[Federal Register Volume 88, Number 14 (Monday, January 23, 2023)]
[Notices]
[Pages 4067-4070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96678; File No. SR-CboeBZX-2023-002]


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

January 17, 2023.
    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 3, 2023, 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 applicable to its 
equities trading platform (``BZX Equities'') by modifying the existing 
NBBO Setter Program and deleting a definition that is no longer 
applicable, effective January 3, 2023.
    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 
Securities Exchange Act of 1934 (the ``Act''), to which market 
participants may direct their order flow. Based on publicly available 
information,\3\ no single registered equities exchange has more than 
15% of the market share. 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 in 
particular operates a ``Maker-Taker'' model whereby it pays rebates to 
members that add liquidity and assesses fees to those that remove 
liquidity.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (December 15, 2022), available at https://www.cboe.com/us/equities/market_statistics/.
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    The Exchange's Fee Schedule sets forth the standard rebates and 
rates applied per share for orders that provide and remove liquidity, 
respectively. Currently, for orders in securities priced at or above 
$1.00, the Exchange provides a standard rebate of $0.0016 per share for 
orders that add liquidity and assesses a fee of $0.0030 per share for 
orders that remove liquidity. For orders in securities priced below 
$1.00, the Exchange does not provide a rebate or assess a fee for 
orders that add liquidity and assesses a fee of 0.30% of total dollar 
value for orders that remove liquidity. Additionally, in response to 
the competitive environment, the Exchange also offers tiered pricing, 
which provides Members with opportunities to qualify for higher rebates 
or lower 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 more stringent criteria.
    Under footnote 20 of the Fee Schedule, the Exchange offers the NBBO 
Setter Program, which is designed to improve market quality on the 
Exchange in certain securities. Specifically, qualifying orders in 
specific securities that yield fee codes B,\4\ V,\5\ and Y \6\ are 
eligible for an additive rebate under Tier 1 of the NBBO Setter Program 
(the ``NBBO Setter Tier''). Currently, the Exchange provides an 
additional rebate of $0.0003 per share to Market Participant 
Identifiers (``MPIDs'') that have a Step-Up Setter ADAV \7\ from May 
2022 that is equal to or greater than 350,000 for orders in NBBO Setter 
Securities \8\ that establish a new Setter NBBO.\9\
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    \4\ Orders yielding Fee Code ``B'' are displayed orders adding 
liquidity to BZX (Tape B).
    \5\ Orders yielding Fee Code ``V'' are displayed orders adding 
liquidity to BZX (Tape A).
    \6\ Orders yielding Fee Code ``Y'' are displayed orders adding 
liquidity to BZX (Tape C).
    \7\ ``Step-Up Setter ADAV'' means Baseline Setter ADAV in the 
relevant baseline month subtracted from Current Setter ADAV.
    \8\ ``NBBO Setter Securities'' means a list of securities 
included in the NBBO Setter Program, the universe of which will be 
determined by the Exchange and published in a Notice distributed to 
Members and on the Exchange's website. The Exchange will not remove 
a security from the list of NBBO Setter Securities without 30 days 
prior notice (unless the security is no longer eligible for trading 
on the Exchange).
    \9\ ``Setter NBBO'' means a quotation of at least 100 shares 
that is better than the NBBO or a quotation of a notional size of at 
least $10,000 that is better than the NBBO.

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[[Page 4068]]

