Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amending its Fee Schedule Assessed on Members To Establish a Monthly Trading Rights Fee, 43633-43637 [2019-17984]
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Federal Register / Vol. 84, No. 162 / Wednesday, August 21, 2019 / Notices
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File No.
SR–NYSEAMER–2019–32, and should
be submitted on or before September 11,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–17990 Filed 8–20–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–86686; File No. SR–
CboeBZX–2019–072]
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August 15, 2019.
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 August 1,
2019, 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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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.
1. Purpose
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amending its Fee Schedule Assessed
on Members To Establish a Monthly
Trading Rights Fee
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX Equities’’)
proposes to amend its fee schedule
assessed on Members to establish a
monthly Trading Rights Fee. 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 (https://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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
11 17
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed rule
change is to establish a monthly Trading
Rights Fee under the ‘‘Membership
Fees’’ section of the fee schedule. The
Trading Rights Fee will be assessed on
Members that trade more than a
specified volume in U.S. equities, and
will assist in covering the cost of a wellregulated and maintained Exchange.
Self-regulation, with oversight by the
Commission, is a basic premise of the
Exchange Act.3 For example, Congress
recognized the regulatory role of
national securities exchanges in section
6 of the Exchange Act, requiring all
existing securities exchanges to register
with the Commission and to function as
self-regulatory organizations.4 The
Exchange remains committed to its
regulatory responsibilities under the
Exchange Act, and has devoted
significant resources to providing a fair,
orderly, and well-regulated market for
its members. The proposed Trading
3 See
Securities Exchange Act Release No. 58092
(July 3, 2008), 73 FR 40143 (July 11, 2008).
4 Id.
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Rights Fees will help fund a small
portion of the Exchange’s regulatory
efforts, and therefore facilitate effective
regulation of the U.S. equities markets,
consistent with the goals of Congress
and the Commission.
The proposed Trading Rights Fee
represents a modest charge to firms that
have chosen to become members of the
Exchange, and that therefore both
consume more regulatory resources, and
benefit from the Exchange’s regulatory
efforts by having access to a wellregulated market. Specifically, the
Exchange proposes to charge Member
firms a monthly Trading Rights Fee of
$500 per month for the ability to trade
on the Exchange. So as to continue to
encourage active participation on the
Exchange by smaller Members, the
Trading Rights Fee would not be
charged to Members with a monthly
ADV 5 of less than 100,000 shares.
Similarly, to continue to support
individual investor order flow on the
Exchange, the Trading Rights Fee would
not be charged to Members in which at
least 90% of their order volume on the
Exchange per month is retail order
volume. In addition to this, the
proposed fee will not be charged to new
Exchange Members for their first three
months of Membership. The Exchange
intends to implement the proposed fee
on August 1, 2019. The proposed fee
and waivers are described in detail
below.
Membership Fee per Month
As stated, the Exchange will apply a
$500 Trading Rights charge to Members
per month. The Exchange believes the
proposed Trading Rights Fee assessed
aligns with the benefit provided by
allowing Members to trade on an
efficient and well-regulated market. The
proposed Trading Rights Fee will fund
a portion of the costs incurred by the
Exchange in regulating and maintaining
its equities market. These costs incurred
by the Exchange are necessary to
maintain an efficient equities exchange,
as a well-regulated exchange is inherent
in the nature of all self-regulatory
organizations (‘‘SROs’’). Due to the
importance of effective regulation of the
securities markets, an efficient
regulatory division must be
appropriately funded at all times. In
particular, in order to successfully carry
out the purposes of the Act and
maintain fair, orderly, and efficient
markets, and the protection of investors,
SROs must invest in robust programs,
5 ‘‘ADV’’ means average daily volume calculated
as the number of shares added or removed,
combined, per day. ADV is calculated on a monthly
basis.
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policies, and procedures to enforce
member compliance with both the rules
of the exchange and federal securities
laws.6 In order to achieve this objective,
the Exchange continuously invests in
compliance, surveillance, technology,
resources, and staff necessary to build
and maintain such programs, policies,
and procedures, some of which must be
implemented in order to carry out
industry-wide plans adopted by the
Commission. For example, the
Exchange’s Regulatory Service
Agreement (‘‘RSA’’) costs alone, which
include funding for regulatory services
in connection with market and financial
surveillance, examinations,
investigations, and disciplinary
procedure, have increased 12.2% from
2016 to 2019. In addition to this, the
Exchange’s overall regulatory costs have
grown 64% from 2016 to 2019. These
costs have been incurred as a result of
the allocation of increased regulatory
resources and capabilities to implement
and conduct regular surveillance for
initiatives and programs such as
regulatory software and infrastructure,
alerts for various rules and initiatives,
new and continued product listings,
improvements to investigative
processes, and so on. Therefore, the
Exchange believes the proposed fee is
appropriate to cover a portion of costs
for the surveillance, technology, and
vast resources necessary to ensure that
the Exchange is effectively organized
and has the capacity to be able to carry
out the purposes of the Act.
The Exchange operates in a highlycompetitive 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 represents a
small percentage of the overall market,
and broker-dealers routinely choose
among a number of different venues to
execute their equity order flow. These
venues include thirteen 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 Exchange Act. Broker-dealers
are not compelled to be Members of the
Exchange, and a significant proportion
of broker-dealers that trade U.S. equity
securities have, in fact, chosen not to
apply for membership on the Exchange.
The Exchange currently has 158
registered members. By contrast, the
Nasdaq Stock Market LLC (‘‘Nasdaq’’)
has approximately 337 current
6 See
15 U.S.C. 78f(b).
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members,7 which is more than twice as
many as BZX. Indeed, broker-dealers
even choose between affiliated
exchanges in deciding where to become
a member. Of the Exchange’s affiliated
exchanges, Cboe EDGX Exchange, Inc.
