Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Introduce a Small Retail Broker Distribution Program, 56210-56215 [2019-22831]
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Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87305; File No. SR–
CboeBYX–2019–015]
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Introduce a
Small Retail Broker Distribution
Program
October 15, 2019.
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 October
1, 2019, Cboe BYX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BYX’’) 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.
Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BYX Exchange, Inc. (‘‘BYX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to introduce a Small Retail
Broker Distribution Program. The text of
the proposed changes to the fee
schedule are enclosed as Exhibit 5. [sic]
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/byx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
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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 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Purpose
The purpose of the proposed rule
change is to introduce a pricing program
that would allow small retail brokers
that purchase top of book market data
from the Exchange to benefit from
discounted fees for access to such
market data. The Small Retail Broker
Distribution Program (the ‘‘Program’’)
would reduce the distribution and
consolidation fees paid by small brokerdealers that operate a retail business. In
turn, the Program may increase retail
investor access to real-time U.S. equity
quote and trade information, and allow
the Exchange to better compete for this
business with competitors that offer
similar optional products. The Exchange
initially filed to introduce the Program
on August 1, 2019 (‘‘Initial Proposal’’) to
further ensure that retail investors
served by smaller firms have cost
effective access to its market data
products, and as part of its ongoing
efforts to improve the retail investor
experience in the public markets. The
Initial Proposal was published in the
Federal Register on August 20, 2019,3
and the Commission received no
commenter letters on the proposal. The
Program remained in effect until the fee
change was temporarily suspended
pursuant to a suspension order (the
‘‘Suspension Order’’).4 The Suspension
Order also instituted proceedings to
determine whether to approve or
disapprove the Initial Proposal.5
Current Fees
Today, the Exchange offers two top of
book data feeds that provide real-time
U.S. equity quote and trade information
to investors. First, the Exchange offers
the BYX Top Feed, which is an
uncompressed data feed that offers top
of book quotations and execution
information based on equity orders
entered into the System. The fee for
external distribution of BYX Top data is
$1,000 per month, and external
distributors are also liable for a fee of $1
per month for each Professional User,
and $0.025 per month for each NonProfessional User.
Second, the Exchange offers the Cboe
One Summary Feed, which offers
similar information based on equity
3 See Securities Exchange Act Release No. 86670
(August 14, 2019), 84 FR 43207 (August 20, 2019)
(SR–CboeBYX–2019–012).
4 See Securities Exchange Act Release No. 87166
(September 30, 2019) (SR–CboeBYX–2019–012)
(Federal Register publication pending).
5 Id.
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orders submitted to the Exchange and
its affiliated equities exchanges—i.e.,
Cboe BZX Exchange, Inc., Cboe EDGX
Exchange, Inc., and Cboe EDGA
Exchange, Inc. Specifically, the Cboe
One Summary Feed is a data feed that
contains the aggregate best bid and offer
of all displayed orders for securities
traded on the Exchange and its affiliated
exchanges. The Cboe One Summary
Feed also contains the individual last
sale information for the Exchange and
each of its affiliated exchanges, and
consolidated volume for all listed equity
securities. The fee for external
distribution of the Cboe One Summary
Feed is $5,000 per month, and external
distributors are also liable for a Data
Consolidation Fee of $1,000 per month,
and User fees equal to $10 per month for
each Professional User, and $0.25 per
month for each Non-Professional User.6
Small Retail Broker Eligibility
Requirements
The Exchange proposes to introduce a
Program that would reduce costs for
small retail brokers that provide top of
book data to their clients. In order to be
approved for the Small Retail Broker
Distribution Program, Distributors
would have to provide either the BYX
Top Feed or Cboe One Summary Feed
(‘‘BYX Equities Exchange Data’’) to a
limited number of clients with which
the firm has established a brokerage
relationship, and would have to provide
such data primarily to Non-Professional
Data Users. Specifically, distributors
would have to attest that they meet the
following criteria: (1) Distributor is a
broker-dealer distributing BYX Equities
Exchange Data to Non-Professional Data
Users with whom the broker-dealer has
a brokerage relationship; (2) More than
50% of the Distributor’s total Data User
population must consist of NonProfessional Data Users, inclusive of
those not receiving BYX Equities
Exchange Data; and (3) Distributor
distributes BYX Equities Exchange Data
to no more than 5,000 Non-Professional
Data Users.7
6 The Exchange also offers an Enterprise license
for the BYX Top and Cboe One Summary Feeds. An
Enterprise license permits distribution to an
unlimited number of Professional and NonProfessional Users, keeping costs down for firms
that provide access to a large number of subscribers.
