[Federal Register Volume 88, Number 95 (Wednesday, May 17, 2023)]
[Notices]
[Pages 31529-31532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10473]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97490; File No. SR-CboeBZX-2023-031]


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

May 11, 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 May 1, 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 Options'') 
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.

[[Page 31530]]

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, effective May 1, 
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 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 17% of the market share and 
currently the Exchange represents only approximately 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.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (April 24, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fee Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides a rebate of 
$0.29 per contract for Market Maker orders that add liquidity in Penny 
Securities, yielding fee code PM. The Fee Codes and Associated Fees 
section of the Fees Schedule also provide for certain fee codes 
associated with certain order types and market participants that 
provide for various other fees or rebates. Additionally, the Fee 
Schedule offers tiered pricing which provides Members \4\ opportunities 
to qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. In response to the competitive 
environment, the Exchange also offers tiered pricing, which provides 
Members with 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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    \4\ See Exchange Rule 1.5(n).
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    The Exchange proposes to update the Market Maker Penny Add Volume 
Tiers (i.e., applicable to orders yielding fee code PM) set forth in 
footnote 6 of the Fee Schedule. The Exchange currently provides 
opportunities for rebates per contract to add liquidity in Penny 
Securities as follows:

----------------------------------------------------------------------------------------------------------------
                                        Rebate per
                Tier                    contract to                        Required criteria
                                            add
----------------------------------------------------------------------------------------------------------------
Tier 1..............................         ($0.31)  Member has an ADAV \5\ in Market Maker orders >=0.15% of
                                                       average OCV.\6\
Tier 2..............................          (0.38)  Member has an ADAV in Market Maker orders >=0.25% of
                                                       average OCV.
Tier 3..............................          (0.39)  Member has an ADAV in Market Maker orders >=0.40% of
                                                       average OCV.
Tier 4..............................          (0.40)  (1) Member has an ADAV in Market Maker orders >=0.45% of
                                                       average OCV; and
                                                      (2) Member has a Step-Up ADRV in Customer orders >=0.05%
                                                       of OCV from December 2022.
Tier 5..............................          (0.41)  (1) Member has an ADAV in Market Maker orders >=0.50% of
                                                       average OCV; and
                                                      (2) Member has a Step-Up ADAV in Market Maker orders in
                                                       SPY >=0.05% of average OCV from December 2022.
Tier 6..............................          (0.43)  Member has an ADAV in Market Maker orders >=0.60% of
                                                       average OCV.
Tier 7..............................          (0.44)  (1) Member has an ADAV in Market Maker orders >=0.75% of
                                                       average OCV; and
                                                      (2) Member has an ADRV in Customer orders >=0.50% of
                                                       average OCV.
----------------------------------------------------------------------------------------------------------------

    The Exchange proposes to amend these tiers to remove Tiers 4, 5, 
and 7.\7\ No Members are currently satisfying the criteria under these 
tiers, and the Exchange no longer wishes to, nor is it required to, 
maintain the tiers. The Exchange would rather redirect future resources 
and funding into other programs and tiers intended to incentivize 
increased order flow. The Exchange also proposes a corresponding non-
substantive amendment to update current Tier 6 to Tier 4. The criteria 
and enhanced rebate offered under this tier remains the same.
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    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added.
    \6\ ``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.
    \7\ The Exchange proposes to eliminate these tiers as described 
in the table in Footnote 6 and eliminate the amounts of the rebates 
in the Standard Rates table.
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    Additionally, the Exchange proposes to amend the transaction fee 
for Customer SPY orders that remove liquidity. Currently, customer 
orders in all orders, including SPY, that remove liquidity are assessed 
a standard transaction fee of $0.48 per contract and yield fee code 
``PC''. The Exchange now proposes to reduce the fee assessed for 
Customer SPY orders that remove liquidity to $0.45 per contract and 
adopt new fee code ``PR'' for such orders (and remove SPY orders from 
fee code ``PC'').
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed

[[Page 31531]]

to permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Exchange also believes the proposed rule change is 
consistent with section 6(b)(4) of the Act,\11\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(4).
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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 
market participants. 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. The proposed fee 
changes reflect a competitive pricing structure designed to incentivize 
market participants to direct their order flow, which the Exchange 
believes would enhance market quality to the benefit of all Members.
    The Exchange believes that it is reasonable and equitable to 
eliminate Market Maker Penny Add Volume Tiers 4, 5 and 7, because the 
Exchange is not required to maintain these tiers or provide Members an 
opportunity to receive reduced fees or enhanced rebates. As stated, no 
Members are currently satisfying the criteria under these tiers, and 
the Exchange wishes to consolidate this tiered pricing program and 
redirect resources and funding into other programs and tiers intended 
to incentivize increased order flow. Further, Members still have other 
opportunities to obtain reduced fees via the remaining Market Maker 
Penny Add Volume Tiers 1 through 4, as amended.
    The Exchange believes that eliminating Market Maker Penny Add 
Volume Tiers 4, 5 and 7 is equitable and not unfairly discriminating 
because it applies uniformly to all Members, in that, such tiers will 
not be available for any Member. The Exchange also notes that the 
proposed change will not adversely impact any Member's pricing or their 
ability to qualify for other rebate tiers. Further, the Market Maker 
Penny Add Volume Tiers 1 through 4, as amended, 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 available tiers.
    Additionally, the Exchange believes that the proposed adoption of a 
new fee code for Customer SPY orders that remove liquidity is 
consistent with section 6(b)(4) of the Act in that the proposed fee is 
reasonable, equitable, and not unfairly discriminatory. The Exchange 
believes its proposed change is reasonable as it is competitive and in 
line with SPY-specific pricing at other exchanges.\12\ The Exchange 
believes the proposed amendment will also encourage market participants 
to increase retail SPY order flow to the Exchange, which benefits all 
market participants by providing additional trading opportunities. 
This, in turn, attracts increased large-order flow from liquidity 
providers which facilitates tighter spreads and potentially triggers a 
corresponding increase in order flow originating from other market 
participants. The Exchange believes that the proposed rule change is 
equitable and not unfairly discriminatory as fee code PR applies 
automatically and uniformly to all Customer SPY orders that remove 
liquidity.
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    \12\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for a fee of $0.46 per contract for 
priority customer SPY orders that remove liquidity. See also Nasdaq 
ISE Pricing Schedule, Section 3, Footnote 5, which provides for 
tiered rebates for market-maker SPY orders that add liquidity 
between $0.05-$0.26 per contract.
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    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to adopt SPY-specific pricing as the Exchange 
already maintains product-specific pricing for other products, such as 
RUT.\13\ Additionally, as noted above, other exchanges similarly 
provide for SPY-specific pricing.\14\ The Exchange also believes that 
it is equitable and not unfairly discriminatory to assess a lower fee 
for Customer SPY orders as compared to other market participants 
because customer order flow enhances liquidity on the Exchange for the 
benefit of all market participants. Specifically, customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Market-Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. Moreover, the options industry has 
a long history of providing preferential pricing to customers, and the 
Exchange's current Fee Schedule currently does so in many places, as do 
the fees structures of multiple other exchanges.\15\
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    \13\ See BZX Options Exchange Fees Schedule, Fees Codes and 
Associated Fees.
    \14\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for a fee range of $0.42 to $0.46 per 
contract for priority customer SPY orders that remove liquidity, 
based on volume criteria. See also Nasdaq ISE Pricing Schedule, 
Section 3, Footnote 5, which provides for tiered rebates for market-
maker SPY orders that add liquidity between $0.10-$0.26 per 
contract.
    \15\ See BZX Options Fee Schedule, Fee Codes and Associated 
Fees. See also Cboe C2 Options Exchange Fees Schedule, Transaction 
Fees.
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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. In particular, 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 proposal to 
eliminate Market Maker Penny Add Volume Tiers 4, 5 and 7 applies to all 
Members, in that, such tiers will not be available for any Member. The 
Exchange does not believe the proposed changes burden competition as 
all Members will continue to have an opportunity receive enhanced 
rebates or reduced fees offered under various tiers, including Market 
Maker Penny Add Volume Tier 1 through 4, as amended, which tiers are 
generally designed to increase the competitiveness of BZX and attract 
order flow and incentivize participants to increase their participation 
on the Exchange, providing for additional execution opportunities for 
market participants and improved price transparency. Greater overall 
order flow, trading opportunities, and pricing transparency benefit all 
market participants on the Exchange by enhancing market quality and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem.
    Furthermore, the proposed change to adopt a new fee code for 
Customer SPY orders that remove liquidity will also apply to all 
Members. As discussed above, the Exchange believes the proposed change 
to adopt a new fee code for Customer SPY orders that remove liquidity 
would attract additional SPY Customer orders that remove liquidity, 
thereby promoting market depth, price discovery and transparency and 
enhancing order execution opportunities for all

[[Page 31532]]

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.''
    The Exchange also 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 they may participate on and 
direct their order flow, including 15 other options exchanges. 
Additionally, the Exchange represents a small percentage of the overall 
market. Based on publicly available information, no single options 
exchange has more than 17% of the market share. Therefore, no exchange 
possesses significant pricing power in the execution of order flow. 
Indeed, participants can readily choose to send their orders to other 
exchanges 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.'' 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.

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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 [email protected]. Please include 
File Number SR-CboeBZX-2023-031 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-2023-031. 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. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-CboeBZX-2023-031 and should be submitted 
on or before June 7, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10473 Filed 5-16-23; 8:45 am]
BILLING CODE 8011-01-P