(‘‘EDGX’’) currently has 135 members,
Cboe EDGA Exchange, Inc. (‘‘EDGA’’)
116 members, and Cboe BYX Exchange,
Inc. (‘‘BYX’’) 124 members. None of the
Exchange’s Members or members of any
of the affiliated exchanges are required
to hold memberships across the
affiliated exchanges. The same is true
for participation on the Exchange itself;
Membership is not a requirement to
participate on the Exchange. Indeed, a
number of firms, including larger firms
with significant daily trading volume,
currently participate on the Exchange
though sponsored access arrangements
rather than by becoming a member.
The cost of membership on the
Exchange, including the proposed
Trading Rights Fees, is significantly
lower than the cost of membership in a
number of other SROs.8 For example,
the Exchange’s proposed Trading Rights
Fee at $500 a month is substantially
lower than Nasdaq’s analogous fee,
which assesses a monthly Trading
Rights Fee of $1,250 per member. In
sum, the Exchange believes the fee is
priced appropriately as it is competitive
with other exchanges that offer
membership to their exchanges while
also helping to pay for the increased
cost of regulation.
New Member Waiver
As stated above, the proposed fee
would not apply to new Members for
their first three months of Exchange
Membership. The Exchange recognizes
that new Members provide new and
important sources of liquidity. As such,
the Exchange proposes that new
Exchange Members will not be charged
7 See NasdaqTrader.com Symbol Lookup (July 31,
2019), available at https://www.nasdaqtrader.com/
trader.aspx?id=symbollookup.
8 See Nasdaq Stock Market Equity Rules, Equity
7, Sec. 10(a) (assessing a trading rights fee of $1,250
per month per each member); New York Stock
Exchange Price List 2019, ‘‘Trading Licenses’’
(assessing an annual fee $50,000 for the first trading
license held by a member, to which the Exchange
notes that the Exchange assesses a $2,500 annual
fee for membership, and that this annual fee
coupled with 12 months of the proposed Trading
Rights Fees remains substantially lower than
NYSE’s annual trading license fee); see also
Securities Exchange Act Release No. 81133 (July 12,
2017), 82 FR 32904 (July 18, 2017) (The Nasdaq
Stock Market LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Increase
the Trading Rights Fee) (SR–NASDAQ–2017–065).
The Exchange notes that this Nasdaq filing supports
its implemented Trading Rights Fee without
explanation as to why an increase in funding was
necessary or as to specific items covered under the
broad umbrella of a well-regulated market.
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the proposed Trading Rights Fee for
their first three months of Membership.
The Exchange believes that the
proposed waiver will allow new firms
the flexibility in resources needed to
initially adjust to the Exchange’s
market-model and functionality. The
Exchange notes that for any month in
which a firm is approved for
Membership with the Exchange, the
monthly Trading Rights Fee will be prorated in accordance with the date on
which Membership is approved. For
example, if a firm’s Membership is
approved on August 15, 2019, then, as
proposed, it would not be charged for its
first three months of Membership. The
month of November would then be prorated and the Trading Rights Fee would
be assessed from November 15, 2019
through the end of the month. During
any month in which a firm terminates
Membership with the Exchange, the
monthly Trading Rights Fee will not be
pro-rated.
ADV Threshold Waiver
As stated above, the Exchange would
also waive the monthly Trading Rights
fee for Members with a monthly ADV 9
of less than 100,000 shares. The
proposed waiver is designed to reduce
the costs of smaller Members that
transact on the Exchange. Smaller
Members execute low volumes on the
Exchange, and, as a result, consume few
regulatory resources. In addition,
allowing smaller Members to trade on
the Exchange without incurring a
Trading Rights Fee may encourage
participation from such Members as
they grow their business, and thereby
contribute to a more diverse and
competitive market for equity securities
traded on the Exchange. The median
ADV per firm per month on the
Exchange is 475,591. Therefore, the
Exchange believes that ADV of 100,000
serves as an appropriate threshold to
capture firms that are truly smaller
volume firm outliers as compared to the
overall ADV across all firms.
Retail Order Threshold Waiver
Similar to that of the ADV threshold
waiver, the Exchange would waive the
monthly Trading Rights fee for Members
if at least 90% of their order volume on
the Exchange per month is Retail Order
volume. The Exchange believes that this
will serve to support individual investor
order flow on the Exchange by ensuring
that retail broker Members can continue
to submit orders for individual investors
9 ‘‘ADV’’ means average daily volume calculated
as the number of shares added or removed,
combined, per day. ADV is calculated on a monthly
basis.
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at a lower cost, thereby continuing to
encourage retail investor participation
on the Exchange. Like the small Member
waiver, the Exchange believes this will
contribute to a more diverse and
competitive market for equity securities
traded on the Exchange. Furthermore,
the Exchange notes that continued
liquidity in retail orders may incentivize
other Members to send order flow to the
Exchange to trade with such retail
orders. Also, retail participation is more
likely to reflect long-term investment
intentions, and may therefore positively
impact market quality. Retail order flow
is highly competitive across trading
venues, particularly as it relates to
exchange versus off-exchange venues as
many retail brokers route the majority of
their retail orders to off-exchange
venues. Accordingly, competitive forces
compel the Exchange to use incentives
to compete for retail order flow. The
Exchange believes that the proposed
90% retail order volume threshold will
capture broker-dealers that are primarily
in the business of handling orders on
behalf of retail investors rather than
larger broker-dealers that may route
retail orders on behalf of other brokerdealers but are also engaged in
significant other activity that is not
related to servicing retail investors. As
such, the Exchange believes that the
90% retail order volume threshold will
function to best capture those firms
whose overall business and trading
model focuses on the handling and
execution of orders for retail clients.