    Now, the Exchange proposes to increase the applicable additional 
rebate of the NBBO Setter Tier to $0.0007 per share and to modify the 
criteria as follows:
    (1) MPID has a Step-Up ADAV \10\ from November 2022 greater than or 
equal to 5,000,000; and
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    \10\ ``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV.
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    (2) MPID has a Current Setter ADAV \11\ greater than or equal to 
3,000,000.
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    \11\ ``Current Setter ADAV'' means ADAV calculated as the number 
of displayed shares added per day that establish a new Setter NBBO 
in NBBO Setter Securities.
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    Based on the above proposed change, the Exchange also proposes to 
delete the definition of Step-Up Setter ADAV from the Fee Schedule as 
it is no longer applicable.
    The Exchange notes that the NBBO Setter Program will continue to be 
available to all Members and MPIDs and will provide Members and MPIDs 
an opportunity to receive an additional enhanced rebate (i.e., in 
addition to the applicable standard rebate and any other applicable 
tier). Moreover, the proposed change is designed to encourage Members 
that provide displayed liquidity on the Exchange to increase their 
overall add volume order flow, not just volume in NBBO Setter 
Securities that establish the NBBO, which would benefit all Members by 
providing greater execution opportunities on the Exchange and 
contribute to a deeper, more liquid market, to the benefit of all 
investors.
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.\12\ Specifically, the Exchange believes the proposed rule change 
is consistent with the section 6(b)(5) \13\ 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) \14\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    In particular, the Exchange believes that the proposed modified 
NBBO Setter Tier is reasonable, equitable, and not unfairly 
discriminatory. The proposed NBBO Setter Tier reflects a competitive 
pricing structure designed to incentivize participants to direct their 
order flow to the Exchange and enhance market quality in NBBO Setter 
Securities. Particularly, the Exchange believes the NBBO Setter Program 
tier, which provides an additional rebate to qualifying orders, 
continues to provide a reasonable means to encourage overall growth in 
Members' MPID order flow that establishes a Setter NBBO in NBBO Setter 
Securities. The Exchange believes the proposed first prong of the 
criteria under the NBBO Setter Program Tier 1 is also reasonably 
designed to incentivize overall growth in Members' MPID liquidity 
adding order flow in all securities. An overall increase in activity 
would deepen the Exchange's liquidity pool, offer more narrow spreads, 
support the quality of price discovery, promote market transparency, 
and improve market quality for all investors.
    The Exchange believes that allowing MPIDs to qualify for the 
additive rebate under the NBBO Setter Tier by meeting the proposed 
criteria will promote price discovery and market quality in NBBO Setter 
Securities and, further, that the tightened spreads and increased 
liquidity from the proposal will benefit all investors by deepening the 
Exchange's liquidity pool, offering the potential for execution at more 
aggressive prices, supporting the quality of price discovery, enhancing 
quoting competition across exchanges, promoting market transparency, 
and improving investor protection.
    The Exchange notes that the NBBO Setter Tier, even as amended, is 
not dissimilar from other volume-based rebates and fees (``Volume 
Tiers'') that have been widely adopted by exchanges, including the 
Exchange, and are equitable and not unfairly discriminatory because it 
is open to all Members on an equal basis and provides a rebate that is 
reasonably related to the value of an Exchange's market quality. Much 
like Volume Tiers are generally designed to incentivize higher levels 
of liquidity on the Exchange, the NBBO Setter Tier is designed to 
incentivize enhanced market quality on the Exchange through tighter 
spreads, greater size at the inside, and greater quoting depth in NBBO 
Setter Securities by offering an additive rebate in NBBO Setter 
Securities. As such, the Exchange believes the proposed additive rebate 
in qualifying orders for NBBO Setter Securities will act to enhance 
liquidity and competition across exchanges in NBBO Setter Securities by 
providing a rebate reasonably related to such enhanced market quality 
to the benefit of all investors, thereby promoting the principles 
discussed in section 6(b)(5) of the Act. Additionally, the Exchange 
notes that the tier, even as amended, is comparable to other pricing 
tiers adopted by the Exchange and other exchanges that provide an 
enhanced rebate or supplemental incentive for firms that achieve a 
specified volume threshold in a specified group of securities.\15\
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    \15\ See Exchange Fee Schedule, Footnote 13, Tape B Volume and 
Quoting Tiers. See also MEMX Fee Schedule, Displayed Liquidity 
Incentive Tiers and Nasdaq Fee Schedule, NBBO Program.
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    The Exchange also believes that the proposal represents an 
equitable allocation of reasonable dues, fees, and other charges 
because the criteria necessary to achieve the tier encourages Members 
to add liquidity on the Exchange. Further, the Exchange believes the 
proposed criteria, while more stringent than the current criteria, is 
commensurate with the proposed rebate, which is higher than the current 
rebate.\16\ Moreover, the Exchange notes that it plans to add 223 
symbols to the NBBO Setter Securities list (which would increase the 
number of NBBO Setter Securities to a total of 776 symbols) in tandem 
with this proposal, thereby providing additional opportunities for 
MPIDs to meet the proposed NBBO Setter Tier's criteria.
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    \16\ The Exchange notes that it plans to add 223 symbols to the 
NBBO Setter Securities list in tandem with this proposal, thereby 
providing additional opportunities for MPIDs to meet the proposed 
NBBO Setter Tier's criteria.
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    The Exchange believes that the proposal is also not unfairly 
discriminatory because all Members and MPIDs will continue to be 
eligible for the NBBO Setter Tier rebates and have the opportunity to 
meet the Tier's criteria and receive the corresponding additional 
rebate if such criteria is met. Without having a view of activity on 
other markets and off-exchange venues, the Exchange has no way of 
knowing whether these proposed changes would definitely result in any 
Members qualifying for the NBBO Setter Tier. While the Exchange has no 
way of predicting with certainty how the proposed changes will impact 
Member activity, based on the prior months volume the Exchange 
anticipates

