchange believes an 
increase in liquidity executing orders may attract more liquidity 
adding order flow to take advantage of the increase in execution 
opportunities, thereby contributing to deeper, more liquid markets and 
price discovery. In addition to this, the Exchange believes that the 
proposed additional rebates that correspond to each new tier are 
reasonable as they are reasonably based on the difficulty of satisfying 
the proposed tiers' criteria and thus appropriately reflect the 
incremental difficulty between achieving Tier 1 and Tier 2, which 
requires a higher number of contracts over which a Member must increase 
liquidity-taking order flow. The Exchange believes that the proposed 
additional rebates are in line with the additional rebates currently 
offered under other volume tiers in the Fee Schedule.\20\
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    \19\ See BZX Options Fee Schedule, footnote 6, Market Maker 
Penny Add Volume Tiers.
    \20\ See BZX Options Fee Schedule, footnote 4, NBBO Setter 
Tiers, rates under which are comparable as existing and as proposed 
in this filing.
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    The Exchange believes it is reasonable to eliminate certain tiers, 
many of which have been unused for several months, under the Market 
Maker Penny Add Volume Tiers and the NBBO Setter Tiers in order to 
consolidate these tiered pricing programs and redirect resources and 
funding into other programs and tiers intended to incentivize increased 
order flow. The Exchange again notes that it is not required to 
maintain such tiers.
    The Exchange believes that modestly easing the criteria in Market 
Maker Penny Add Volume Tier 5 (current Tier 8) and adopting new Tier 8 
is reasonable as it is designed to encourage Market Makers to increase 
their order flow to

[[Page 26581]]