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.10 Specifically,
the Exchange 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. The
Exchange also believes that the
proposed rule change is consistent with
the objectives of Section 6(b)(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,
10 15
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
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and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest, and,
particularly, is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed Trading Rights Fee is
reasonable because the fee will assist in
funding the overall regulation and
maintenance of the Exchange. Effective
regulation is central to the proper
functioning of the securities markets.
Recognizing the importance of such
efforts, Congress decided to require
national securities exchanges to register
with the Commission as self-regulatory
organizations to carry out the purposes
of the Exchange Act. The Exchange
therefore believes that it is critical to
ensure that regulation is appropriately
funded. While the proposed Trading
Rights Fees are set at a modest level,
and will fund only a relatively small
portion of the Exchange’s total
regulatory costs, the Exchange believes
that such fees will contribute
appropriately to ensuring that adequate
resources are devoted to regulation, as
contemplated by Congress.
The proposed Trading Rights Fee is
reasonable because it represents a
modest charge to firms that have chosen
to become members of the Exchange,
and that therefore both consume more
regulatory resources, and benefit from
the Exchange’s regulatory efforts by
having access to a well-regulated
market. As stated, the Exchange will
apply a $500 Trading Rights charge to
Members per month. Allocating the
proposed Trading Rights Fee to fund a
portion of the cost incurred by the
Exchange in regulating and maintaining
its equities market is reasonable because
the costs incurred are necessary to
maintain an efficient and well-regulated
equities exchange. In order to
successfully carry out the purposes of
the Act and maintain fair, orderly, and
efficient markets, and the protection of
investors, the Exchange, like all SROs,
continuously invests in robust
programs, policies, and procedures to
enforce member compliance with both
the rules of the exchange and federal
securities laws.12 As discussed above,
from 2016 to 2019, the Exchange’s RSA
costs alone, which cover regulatory
services in connection with market and
financial surveillance, examinations,
investigations, and disciplinary
procedure, have increased 12.2%, while
the Exchange’s overall regulatory costs
12 See
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43635
have grown 64%. Such regulatory costs
have been incurred as a result of the
allocation of increased regulatory
resources and capabilities to implement
and conduct regular surveillance for
initiatives and programs such as
regulatory software and infrastructure,
alerts for various rules and initiatives,
new and continued product listings,
improvements to investigative
processes, and so on. It is reasonable to
apply the proposed fee to contribute to
a small portion of such costs that will
help to fund surveillance, technology,
and vast resources necessary to ensure
that the Exchange is so organized and
has the capacity to be able to carry out
the purposes of the Act
Additionally, the Exchange believes
the fee is reasonable because the cost of
this membership fee is generally less
than the analogous membership fees of
other markets. As indicated above, the
Exchange’s proposed Trading Rights Fee
at $500 a month is substantially lower
than Nasdaq’s analogous fee, which
assesses a monthly Trading Rights Fee
of $1,250 per member. Trading Rights
Fees, like those proposed here, are not
new in the equities markets. A number
of national securities exchanges
currently charge such fees to assist in
funding their regulatory efforts. The
Exchange believes that it is appropriate
to institute a similar fee to fund its
increasing regulatory costs.
The Exchange believes that not
charging its new Members the proposed
Trading Rights Fee for their first three
months of Membership is reasonable
because it provides an incentive for
firms and other participants that are not
currently Members of the Exchange to
apply for Membership and bring
additional liquidity to the market, thus
greater trading opportunities, to the
benefit of all market participants. The
proposed waiver is also reasonable
because it will allow new firms the
flexibility in resources needed to
initially adjust to the Exchange’s
market-model and functionality. The
Exchange believes that not charging a
Trading Rights Fee for new Members
will incentivize firms to become
Members of the Exchange. Furthermore,
creating incentives for new Exchange
Members protects investors and the
public interest by increasing the
competition and liquidity across the
Exchange.
Similarly, the Exchange believes that
not charging a Trading Rights Fee for
Members that trade less than a monthly
ADV of 100,000 shares is reasonable
because it ensures that smaller Members
who do not trade significant volume on
the Exchange can continue to trade on
the Exchange at a lower cost. Because
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smaller Members with lower volumes
executed on the Exchange consume
fewer regulatory resources the Exchange
believes it is reasonable to apply a
waiver to Members on the lower side of
the ADV scale for all firms. Moreover,
the Exchange believes that the proposed
threshold is reasonable because the
median ADV per firm per month on the
Exchange is 475,591, therefore, an ADV
threshold of 100,000 will serve as an
appropriate threshold to capture firms
which are true, smaller volume firm
outliers as compared to the overall ADV
across all firms.
The Exchange also believes that not
charging a Trading Rights Fee for
Members whose retail order volume
comprises 90% or more of their order
volume per month is reasonable because
it ensures retail broker Members can
continue to submit orders for individual
investors at a lower cost, thereby
continuing to encourage retail investor
participation on the Exchange.
Furthermore, encouraging continued
retail broker Members to trade on the
Exchange without incurring a Trading
Rights Fee may encourage additional
participation from such Members and
thereby contribute to a more diverse and
competitive market for equity securities
traded on the Exchange. Furthermore,
the Exchange notes that continued
liquidity in retail orders would
incentivize other Members to send order
flow to the Exchange to trade with such
retail orders; such increased liquidity
provides more trading opportunities to
the benefit of all market participants. In
addition to this, retail participation is
more likely to reflect long-term
investment intentions, and may
therefore positively impact market
quality, also to the benefit of all market
participants. In addition to this, the
Exchange believes that the 90% or more
retail order volume threshold is
reasonable because it will serve to
capture broker-dealers that are primarily
in the business of handling orders on
behalf of retail investors rather than
larger broker-dealers that may route
retail orders on behalf of other brokerdealers but are also engaged in
significant other activity that is not
related to servicing retail investors.