An Enterprise license is $10,000 per month for the
BYX Top Feed, and $50,000 per month for the Cboe
One Summary Feed.
7 Distributors would have to meet these
requirements for whichever product they would
like to distribute pursuant to the Program. For
example, a distributor that distributes Cboe One
Summary Feed data pursuant to the Program,
would be limited to distributing the Cboe One
Summary Feed to no more than 5,000 NonProfessional Data Users.
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These proposed requirements for
participating in the Program are
designed to ensure that the benefits
provided by the Program inure to the
benefit of small retail brokers that
provide BYX Equities Exchange Data to
a limited number of subscribers. As
explained later in this filing,
distributors that provide BYX Exchange
Data to a larger number of subscribers
can benefit from the current pricing
structure through scale, due to
subscriber fees that are significantly
lower than those charged by the
Exchange’s competitors, and an
Enterprise license that caps the total
fees to be paid by firms that distribute
market data to a sizeable customer base.
The Exchange believes that offering
similarly attractive pricing to small
retail brokers, including regional firms
both inside and outside of the U.S. that
may not have the same established
client base as the larger retail brokers,
would make the Exchange’s data a more
competitive alternative for those firms,
and would help ensure that such
information is widely available to a
larger number of retail investors
globally. The Program would also be
available to retail brokers more
generally, regardless of size, that wish to
trial the Exchange’s top of book
products with a limited number of
subscribers before potentially expanding
distribution to additional clients,
potentially further increasing the
accessibility of the Exchange’s market
data to retail investors. The Program
would be exclusive to the Exchange’s
top of book offerings as retail investors
typically do not need or use depth of
book data to facilitate their equity
investments, and their brokers typically
do purchase such market data on their
behalf.
Discounted Fees
Distributors that participate in the
Program would be liable for lower
distribution fees for access to the BYX
Top Feed, and lower distribution and
consolidation fees for access to the Cboe
One Summary Data Feed.8 First, the
distribution fee charged for BYX Top
would be lowered by 75% from the
current $1,000 per month to $250 per
month for distributors that meet the
requirements of the Program. Second,
the distribution fee charged to these
distributors for the Cboe One Summary
Feed would be lowered by 30% from
the current $5,000 per month to $3,500
8 New external distributors of the BYX Top Feed
or Cboe One Summary Feed are not currently
charged external distributor fees for their first
month of service. This would continue to be the
case for external distributors that participate in the
Program.
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per month. Finally, the Data
Consolidation Fee charged for the Cboe
One Summary Feed would be lowered
by 65% from the current $1,000 per
month to $350 per month. User fees for
any Professional or Non-Professional
Users that access BYX Top or Cboe One
Summary Feed data from a distributor
that participates in the Program would
remain at their current levels as the
current subscriber charges are already
among the most competitive in the
industry.9
The Exchange believes that these fees,
which represent a significant cost
savings for small retail brokers, would
help ensure that retail investors
continue to have fair and efficient
access to U.S. equity market data. While
retail investors normally pay a fixed
commission when buying or selling
equities, and do not typically pay
separate fees for market data, the
Exchange believes that the proposed
reduction in fees would make the
Exchange’s data more competitive with
other available alternatives, and may
encourage retail brokers to make such
data more readily available to their
clients. In sum, the Exchange believes
that the proposed fee reductions may
facilitate more cost effective access to
top of book data that is purchased on a
voluntary basis by retail brokers and
provided to their retail investor clients.
Market Background
The market for top of book data is
highly competitive as national securities
exchanges compete both with each other
and with the securities information
processors (‘‘SIPs’’) to provide efficient,
reliable, and low cost data to a wide
range of investors and market
participants. In fact, Regulation NMS
requires all U.S. equities exchanges to
provide their best bids and offers, and
executed transactions, to the two
registered SIPs for dissemination to the
public. Top of book data is therefore
widely available to investors today at a
relatively modest cost. National
securities exchanges may also
disseminate their own top of book data,
but no rule or regulation of the
Commission requires market
participants to purchase top of book
data from an exchange.10 The BYX Top
9 By comparison, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’) charges a subscriber fee for Nasdaq
Basic that adds up to $26 per month for
Professional Subscribers and $1 per month for NonProfessional Subscribers (Tapes A, B, and C). See
Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(b)(1).