the Exchange to achieve the proposed tiers. More specifically, the 
Exchange believes that adopting a new tier may encourage Members to 
increase their ADAV in Market Makers orders over a modestly higher 
percentage of average OCV and that reducing the difficulty of achieving 
an existing tier offers alternative criteria to the Market Maker Penny 
Add Volume Tiers, as restructured, for Members to strive to achieve by 
submitting the requisite add volume order flow. An increase in Market 
Maker add volume, particularly, facilitates tighter spreads and an 
increase in overall liquidity provider activity, both of which signal 
additional corresponding increase in order flow from other market 
participants, contributing towards a robust, well-balanced market 
ecosystem. Indeed, increased overall order flow benefits investors by 
continuing to deepen the Exchange's liquidity pool, potentially 
providing even greater execution incentives and opportunities, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    The Exchange also believes that the proposed criteria in Tier 5 
(current Tier 8) and new Tier 8, and the proposed enhanced rebate in 
new Tier 8 and existing rebate in Tier 5 (current Tier 8), reasonably 
reflect the incremental difficulty in achieving the remaining Market 
Maker Penny Add Volume Tiers, and are in line with the criteria and 
enhanced rebates offered under the remaining Market Maker Penny Add 
Volume Tiers. Indeed, the Exchange believes that the difficulty in 
achieving the proposed criteria under Tier 5 (current Tier 8), while 
modestly reduced, remains in line with the difficulty in achieving 
different, yet comparable criteria in Tier 4 (current Tier 7), which 
continues to offer the same enhanced rebate of $0.42. Also, the 
criteria in proposed Tier 8 is incrementally more difficult than 
criteria in Tier 7 (current Tier 14) (1.50% of ADAV over average OCV as 
compared to 0.75%), therefore, the Exchange believes that the proposed 
enhanced rebate of $0.48, as compared to the $0.46 rebate that 
corresponds to Tier 7, is appropriate.
    Likewise, the Exchange believes that the amended criteria in NBBO 
Setter Tier 1 (current Tier 2) and Tier 2 (current Tier 3) continues to 
be reasonably designed to encourage Members to increase their liquidity 
on the Exchange, specifically NBBO setting add volume order flow. The 
Exchange believes that the proposed modifications to existing criteria 
in Tier 1 (current Tier 2) and Tier 2 (current Tier 3) results in 
incrementally less difficult criteria to achieve, as the proposed rule 
change removes the entire threshold requirement in prong 1 under each 
while only modestly increasing the remaining percentage of ADAV in Firm 
and Market Maker (including Away Market Maker) orders that establish a 
new NBBO over average OCV. As such, the Exchange believes that the 
proposed criteria, modestly reduced in difficulty, will incentivize 
Members to increase their NBBO setting add volume order flow to achieve 
the proposed tiers, which benefits all market participants by 
incentivizing continuous display of and opportunity to execute at the 
best prices, signaling other market participants to take the additional 
execution opportunities provided by such liquidity. The Exchange also 
believes the modest reduction in the corresponding additional rebates 
offered in Tier 1 (current Tier 2) and Tier 2 (current Tier 3) 
appropriately reflect the modest reduction in the difficulty in 
achieving the respective tier criteria.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because the 
Customer, Firm, Broker Dealer and JBO Remove Penny Tiers, Market Maker 
Add Penny Tiers and NBBO Setter Tiers, as proposed, will continue to 
apply uniformly to all qualifying Members, in that all Members that 
submit the requisite order flow per each tier program have the 
opportunity to compete for and achieve the proposed tiers. The 
additional/enhanced rebates (proposed and existing) will apply 
automatically and uniformly to all Members that achieve the proposed 
corresponding criteria. While the Exchange has no way of knowing 
whether this proposed rule change would definitively result in any 
particular Member qualifying for the proposed tiers, the Exchange 
believes that at least three Market Makers will reasonably be able to 
compete for and achieve the proposed criteria in each of the proposed 
Market Maker Penny Add Volume Tiers (Tier 5 and Tier 8); between two 
and three Market Makers will reasonably be able to compete for and 
achieve the proposed criteria in each of the proposed NBBO Setter Tiers 
(Tier 1 and Tier 2); and between two and three Members will reasonably 
be able to compete for and achieve the proposed criteria in each of the 
proposed Customer, Firm, Broker Dealer and Joint Back Office Penny Take 
Volume Tiers (Tier 1 and Tier 2). The Exchange notes, however, that the 
proposed tiers are open to any Member that satisfies the tiers' 
criteria. The Exchange lastly notes that it does not believe the 
proposed tiers will adversely impact any Member's pricing or ability to 
qualify for other tiers. Rather, should a Member not meet the criteria 
in any of the proposed tiers, the Member will merely not receive the 
corresponding additional/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.'' \21\
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    \21\ 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 
change applies to all Members equally in that all Members are eligible 
to achieve the tiers' proposed criteria, have a reasonable opportunity 
to meet the tiers' proposed criteria and will all receive the 
corresponding rebates (as existing and proposed) if such criteria is 
met. Overall, the proposed change is designed to attract additional 
Customer and agency order flow, Market Maker order flow, and NBBO 
setting order flow to the Exchange. The Exchange believes that the 
modified tier criteria would incentivize market participants to strive 
to increase such order flow to the Exchange to meet the proposed 
criteria. Such order flow, as described above, brings different, yet 
key, liquidity and trading activity to the Exchange, resulting in 
overall tighter spreads, more execution opportunities at improved 
prices, and/or deeper levels of liquidity, which ultimately improves 
price

[[Page 26582]]

transparency, provides continuous trading opportunities and enhances 
market quality on the Exchange, and generally continues to encourage 
Members to send orders to the Exchange, thereby contributing towards a 
robust and well-balanced market ecosystem to the benefit of all market 
participants.
    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 16% of the market 
share.\22\ 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.'' \23\ 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' . . . .''.\24\ 
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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    \22\ See supra note 3.
    \23\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \24\ 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 \25\ and paragraph (f) of Rule 19b-4 \26\ 
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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-2021-038 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-2021-038. 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-2021-038 and should be submitted 
on or before June 4, 2021.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10178 Filed 5-13-21; 8:45 am]
BILLING CODE 8011-01-P