Therefore, the 90% retail order volume
threshold reasonably ensures that those
firms whose overall business and
trading model focuses on the handling
and execution of orders for retail clients,
are identified for the waiver to
appropriately apply.
The Exchange believes that the
proposed Trading Rights Fee is
equitable and is not unfairly
discriminatory because it will apply
equally to all Members with an ADV of
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100,000 shares or more traded per
month, all Members in which less than
90% of their order volume is comprised
of retail order volume per month,13 and
all Members that are not within their
first three months of new Membership
on the Exchange. As proposed, all
members that do not qualify for a waiver
would be charged the same, modest fee
for their membership. The proposed fee
is therefore charged on an equal and
non-discriminatory basis for all such
members. At the same time, the
Exchange believes that it is important to
continue to encourage participation
from firms that represent ordinary
investors, that have more limited
trading activity, or that are new
members.
Specifically, the Exchange believes
that not charging the Trading Rights Fee
for Members that do not meet the ADV
threshold in a month is equitable and
not unfairly discriminatory because it
will apply equally to all such firms that
meet this criteria and it considers the
fact that smaller firms with significantly
lower volume than most firms consume
less regulatory resources, therefore, it
ensures that disparate treatment does
not exist for firms that are much smaller
than the average firm on the Exchange.
The Exchange believes that not charging
the Trading Rights Fee for Members that
do not meet the 90% retail order volume
threshold is equitable and not unfairly
discriminatory because it will apply
equally to all such firms that meet this
criteria. The waiver is equitable as it
will encourage continued retail
participation and liquidity on the
Exchange which is more likely to reflect
long-term investment intentions, and
may therefore positively impact market
quality, as well as incentivize other
Members to send order flow to the
Exchange to trade with such retail
orders, which benefits all market
participants by providing more trading
opportunities. Finally, the Exchange
believes that not charging a Trading
Rights Fee for a new Member for the
first three months of Membership is
equitable and not unfairly
discriminatory because the proposed
waiver will be offered to all market
participants that wish to become
Members of the Exchange and is
equitable because it will allow new
firms the flexibility in resources needed
to initially adjust to the Exchange’s
market-model and functionality. In
addition to this, the proposed waiver
13 A Member will not be charged if it meets either
one (or both) of the exceptions. To illustrate, if a
Member executes 5% of its total order volume as
retail order volume but only has an ADV of 90,000
shares traded, that Member will not be charged the
proposed Trading Rights Fee.
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intends to incentivize new Membership
which will bring increased liquidity and
competition to the benefit of all market
participants.
The Exchange also notes that the
proposed fee is equitable and not
unfairly discriminatory because it will
contribute to a portion of the costs
incurred by the Exchange in providing
its Members with an efficient and wellregulated market, which benefits all
Members. As stated, as an SRO, it is
necessary for the Exchange to
continuously invest in robust programs,
policies, and procedures to ensure its
markets are well-regulated in order to
successfully carry out the purposes of
the Act and maintain fair, orderly, and
efficient markets, and the protection of
investors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary in furtherance of
the purposes of the Act because the
proposed rule change will apply equally
to all Members that reach an ADV of
100,000 shares traded or greater, those
in which less than 90% of their order
volume is retail order volume per
month, and those that are not within
their first three months of new
Membership on the Exchange. Although
smaller Members would be excluded
from the proposed fee, the Exchange
believes that this may increase
competition by encouraging additional
order flow from such smaller Members
thereby contributing to a more diverse,
vibrant, and competitive market. In
addition to this, though true retail firms
would be excluded from the proposed
fee, the Exchange believes that
encouraging retail order flow to the
Exchange will benefit all market
participants by providing more trading
opportunities and encouraging other
Members to send orders which will
contribute to more robust levels of
liquidity. While the proposed tier is
only available for Retail Orders, the
Exchange notes it is attempting to
increase retail participation and that, as
noted above, retail participation is more
likely to reflect long-term investment
intentions, and may therefore positively
impact market quality. Finally, while
the proposed three month waiver of the
Trading Rights Fee only applies to new
Members, this incentivizes new
Members which can be an important
source of liquidity and facilitate
competition within the market.
Next, the Exchange believes the
proposed rule change does not impose
any burden on intermarket competition
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Federal Register / Vol. 84, No. 162 / Wednesday, August 21, 2019 / Notices
jspears on DSK3GMQ082PROD with NOTICES
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,
including competition for exchange
memberships. Members have numerous
alternative venues that they may
participate on, including 12 other
equities exchanges, as well as offexchange venues, including over 50
alternative trading systems.14 The
Exchange represents a small percentage
of the overall market. Based on publicly
available information, no single equities
exchange has more than 20% market
share, and no exchange group has more
than 22% market share.15 Indeed, while
trade through and best execution
obligations may require a firm to access
the Exchange, no firm is compelled to
be a Member of the Exchange in order
to participate in the Exchange and may
freely choose to participate on the
Exchange without holding a
Membership. If the proposed fee is
unattractive to members, it is likely that
the Exchange will lose membership and
market share as a result. As a result, the
Exchange carefully considers any
increases to its fees in concert,
balancing the utility in remaining
competitive with other exchanges and
with alternative trading systems
exempted from compliance with the
statutory standards applicable to
exchanges, including the requirement to
regulate their members, and in covering
costs described in the filing that are
associated with maintaining its equities
market and its regulatory programs to
ensure that the Exchange remains an
efficient and well-regulated
marketplace. In addition to this the
Exchange notes that other exchanges
currently have trading rights fees in
place,16 which have been previously
filed with the Commission.
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
14 See U.S. Securities and Exchange Commission
Alternative Trading Systems (‘‘ATS’’) List (June 30,
2019), available at https://www.sec.gov/foia/docs/
atslist.htm.
