
[Federal Register Volume 88, Number 195 (Wednesday, October 11, 2023)]
[Notices]
[Pages 70428-70431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22437]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98684; File No. SR-CboeBZX-2023-075]


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

October 4, 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 29, 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 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 (1) discontinuing Step-
Up Tier 1; and (2) adopting a new Cross Asset Tier. The Exchange 
proposes to implement these changes effective October 2, 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 
14% 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. 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 $0.00160 per 
share for orders that add liquidity and assesses a fee of $0.0030 per 
share for orders that remove liquidity.\4\ For orders in securities 
priced below $1.00, the Exchange provides a standard rebate of $0.00009 
per share for orders that add liquidity and assesses a fee of 0.30% of 
the total dollar value for orders that remove liquidity.\5\ 
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. Equities Market Volume 
Summary, Month-to-Date (September 22, 2023), available at https://www.cboe.com/us/equities/_statistics/.
    \4\ See BZX Equities Fee Schedule, Standard Rates.
    \5\ Id.
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    Under footnote 2 of the Fee Schedule, the Exchange currently offers 
various Step-Up Tiers that provide enhanced rebates for orders yielding 
fee codes B,\6\ V \7\ and Y \8\ where a Member reaches certain add 
volume-based criteria, including ``growing'' its volume over a certain 
baseline month. The Exchange now proposes to discontinue Step-Up Tier 1 
as the Exchange no longer wishes to, nor is required to, maintain such 
tier. More specifically, the proposed change removes this tier as the 
Exchange would rather redirect future resources and funding into other 
programs and tiers intended to incentivize increased order flow.
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    \6\ Fee code B is appended to orders that add liquidity to BZX 
in Tape B securities.
    \7\ Fee code V is appended to orders that add liquidity to BZX 
in Tape A securities.
    \8\ Fee code Y is appended to orders that add liquidity to BZX 
in Tape C securities.
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    The Exchange also proposes to introduce a new Cross Asset Tier 
under footnote 2, which is designed to incentivize Members to achieve 
certain levels of participation on both the Exchange's equities and 
options platform (``BZX Options''). The proposed criteria is as 
follows:
     Cross Asset Tier 1 provides a rebate of $0.0033 per share 
for securities priced above $1.00 for qualifying orders (i.e., orders 
yielding fee codes B, V or Y) where (1) Member has a Step-Up ADAV \9\ 
from June 2023 >= 7,000,000; and (2) Member has a Customer ADAV \10\ on 
BZX Options >= 10,000.
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    \9\ Step-Up ADAV means ADAV in the relevant baseline month 
subtracted from current ADAV. ADAV means average daily volume 
calculated as the number of shares added per day. ADAV is calculated 
on a monthly basis.
    \10\ Customer ADAV means average daily volume calculated as the 
number of contracts added for the account of a Priority Customer as 
defined in BZX Rule 16.1. ADAV is calculated on a monthly basis. See 
BZX Options Fee Schedule, Definitions.
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    The proposed Cross Asset Tier is intended to provide an additional 
manner to incentive Members to add displayed liquidity on the Exchange 
while also increasing participation on BZX Options. The Exchange 
believes the addition of the Cross Asset Tier will incentivize Members 
to grow their volume on the Exchange, thereby contributing to a deeper 
and more liquid market, which benefits all market participants and 
provides greater execution opportunities on the Exchange.
    Additionally, the Exchange notes that the proposed Cross Asset Tier 
will

