
[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Notices]
[Pages 64480-64482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20168]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98376; File No. CboeBZX-2023-065]


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

September 13, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 1, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' 
or ``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule, effective 
September 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (August 28, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's Fee Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides a rebate of 
$0.25 per contract for Customer orders that add liquidity in Penny 
Securities, yielding fee code PY. The Fee Codes and Associated Fees 
section of the Fees Schedule also provides for certain fee codes 
associated with certain order types and market participants that 
provide for various other fees or rebates.
    Currently, Customer orders in Penny Securities, excluding SPY, that 
remove liquidity are assessed a standard transaction fee of $0.48 per 
contract and yield fee code ``PC''. Customer SPY orders that remove 
liquidity are assessed a standard transaction fee of $0.45 per contract 
and yield fee code ``PR''.
    Currently, IWM Customer orders that remove liquidity yield fee code 
PC and are assessed $0.48 per contract. The Exchange proposes to reduce 
the fee assessed for IWM orders that remove liquidity to $0.45 per 
contract. The Exchange therefore proposes to amend current fee code PR 
to include Customer IWM orders that remove liquidity. The standard 
transaction fee assessed for orders that yield fee code PR remains the 
same under the proposed rule change (i.e., $0.45 per contract).
    The Exchange also proposes to amend the definition of fee code PC 
to clarify that such fee code (and corresponding transaction fee) 
applies to all customer orders in Penny securities that remove 
liquidity, except Customer orders in SPY and IWM.
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.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \5\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \6\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between

[[Page 64481]]

customers, issuers, brokers, or dealers. The Exchange also believes the 
proposed rule change is consistent with section 6(b)(4) of the Act,\7\ 
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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ Id.
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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.
    Additionally, the Exchange believes that the proposed amendment to 
reduce the transaction fee for Customer IWM orders that remove 
liquidity (and therefore apply fee code PR to include such orders) 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 the proposed change is reasonable as Members will pay lower 
fees for liquidity removing IWM Customer orders. The Exchange believes 
its proposed change is also reasonable as the proposed rate continues 
to be competitive and in line with IWM-specific pricing at other 
exchanges.\8\ The Exchange believes the proposed amendment will also 
encourage market participants to increase retail IWM 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 the proposed change will apply uniformly to all Customer IWM orders 
that remove liquidity.
---------------------------------------------------------------------------

    \8\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for fees ranging between $0.45 and 
$0.48 per contract for priority customer IWM orders that remove 
liquidity.
---------------------------------------------------------------------------

    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to adopt IWM-specific pricing as the Exchange 
already maintains product-specific pricing for other products, such as 
SPY. Additionally, as noted above, other exchanges similarly provide 
for IWM-specific pricing.\9\ The Exchange also believes that it is 
equitable and not unfairly discriminatory to assess a lower fee for 
Customer IWM 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.\10\
---------------------------------------------------------------------------

    \9\ Id.
    \10\ See BZX Options Fee Schedule, Fee Codes and Associated 
Fees; see also Cboe C2 Options Exchange Fees Schedule, Transaction 
Fees.
---------------------------------------------------------------------------

    Finally, the Exchange believes the change to the description of fee 
code PC is reasonable as such fee code does not currently apply to SPY 
Customer orders that remove liquidity, and as proposed will no longer 
apply to IWM Customer orders that remove liquidity. The Exchange 
believes explicitly referencing that SPY and IWM are excluded from fee 
code PC in the fee code description will reduce potential confusion and 
maintain clarity in the Fees Schedule.

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. The proposed change to reduce 
the transaction fee for Customer IWM orders that remove liquidity will 
apply to all Members. As discussed above, the Exchange believes the 
proposed change to reduce the transaction fee would attract additional 
IWM Customer orders that remove liquidity, 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 Securities and Exchange Commission's 
(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

[[Page 64482]]

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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-065 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-2023-065. 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 (https://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 
a.m. and 3 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-2023-065 and should 
be submitted on or before October 10, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20168 Filed 9-18-23; 8:45 am]
BILLING CODE 8011-01-P