15 See Cboe Global Markets U.S. Equities Market
Volume Summary (July 31, 2019), available at
https://markets.cboe.com/us/equities/market_share.
16 See supra note 5.
VerDate Sep<11>2014
18:13 Aug 20, 2019
Jkt 247001
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 brokerdealers 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 17 and paragraph (f) of Rule
19b–4 18 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.
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 rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–072 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–2019–072. 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2019–072 and
should be submitted on or before
September 11, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–17984 Filed 8–20–19; 8:45 am]
BILLING CODE 8011–01–P
17 15
18 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 84, Number 162 (Wednesday, August 21, 2019)]
[Notices]
[Pages 43633-43637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86686; File No. SR-CboeBZX-2019-072]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amending its Fee Schedule Assessed on Members To Establish a Monthly
Trading Rights Fee
August 15, 2019.
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 August 1, 2019, 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.
---------------------------------------------------------------------------
\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 Equities'')
proposes to amend its fee schedule assessed on Members to establish a
monthly Trading Rights Fee. 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 (https://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 purpose of the proposed rule change is to establish a monthly
Trading Rights Fee under the ``Membership Fees'' section of the fee
schedule. The Trading Rights Fee will be assessed on Members that trade
more than a specified volume in U.S. equities, and will assist in
covering the cost of a well-regulated and maintained Exchange. Self-
regulation, with oversight by the Commission, is a basic premise of the
Exchange Act.\3\ For example, Congress recognized the regulatory role
of national securities exchanges in section 6 of the Exchange Act,
requiring all existing securities exchanges to register with the
Commission and to function as self-regulatory organizations.\4\ The
Exchange remains committed to its regulatory responsibilities under the
Exchange Act, and has devoted significant resources to providing a
fair, orderly, and well-regulated market for its members. The proposed
Trading Rights Fees will help fund a small portion of the Exchange's
regulatory efforts, and therefore facilitate effective regulation of
the U.S. equities markets, consistent with the goals of Congress and
the Commission.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 58092 (July 3,
2008), 73 FR 40143 (July 11, 2008).
\4\ Id.
---------------------------------------------------------------------------
The proposed Trading Rights Fee represents a modest charge to firms
that have chosen to become members of the Exchange, and that therefore
both consume more regulatory resources, and benefit from the Exchange's
regulatory efforts by having access to a well-regulated market.
Specifically, the Exchange proposes to charge Member firms a monthly
Trading Rights Fee of $500 per month for the ability to trade on the
Exchange. So as to continue to encourage active participation on the
Exchange by smaller Members, the Trading Rights Fee would not be
charged to Members with a monthly ADV \5\ of less than 100,000 shares.
Similarly, to continue to support individual investor order flow on the
Exchange, the Trading Rights Fee would not be charged to Members in
which at least 90% of their order volume on the Exchange per month is
retail order volume. In addition to this, the proposed fee will not be
charged to new Exchange Members for their first three months of
Membership. The Exchange intends to implement the proposed fee on
August 1, 2019. The proposed fee and waivers are described in detail
below.
---------------------------------------------------------------------------
\5\ ``ADV'' means average daily volume calculated as the number
of shares added or removed, combined, per day. ADV is calculated on
a monthly basis.
---------------------------------------------------------------------------
Membership Fee per Month
As stated, the Exchange will apply a $500 Trading Rights charge to
Members per month. The Exchange believes the proposed Trading Rights
Fee assessed aligns with the benefit provided by allowing Members to
trade on an efficient and well-regulated market. The proposed Trading
Rights Fee will fund a portion of the costs incurred by the Exchange in
regulating and maintaining its equities market. These costs incurred by
the Exchange are necessary to maintain an efficient equities exchange,
as a well-regulated exchange is inherent in the nature of all self-
regulatory organizations (``SROs''). Due to the importance of effective
regulation of the securities markets, an efficient regulatory division
must be appropriately funded at all times. In particular, in order to
successfully carry out the purposes of the Act and maintain fair,
orderly, and efficient markets, and the protection of investors, SROs
must invest in robust programs,
[[Page 43634]]
policies, and procedures to enforce member compliance with both the
rules of the exchange and federal securities laws.\6\ In order to
achieve this objective, the Exchange continuously invests in
compliance, surveillance, technology, resources, and staff necessary to
build and maintain such programs, policies, and procedures, some of
which must be implemented in order to carry out industry-wide plans
adopted by the Commission. For example, the Exchange's Regulatory
Service Agreement (``RSA'') costs alone, which include funding for
regulatory services in connection with market and financial
surveillance, examinations, investigations, and disciplinary procedure,
have increased 12.2% from 2016 to 2019. In addition to this, the
Exchange's overall regulatory costs have grown 64% from 2016 to 2019.
These costs have been incurred as a result of the allocation of
increased regulatory resources and capabilities to implement and
conduct regular surveillance for initiatives and programs such as
regulatory software and infrastructure, alerts for various rules and
initiatives, new and continued product listings, improvements to
investigative processes, and so on. Therefore, the Exchange believes
the proposed fee is appropriate to cover a portion of costs for the
surveillance, technology, and vast resources necessary to ensure that
the Exchange is effectively organized and has the capacity to be able
to carry out the purposes of the Act.
---------------------------------------------------------------------------
\6\ See 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
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 represents a small
percentage of the overall market, and broker-dealers routinely choose
among a number of different venues to execute their equity order flow.