[[Page 4069]]

approximately two Members (one MPID each) will be able to compete for 
and reach the criteria under the NBBO Setter Tier, as amended. The 
Exchange also notes that proposed changes will not adversely impact any 
Member's ability to qualify for reduced fees or enhanced rebates 
offered under other tiers. Should a Member not meet the proposed new 
criteria, the Member will simply not receive that additional rebate.
    The Exchange also believes that the clarifying change to delete a 
non-applicable definition (i.e., the ``Step-Up Setter ADAV'' 
definition) from the Definitions section of the Fee Schedule is 
reasonable, fair and equitable and non-discriminatory because it is 
nonsubstantive and is designed to make sure that the Fee Schedule is as 
clear and understandable as possible. The Exchange notes the Step-Up 
Setter ADAV definition was only applicable to the existing NBBO Setter 
Tier, and as proposed is no longer applicable to the NBBO Setter Tier. 
Further, it is not otherwise applicable to any fees, rebates, or other 
incentive programs.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange 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 NBBO 
Setter Tier, as proposed, will continue to be eligible to all Members 
and MPIDs equally in that all Members and MPIDs have the opportunity to 
submit orders that could set the Setter NBBO and therefore qualify for 
the proposed increased additive rebate in NBBO Setter Securities. 
Furthermore, the Exchange believes that the proposed NBBO Setter Tier 
would incentivize Members to submit additional aggressively priced 
displayed liquidity to the Exchange, and to increase their order flow 
on the Exchange generally, thereby contributing to a deeper and more 
liquid market and promoting price discovery and market quality on the 
Exchange to the benefit of all market participants and enhancing the 
attractiveness of the Exchange as a trading venue, which the Exchange 
believes, in turn, would continue to encourage market participants to 
direct additional order flow to the Exchange. Greater liquidity 
benefits all Members by providing more trading opportunities and 
encourages Members to send additional orders to the Exchange, thereby 
contributing to robust levels of liquidity, which benefits all market 
participants. The proposed non-substantive change to the Definitions 
section of the Fee Schedule is similarly non-burdensome as it will be 
available to all Members and provide a clear description of the terms 
applicable to the Fee Schedule.
    The Exchange notes that as proposed the NBBO Setter Program does 
not impose a burden on intermarket competition as the proposal is 
intended to increase competition in U.S. equity securities that the 
Exchange believes will contribute to a deeper and more liquid market in 
these securities, which would in turn promote price discovery and 
market quality on the Exchange to the benefit of all market 
participants and enhancing the attractiveness of the Exchange as a 
trading venue, which the Exchange believes, in turn, would continue to 
encourage market participants to direct additional order flow to the 
Exchange. The Exchange does not believe that the proposed changes 
represent a significant departure from pricing current offered by the 
Exchange or pricing offered by other equities exchanges. Members may 
opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, the Exchange does 
not believe that the proposed changes will impair the ability of 
Members or competing venues to maintain their competitive standing in 
the financial markets. As previously discussed, the Exchange operates 
in a highly competitive market. Members have numerous alternative 
venues that they may participate on and direct their order flow, 
including other equities exchanges, off-exchange venues, and 
alternative trading systems. Additionally, the Exchange represents a 
small percentage of the overall market. Based on publicly available 
information, no single equities exchange has more than 15% of the 
market share.\17\ Therefore, no exchange possesses significant pricing 
power in the execution of order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \18\ 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' . . .''.\19\
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    \17\ Supra note 3.
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\ 
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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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.

[[Page 4070]]

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 [email protected]. Please include 
File Number SR-CboeBZX-2023-002 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-2023-002. 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 such 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-2023-002 and should be submitted 
on or before February 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01118 Filed 1-20-23; 8:45 am]
BILLING CODE 8011-01-P