10 By contrast, Rule 603(c) of Regulation NMS (the
‘‘Vendor Display Rule’’) effectively requires that SIP
data or some other consolidated display be utilized
in any context in which a trading or order-routing
decision can be implemented.
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Feed and Cboe One Summary Feed
therefore compete with the SIP and with
similar products offered by other
national securities exchanges that offer
their own competing top of book
products. In fact, there are ten
competing top of book products offered
by other national securities exchanges
today, not counting products offered by
the Exchange’s affiliates.11
The purpose of the proposed rule
change is to further increase the
competitiveness of the Exchange’s top of
book market data products compared to
competitor offerings that may currently
be cheaper for firms with a limited
subscriber base that do not yet have the
scale to take advantage of the lower
subscriber fees offered by the Exchange.
In turn, the Exchange believes that this
change may benefit market participants
and investors by spurring additional
competition and increasing the
accessibility of the Exchange’s top of
book data.
As explained, the Exchange filed the
Initial Proposal to introduce the
Program in August in order to provide
an attractive pricing option for small
retail brokers. Although that filing was
ultimately suspended by the
Commission, the Exchange believes that
its experience in offering the Program
while it was in effect reflect the
competitive nature of the market for the
creation and distribution of top of book
data. Specifically, after the Exchange
initially reduced the fees charged to
small retail brokers under the Initial
Proposal, it successfully onboarded one
new customer due to the attractive
pricing, and is currently in the process
of onboarding another customer.12
These customers are now able to offer
high quality and cost effective data to
their retail investor clients. The
Exchange has also been discussing the
Program with a handful of additional
prospective clients that are interested in
providing top of book data to retail
investors. Without the proposed pricing
discounts, the Exchange believes that
those customers and prospective
customers may not be interested in
purchasing top of book data from the
Exchange, and would instead purchase
such data from other national securities
exchanges or the SIPs, potentially at a
higher cost than would be available
11 Competing top of book products include,
Nasdaq Basic, BX Basic, PSX Basic, NYSE BQT,
NYSE BBO/Trades, NYSE Arca BBO/Trades, NYSE
American BBO/Trades, NYSE Chicago BBO/Trades,
and IEX TOPS.
12 See e.g., Cboe Innovation Spotlight, ‘‘dough—
The commission-free online broker with premium
content and insights,’’ available at https://
markets.cboe.com/us/equities/market_data_
products/spotlight/.
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pursuant to the Program. The Program
has therefore already been successful in
increasing competition for such market
data, and continued operation of the
Program would serve to both reduce fees
for such customers and to provide
alternatives to data and pricing offered
by competitors. Ultimately, the
Exchange believes that it is critical that
it be allowed to compete by offering
attractive pricing to customers as
increasing the availability of such
products ensures continued competition
with alternative offerings. Such
competition may be constrained when
competitors are impeded from offering
alternative and cost effective solutions
to customers.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,13
in general, and furthers the objectives of
Section 6(b)(4),14 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its members and
other recipients of Exchange data.
The Exchange also believes that the
proposed rule change is consistent with
Section 11(A) of the Act.15 Specifically,
the proposed rule change supports (i)
fair competition among brokers and
dealers, among exchange markets, and
between exchange markets and markets
other than exchange markets, and (ii)
the availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. In addition, the proposed
rule change is consistent with Rule 603
of Regulation NMS,16 which provides
that any national securities exchange
that distributes information with respect
to quotations for or transactions in an
NMS stock do so on terms that are not
unreasonably discriminatory.
In adopting Regulation NMS, the
Commission granted SROs and brokerdealers increased authority and
flexibility to offer new and unique
market data to the public. It was
believed that this authority would
expand the amount of data available to
consumers, and also spur innovation
and competition for the provision of
market data. The Exchange believes that
the proposed fee change would further
broaden the availability of U.S. equity
market data to investors, and in
particular retail investors, consistent
with the principles of Regulation NMS.
13 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
15 15 U.S.C. 78k–1.
16 See 17 CFR 242.603.
14 15
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The Exchange operates in a highly
competitive environment. Indeed, there
are thirteen registered national
securities exchanges that trade U.S.
equities and offer associated top of book
market data products to their customers.
The national securities exchanges also
compete with the SIPs for market data
customers. 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.’’17 The
proposed fee change is a result of the
competitive environment, as the
Exchange seeks to amend its fees to
attract additional subscribers for its
proprietary top of book data offerings.