These venues include thirteen 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
Exchange Act. Broker-dealers are not compelled to be Members of the
Exchange, and a significant proportion of broker-dealers that trade
U.S. equity securities have, in fact, chosen not to apply for
membership on the Exchange. The Exchange currently has 158 registered
members. By contrast, the Nasdaq Stock Market LLC (``Nasdaq'') has
approximately 337 current members,\7\ which is more than twice as many
as BZX. Indeed, broker-dealers even choose between affiliated exchanges
in deciding where to become a member. Of the Exchange's affiliated
exchanges, Cboe EDGX Exchange, Inc. (``EDGX'') currently has 135
members, Cboe EDGA Exchange, Inc. (``EDGA'') 116 members, and Cboe BYX
Exchange, Inc. (``BYX'') 124 members. None of the Exchange's Members or
members of any of the affiliated exchanges are required to hold
memberships across the affiliated exchanges. The same is true for
participation on the Exchange itself; Membership is not a requirement
to participate on the Exchange. Indeed, a number of firms, including
larger firms with significant daily trading volume, currently
participate on the Exchange though sponsored access arrangements rather
than by becoming a member.
---------------------------------------------------------------------------
\7\ See NasdaqTrader.com Symbol Lookup (July 31, 2019),
available at https://www.nasdaqtrader.com/trader.aspx?id=symbollookup.
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The cost of membership on the Exchange, including the proposed
Trading Rights Fees, is significantly lower than the cost of membership
in a number of other SROs.\8\ For example, the Exchange's proposed
Trading Rights Fee at $500 a month is substantially lower than Nasdaq's
analogous fee, which assesses a monthly Trading Rights Fee of $1,250
per member. In sum, the Exchange believes the fee is priced
appropriately as it is competitive with other exchanges that offer
membership to their exchanges while also helping to pay for the
increased cost of regulation.
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\8\ See Nasdaq Stock Market Equity Rules, Equity 7, Sec. 10(a)
(assessing a trading rights fee of $1,250 per month per each
member); New York Stock Exchange Price List 2019, ``Trading
Licenses'' (assessing an annual fee $50,000 for the first trading
license held by a member, to which the Exchange notes that the
Exchange assesses a $2,500 annual fee for membership, and that this
annual fee coupled with 12 months of the proposed Trading Rights
Fees remains substantially lower than NYSE's annual trading license
fee); see also Securities Exchange Act Release No. 81133 (July 12,
2017), 82 FR 32904 (July 18, 2017) (The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
To Increase the Trading Rights Fee) (SR-NASDAQ-2017-065). The
Exchange notes that this Nasdaq filing supports its implemented
Trading Rights Fee without explanation as to why an increase in
funding was necessary or as to specific items covered under the
broad umbrella of a well-regulated market.
---------------------------------------------------------------------------
New Member Waiver
As stated above, the proposed fee would not apply to new Members
for their first three months of Exchange Membership. The Exchange
recognizes that new Members provide new and important sources of
liquidity. As such, the Exchange proposes that new Exchange Members
will not be charged the proposed Trading Rights Fee for their first
three months of Membership. The Exchange believes that the proposed
waiver will allow new firms the flexibility in resources needed to
initially adjust to the Exchange's market-model and functionality. The
Exchange notes that for any month in which a firm is approved for
Membership with the Exchange, the monthly Trading Rights Fee will be
pro-rated in accordance with the date on which Membership is approved.
For example, if a firm's Membership is approved on August 15, 2019,
then, as proposed, it would not be charged for its first three months
of Membership. The month of November would then be pro-rated and the
Trading Rights Fee would be assessed from November 15, 2019 through the
end of the month. During any month in which a firm terminates
Membership with the Exchange, the monthly Trading Rights Fee will not
be pro-rated.
ADV Threshold Waiver
As stated above, the Exchange would also waive the monthly Trading
Rights fee for Members with a monthly ADV \9\ of less than 100,000
shares. The proposed waiver is designed to reduce the costs of smaller
Members that transact on the Exchange. Smaller Members execute low
volumes on the Exchange, and, as a result, consume few regulatory
resources. In addition, allowing smaller Members to trade on the
Exchange without incurring a Trading Rights Fee may encourage
participation from such Members as they grow their business, and
thereby contribute to a more diverse and competitive market for equity
securities traded on the Exchange. The median ADV per firm per month on
the Exchange is 475,591. Therefore, the Exchange believes that ADV of
100,000 serves as an appropriate threshold to capture firms that are
truly smaller volume firm outliers as compared to the overall ADV
across all firms.
---------------------------------------------------------------------------
\9\ ``ADV'' means average daily volume calculated as the number
of shares added or removed, combined, per day. ADV is calculated on
a monthly basis.
---------------------------------------------------------------------------
Retail Order Threshold Waiver
Similar to that of the ADV threshold waiver, the Exchange would
waive the monthly Trading Rights fee for Members if at least 90% of
their order volume on the Exchange per month is Retail Order volume.
The Exchange believes that this will serve to support individual
investor order flow on the Exchange by ensuring that retail broker
Members can continue to submit orders for individual investors
[[Page 43635]]
at a lower cost, thereby continuing to encourage retail investor
participation on the Exchange. Like the small Member waiver, the
Exchange believes this will contribute to a more diverse and
competitive market for equity securities traded on the Exchange.
Furthermore, the Exchange notes that continued liquidity in retail
orders may incentivize other Members to send order flow to the Exchange
to trade with such retail orders. Also, retail participation is more
likely to reflect long-term investment intentions, and may therefore
positively impact market quality. Retail order flow is highly
competitive across trading venues, particularly as it relates to
exchange versus off-exchange venues as many retail brokers route the
majority of their retail orders to off-exchange venues. Accordingly,
competitive forces compel the Exchange to use incentives to compete for
retail order flow. The Exchange believes that the proposed 90% retail
order volume threshold will capture broker-dealers that are primarily
in the business of handling orders on behalf of retail investors rather
than larger broker-dealers that may route retail orders on behalf of
other broker-dealers but are also engaged in significant other activity
that is not related to servicing retail investors. As such, the
Exchange believes that the 90% retail order volume threshold will
function to best capture those firms whose overall business and trading
model focuses on the handling and execution of orders for retail
clients.