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expire no later than December 31, 2023, which the Exchange will 
indicate on the Exchange's fee schedule. Step-Up Tiers in general are 
designed to provide Members with additional opportunities to receive 
enhanced rebates by increasing their order flow to the Exchange, which 
further contributes to a deeper, more liquid market and provides even 
more execution opportunities for active market participants. Like other 
Step-Up Tiers on the Exchange,\11\ the proposed Cross Asset Tier is 
designed to give members an additional opportunity to receive an 
enhanced rebate for orders meeting the applicable criteria. Increased 
overall order flow benefits all Members by contributing towards a 
robust and well-balanced market ecosystem.
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    \11\ See BZX Equities Fee Schedule, Footnote 2, Step-Up Tiers.
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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 as well as section 6(b)(4) \15\ 
as it is designed to 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
    \15\ 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 Exchange believes that 
its proposal to introduce a Cross Asset Tier 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. Additionally, the 
Exchange notes that relative volume-based incentives and discounts have 
been widely adopted by exchanges,\16\ including the Exchange,\17\ 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. 
Competing equity exchanges offer similar tiered pricing structures, 
including schedules of rebates and fees that apply based upon members 
achieving certain volume and/or growth thresholds, as well as assess 
similar fees or rebates for similar types of orders, to that of the 
Exchange.\18\
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    \16\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
    \17\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \18\ See e.g., MIAX Pearl Options Fee Schedule, Transaction 
Rebates/Fees; The Nasdaq Options Market LLC (``NOM'') Pricing 
Schedule, Options 7, Section 2.
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    In particular, the Exchange believes its proposal to introduce a 
Cross Asset Tier is reasonable because the revised tier will be 
available to all Members and provide all Members with an additional 
opportunity to receive an enhanced rebate. The Exchange further 
believes the proposed Cross Asset Tier will provide a reasonable means 
to encourage liquidity adding displayed orders in Members' order flow 
to the Exchange and to incentivize Members to continue to provide 
liquidity adding volume to the Exchange by offering them an additional 
opportunity to receive an enhanced rebate on qualifying orders. An 
overall increase in activity would deepen the Exchange's liquidity 
pool, offers additional cost savings, support the quality of price 
discovery, promote market transparency and improve market quality, for 
all investors.
    The Exchange believes that the proposed Cross Asset Tier represents 
an equitable allocation of fees and rebates and is not unfairly 
discriminatory because all Members will be eligible for the proposed 
tier and have the opportunity to meet the tier's criteria and receive 
the corresponding enhanced rebate if such criteria is met. To the 
extent a Member participates on BZX Equities but not on BZX Options, 
the Exchange continues to believe that its proposal represents an 
equitable allocation of fees and rebates and is not unfairly 
discriminatory with respect to such Member based on the overall benefit 
to the Exchange resulting from the success of its options platform. 
Particularly, the Exchange believes that additional such success allows 
the Exchange to continue to provide and potentially expand its existing 
incentive programs to the benefit of all participants on the Exchange, 
regardless of whether they participate on BZX Options or not. Without 
having a view of activity on other markets and off-exchange venues, the 
Exchange has no way of knowing whether this proposed rule change would 
definitely result in any Members qualifying the new proposed tiers. 
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 that at least one Member will be able 
to satisfy the proposed criteria for the proposed Cross Asset Tier. The 
Exchange also notes that proposed changes will not adversely impact any 
Member's ability to qualify for enhanced rebates or reduced fees 
offered under other tiers. Should a Member not meet the proposed new 
criteria for the proposed Cross Asset Tier, the Member will merely not 
receive that corresponding enhanced rebate.
    Additionally, the Exchange believes that its proposal to eliminate 
Step-Up Tier 1 is reasonable because the Exchange is not required to 
maintain this tier or provide Members an opportunity to receive 
enhanced rebates. The Exchange believes the proposal to eliminate this 
tier is also equitable and not unfairly discriminatory because it 
applies to all Members (i.e., the tier will not be available for any 
Member). The Exchange also notes that the proposed rule change to 
remove this tier merely results in Members not receiving an enhanced 
rebate, which, as noted above, the Exchange is not required to offer or 
maintain. Furthermore, the proposed rule change to eliminate Step-Up 
Tier 1 enables the Exchange to redirect resources and funding into 
other programs and tiers intended to incentivize increased order flow.

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

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of the purposes of the Act. Rather, as discussed above, the Exchange 
believes that the proposed changes would encourage the submission of 
additional order flow to a public exchange, thereby promoting market 
depth, execution incentives and enhanced execution opportunities, as 
well as price discovery and transparency for all Members. As a result, 
the Exchange believes that the proposed changes further 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 believes the proposed rule changes do not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
Cross Asset Tier will apply to all Members equally in that all Members 
are eligible for the tier, have a reasonable opportunity to meet the 
tier's criteria and will receive the enhanced rebate on their 
qualifying orders if such criteria is met. The Exchange does not 
believe the proposed changes burden competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX by 
adopting pricing incentives in order to 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. Additionally, the 
Exchange believes that the proposed criteria based on total options 
volume applicable to BZX Options Priority Customers will provide an 
additional incentive to those Priority Customers to send additional 
orders to BZX Options, which in turn provides additional liquidity in 
the market. Greater overall order flow, trading opportunities, and 
pricing transparency benefits all market participants on the Exchange, 
as well as its affiliate options exchange, by enhancing market quality 
and continuing to encourage Members to send orders, thereby 
contributing towards a robust and well-balanced market ecosystem. The 
proposed change to discontinue Step-Up Tier 1 will not impose any 
burden on intramarket competition because the changes apply to all 
Members uniformly, as in, the tier will not longer be available to any 
Member.
    Next, the Exchange believes the proposed rule changes 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 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 14% of the market share.\19\ 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.'' \20\ 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' . . . .''.\21\ 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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    \19\ Supra note 3.
    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-075 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-2023-075. 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

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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-2023-075 and should be submitted on or before November 1, 
2023.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22437 Filed 10-10-23; 8:45 am]
BILLING CODE 8011-01-P