The proposed fee change would
reduce fees charged to small retail
brokers that provide access to two top
of book data products: The BYX Top
Feed and the Cboe One Summary Feed.
The BYX Top Feed provides top of book
quotations and transactions executed on
the Exchange, and provides a valuable
window into the market for securities
traded on a market that accounts for
about 4% of U.S. equity market volume
today.18 The Cboe One Summary Feed
is a competitively-priced alternative to
top of book data disseminated by SIPs,
or similar data disseminated by other
national securities exchanges.19 It
provides subscribers with consolidated
top of book quotes and trades from four
Cboe U.S. equities markets, which
together account for about 17% of
consolidated U.S. equities trading
volume.20 Together, these products are
purchased by a wide variety of market
participants and vendors, including data
platforms, websites, fintech firms, buyside investors, retail brokers, regional
banks, and securities firms inside and
outside of the U.S. that desire low cost,
high quality, real-time U.S. equity
market data. By providing lower cost
access to U.S. equity market data, the
BYX Top and Cboe One Summary Feeds
benefit a wide range of investors that
17 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
18 See https://markets.cboe.com/us/equities/
market_share/.
19 See e.g., supra note 9 (discussing Nasdaq
Basic).
20 Id.
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participate in the national market
system. Reducing fees for broker-dealers
that represent retail investors and that
may have more limited resources than
some of their larger competitors would
further increase access to such data and
facilitate a competitive market for U.S.
equity securities, consistent with the
goals of the Act.
While the Exchange is not required to
make any data, including top of book
data, available through its proprietary
market data platform, the Exchange
believes that making such data available
increases investor choice, and
contributes to a fair and competitive
market. Specifically, making such data
publicly available through proprietary
data feeds allows investors to choose
alternative, potentially less costly,
market data based on their business
needs. While some market participants
that desire a consolidated display
choose the SIP for their top of book data
needs, and in some cases are effectively
required to do so under the Vendor
Display Rule, others may prefer to
purchase data directly from one or more
national securities exchanges. For
example, a buy-side investor may
choose to purchase the Cboe One
Summary Feed, or a similar product
from another exchange, in order to
perform investment analysis. The Cboe
One Summary Feed represents quotes
from four highly liquid equities markets.
As a result, the Cboe One Summary
Feed is within 1% of the national best
bid and offer approximately 98% of the
time,21 and therefore serves as a
valuable reference for investors that do
not require a consolidated display that
contains quotations for all U.S. equities
exchanges. Making alternative products
available to market participants
ultimately ensures increased
competition in the marketplace, and
constrains the ability of exchanges to
charge supracompetitive fees. In the
event that a market participant views
one exchanges top of book data fees as
more or less attractive than the
competition they can and frequently do
switch between competing products. In
fact, the competiveness of the market for
such top of book data products is one
of the primary factors animating this
proposed rule change, which is
designed to allow the Exchange to
further compete for this business.
Indeed, the Exchange has already
successfully onboarded one new
Distributor that has decided to purchase
Cboe One Summary Data from the
Exchange rather than purchasing top of
book data from a competitor exchange,
21 See https://markets.cboe.com/us/equities/
market_data_services/cboe_one/.
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and is in the process of onboarding
another new Distributor. In addition, the
Exchange is in discussions with a
handful of other Distributors that are
interested in procuring market data from
the Exchange due to the attractive
pricing offered pursuant to the Program.
Distributors can discontinue use at any
time and for any reason, including due
to an assessment of the reasonableness
of fees charged. Further, firms have a
wide variety of alternative market data
products from which to choose, such as
similar proprietary data products
offered by other national securities
exchanges. Making the Exchange’s top
of book data available at a lower cost,
ultimately serves the interests of retail
investors that rely on the public
markets. The Exchange understands that
the Commission is interested in
ensuring that retail investors are
appropriately served in the U.S. equities
market. The Exchange agrees that it is
important to ensure that our markets
continue to serve the needs of ordinary
investors, and the Program is consistent
with this goal.
The Exchange believes that the
proposed fees are reasonable as they
represent a significant cost reduction for
smaller, primarily regional, retail
brokers that provide top of book data
from BYX and its affiliated equities
exchanges to their retail investor clients.