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.\10\ Specifically, the
Exchange 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. The Exchange
also believes that the proposed rule change is consistent with the
objectives of Section 6(b)(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,
and, particularly, is not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed Trading
Rights Fee is reasonable because the fee will assist in funding the
overall regulation and maintenance of the Exchange. Effective
regulation is central to the proper functioning of the securities
markets. Recognizing the importance of such efforts, Congress decided
to require national securities exchanges to register with the
Commission as self-regulatory organizations to carry out the purposes
of the Exchange Act. The Exchange therefore believes that it is
critical to ensure that regulation is appropriately funded. While the
proposed Trading Rights Fees are set at a modest level, and will fund
only a relatively small portion of the Exchange's total regulatory
costs, the Exchange believes that such fees will contribute
appropriately to ensuring that adequate resources are devoted to
regulation, as contemplated by Congress.
The proposed Trading Rights Fee is reasonable because it represents
a modest charge to firms that have chosen to become members of the
Exchange, and that therefore both consume more regulatory resources,
and benefit from the Exchange's regulatory efforts by having access to
a well-regulated market. As stated, the Exchange will apply a $500
Trading Rights charge to Members per month. Allocating the proposed
Trading Rights Fee to fund a portion of the cost incurred by the
Exchange in regulating and maintaining its equities market is
reasonable because the costs incurred are necessary to maintain an
efficient and well-regulated equities exchange. In order to
successfully carry out the purposes of the Act and maintain fair,
orderly, and efficient markets, and the protection of investors, the
Exchange, like all SROs, continuously invests in robust programs,
policies, and procedures to enforce member compliance with both the
rules of the exchange and federal securities laws.\12\ As discussed
above, from 2016 to 2019, the Exchange's RSA costs alone, which cover
regulatory services in connection with market and financial
surveillance, examinations, investigations, and disciplinary procedure,
have increased 12.2%, while the Exchange's overall regulatory costs
have grown 64%. Such regulatory costs have been incurred as a result of
the allocation of increased regulatory resources and capabilities to
implement and conduct regular surveillance for initiatives and programs
such as regulatory software and infrastructure, alerts for various
rules and initiatives, new and continued product listings, improvements
to investigative processes, and so on. It is reasonable to apply the
proposed fee to contribute to a small portion of such costs that will
help to fund surveillance, technology, and vast resources necessary to
ensure that the Exchange is so organized and has the capacity to be
able to carry out the purposes of the Act
---------------------------------------------------------------------------
\12\ See 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
Additionally, the Exchange believes the fee is reasonable because
the cost of this membership fee is generally less than the analogous
membership fees of other markets. As indicated above, the Exchange's
proposed Trading Rights Fee at $500 a month is substantially lower than
Nasdaq's analogous fee, which assesses a monthly Trading Rights Fee of
$1,250 per member. Trading Rights Fees, like those proposed here, are
not new in the equities markets. A number of national securities
exchanges currently charge such fees to assist in funding their
regulatory efforts. The Exchange believes that it is appropriate to
institute a similar fee to fund its increasing regulatory costs.
The Exchange believes that not charging its new Members the
proposed Trading Rights Fee for their first three months of Membership
is reasonable because it provides an incentive for firms and other
participants that are not currently Members of the Exchange to apply
for Membership and bring additional liquidity to the market, thus
greater trading opportunities, to the benefit of all market
participants. The proposed waiver is also reasonable because it will
allow new firms the flexibility in resources needed to initially adjust
to the Exchange's market-model and functionality. The Exchange believes
that not charging a Trading Rights Fee for new Members will incentivize
firms to become Members of the Exchange. Furthermore, creating
incentives for new Exchange Members protects investors and the public
interest by increasing the competition and liquidity across the
Exchange.
Similarly, the Exchange believes that not charging a Trading Rights
Fee for Members that trade less than a monthly ADV of 100,000 shares is
reasonable because it ensures that smaller Members who do not trade
significant volume on the Exchange can continue to trade on the
Exchange at a lower cost. Because
[[Page 43636]]
smaller Members with lower volumes executed on the Exchange consume
fewer regulatory resources the Exchange believes it is reasonable to
apply a waiver to Members on the lower side of the ADV scale for all
firms. Moreover, the Exchange believes that the proposed threshold is
reasonable because the median ADV per firm per month on the Exchange is
475,591, therefore, an ADV threshold of 100,000 will serve as an
appropriate threshold to capture firms which are true, smaller volume
firm outliers as compared to the overall ADV across all firms.
The Exchange also believes that not charging a Trading Rights Fee
for Members whose retail order volume comprises 90% or more of their
order volume per month is reasonable because it ensures retail broker
Members can continue to submit orders for individual investors at a
lower cost, thereby continuing to encourage retail investor
participation on the Exchange. Furthermore, encouraging continued
retail broker Members to trade on the Exchange without incurring a
Trading Rights Fee may encourage additional participation from such
Members and thereby contribute to a more diverse and competitive market
for equity securities traded on the Exchange. Furthermore, the Exchange
notes that continued liquidity in retail orders would incentivize other
Members to send order flow to the Exchange to trade with such retail
orders; such increased liquidity provides more trading opportunities to
the benefit of all market participants. In addition to this, retail
participation is more likely to reflect long-term investment
intentions, and may therefore positively impact market quality, also to
the benefit of all market participants. In addition to this, the
Exchange believes that the 90% or more retail order volume threshold is
reasonable because it will serve to capture broker-dealers that are
primarily in the business of handling orders on behalf of retail
investors rather than larger broker-dealers that may route retail
orders on behalf of other broker-dealers but are also engaged in
significant other activity that is not related to servicing retail
investors. Therefore, the 90% retail order volume threshold reasonably
ensures that those firms whose overall business and trading model
focuses on the handling and execution of orders for retail clients, are
identified for the waiver to appropriately apply.
The Exchange believes that the proposed Trading Rights Fee is
equitable and is not unfairly discriminatory because it will apply
equally to all Members with an ADV of 100,000 shares or more traded per
month, all Members in which less than 90% of their order volume is
comprised of retail order volume per month,\13\ and all Members that
are not within their first three months of new Membership on the
Exchange. As proposed, all members that do not qualify for a waiver
would be charged the same, modest fee for their membership. The
proposed fee is therefore charged on an equal and non-discriminatory
basis for all such members. At the same time, the Exchange believes
that it is important to continue to encourage participation from firms
that represent ordinary investors, that have more limited trading
activity, or that are new members.
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\13\ A Member will not be charged if it meets either one (or
both) of the exceptions. To illustrate, if a Member executes 5% of
its total order volume as retail order volume but only has an ADV of
90,000 shares traded, that Member will not be charged the proposed
Trading Rights Fee.
---------------------------------------------------------------------------
Specifically, the Exchange believes that not charging the Trading
Rights Fee for Members that do not meet the ADV threshold in a month is
equitable and not unfairly discriminatory because it will apply equally
to all such firms that meet this criteria and it considers the fact
that smaller firms with significantly lower volume than most firms
consume less regulatory resources, therefore, it ensures that disparate
treatment does not exist for firms that are much smaller than the
average firm on the Exchange. The Exchange believes that not charging
the Trading Rights Fee for Members that do not meet the 90% retail
order volume threshold is equitable and not unfairly discriminatory
because it will apply equally to all such firms that meet this
criteria. The waiver is equitable as it will encourage continued retail
participation and liquidity on the Exchange which is more likely to
reflect long-term investment intentions, and may therefore positively
impact market quality, as well as incentivize other Members to send
order flow to the Exchange to trade with such retail orders, which
benefits all market participants by providing more trading
opportunities. Finally, the Exchange believes that not charging a
Trading Rights Fee for a new Member for the first three months of
Membership is equitable and not unfairly discriminatory because the
proposed waiver will be offered to all market participants that wish to
become Members of the Exchange and is equitable because it will allow
new firms the flexibility in resources needed to initially adjust to
the Exchange's market-model and functionality. In addition to this, the
proposed waiver intends to incentivize new Membership which will bring
increased liquidity and competition to the benefit of all market
participants.
The Exchange also notes that the proposed fee is equitable and not
unfairly discriminatory because it will contribute to a portion of the
costs incurred by the Exchange in providing its Members with an
efficient and well-regulated market, which benefits all Members. As
stated, as an SRO, it is necessary for the Exchange to continuously
invest in robust programs, policies, and procedures to ensure its
markets are well-regulated in order to successfully carry out the
purposes of the Act and maintain fair, orderly, and efficient markets,
and the protection of investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary in
furtherance of the purposes of the Act because the proposed rule change
will apply equally to all Members that reach an ADV of 100,000 shares
traded or greater, those in which less than 90% of their order volume
is retail order volume per month, and those that are not within their
first three months of new Membership on the Exchange. Although smaller
Members would be excluded from the proposed fee, the Exchange believes
that this may increase competition by encouraging additional order flow
from such smaller Members thereby contributing to a more diverse,
vibrant, and competitive market. In addition to this, though true
retail firms would be excluded from the proposed fee, the Exchange
believes that encouraging retail order flow to the Exchange will
benefit all market participants by providing more trading opportunities
and encouraging other Members to send orders which will contribute to
more robust levels of liquidity. While the proposed tier is only
available for Retail Orders, the Exchange notes it is attempting to
increase retail participation and that, as noted above, retail
participation is more likely to reflect long-term investment
intentions, and may therefore positively impact market quality.
Finally, while the proposed three month waiver of the Trading Rights
Fee only applies to new Members, this incentivizes new Members which
can be an important source of liquidity and facilitate competition
within the market.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition
[[Page 43637]]
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, including competition for exchange memberships.
Members have numerous alternative venues that they may participate on,
including 12 other equities exchanges, as well as off-exchange venues,
including over 50 alternative trading systems.\14\ The Exchange
represents a small percentage of the overall market. Based on publicly
available information, no single equities exchange has more than 20%
market share, and no exchange group has more than 22% market share.\15\
Indeed, while trade through and best execution obligations may require
a firm to access the Exchange, no firm is compelled to be a Member of
the Exchange in order to participate in the Exchange and may freely
choose to participate on the Exchange without holding a Membership. If
the proposed fee is unattractive to members, it is likely that the
Exchange will lose membership and market share as a result. As a
result, the Exchange carefully considers any increases to its fees in
concert, balancing the utility in remaining competitive with other
exchanges and with alternative trading systems exempted from compliance
with the statutory standards applicable to exchanges, including the
requirement to regulate their members, and in covering costs described
in the filing that are associated with maintaining its equities market
and its regulatory programs to ensure that the Exchange remains an
efficient and well-regulated marketplace. In addition to this the
Exchange notes that other exchanges currently have trading rights fees
in place,\16\ which have been previously filed with the Commission.
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\14\ See U.S. Securities and Exchange Commission Alternative
Trading Systems (``ATS'') List (June 30, 2019), available at https://www.sec.gov/foia/docs/atslist.htm.
\15\ See Cboe Global Markets U.S. Equities Market Volume Summary
(July 31, 2019), available at https://markets.cboe.com/us/equities/market_share.
\16\ See supra note 5.
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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 \17\ and paragraph (f) of Rule 19b-4 \18\
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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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-2019-072 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-2019-072. 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2019-072 and should be submitted
on or before September 11, 2019.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17984 Filed 8-20-19; 8:45 am]
BILLING CODE 8011-01-P