The market for top of book data is
intensely competitive due to the
availability of substitutable products
that can be purchased either from other
national securities exchanges, or from
registered SIPs that make such top of
book data publicly available to investors
at a modest cost. The proposed fee
reduction is being made to make the
Exchange’s fees more competitive with
such offerings for this segment of market
participants, thereby increasing the
availability of the Exchange’s data
products, and expanding the options
available to firms making data
purchasing decisions based on their
business needs. The Exchange believes
that this is consistent with the
principles enshrined in Regulation NMS
to ‘‘promote the wide availability of
market data and to allocate revenues to
SROs that produce the most useful data
for investors.’’ 22
Today, the Exchange’s top of book
market data products are among the
most competitively priced in the
industry due to modest subscriber fees,
and a lower Enterprise cap, both of
which keep fees at a relatively modest
level for larger firms that provide market
data to a sizeable number of
22 See Regulation NMS Adopting Release, supra
note 17, at 37503.
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Professional or Non-Professional Users.
Distributors with a smaller user base,
however, may choose to use competitor
products that have a lower distribution
fee and higher subscriber fees. The
Program would help the Exchange
compete for this segment of the market,
and may broaden the reach of the
Exchange’s data products by providing
an additional low cost alternative to
competitor products for small retail
brokers. While such firms may already
utilize similar market data products
from other sources, the Exchange
believes that offering its own data to
small retail brokers at lower distribution
and data consolidation costs has the
potential to increase choice for market
participants, and ultimately increase the
data available to retail investors when
coupled with the Exchange’s lower
subscriber fees.
The Exchange also believes that the
proposed fees are equitable and not
unfairly discriminatory as the proposed
fee structure is designed to decrease the
price and increase the availability of
U.S. equities market data to retail
investors. The Program is designed to
reduce the cost of top of book market
data for broker-dealers that provide such
data to Non-Professional Data User
clients that make up the majority of the
distributor’s total subscriber population.
While there is no ‘‘exact science’’ to
choosing one eligibility threshold
compared to another, the Exchange
believes that having more NonProfessional Data Users than
Professional Data User across a firm’s
entire business, i.e., not limited
exclusively to Data Users that are
provided access to the Exchange’s data
products, is indicative of a broker-dealer
that is primarily and actively engaged in
the business of serving retail investors.
This understanding is confirmed by the
current customers that participate in or
are soon to participate in the Program,
each of which are focused on providing
trading services to ordinary investors.
As such, the Program would be broadly
available to a wide range of retail
brokers that either purchase the Cboe
One Summary Feed today, or that may
choose to switch from competing
products due to the potential cost
savings. In addition to the subscribers
that are participating and are soon to
participate in the Program, dozens of
distributors that currently purchase top
of book data from one of the four Cboe
U.S. equities exchanges, and many more
prospective customers, could benefit
from the Program. Each of these current
or prospective retail broker customers
would receive the same benefits in
terms of reduced distribution and
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consolidation fees based on the product
that they purchase from the Exchange.
The Commission has long stressed the
need to ensure that the equities markets
are structured in a way that meets the
needs of ordinary investors. For
example, the Commission’s strategic
plan for fiscal years 2018–2022 touts
‘‘focus on the long-term interests of our
Main Street investors’’ as the
Commission’s number one strategic
goal.23 The Program would be
consistent with the Commission’s stated
goal of improving the retail investor
experience in the public markets.
Furthermore, national securities
exchanges commonly charge reduced
fees and offer market structure benefits
to retail investors, and the Commission
has consistently held that such
incentives are consistent with the Act.
The Exchange believes that the Program
is consistent with longstanding
precedent indicating that it is consistent
with the Act to provide reasonable
incentives to retail investors that rely on
the public markets for their investment
needs.
In addition, while the Program would
be effectively limited to smaller firms
that distribute data to no more than
5,000 Non-Professional Data Users, the
Exchange does not believe that this
limitation makes the fees inequitable,
unfairly discriminatory, or otherwise
contrary to the purposes of the Act.
Large broker-dealers and/or vendors that
distribute the Exchange’s data products
to a sizeable number of investors benefit
from the current fee structure, which
includes lower subscriber fees and
Enterprise licenses. Due to lower
subscriber fees, distributors that provide
BYX Equities Exchange Data to more
than 5,000 Non-Professional Data Users
already enjoy cost savings compared to
competitor products. The Program
would therefore ensure that small retail
brokers that distribute top of book data
to their retail investor customers could
also benefit from reduced pricing, and
would aid in increasing the
competitiveness of the Exchange’s data
products for this key segment of the
market.
The table below illustrates the impact
of the proposed pricing on firms that
qualify for the Program, both compared
to the Exchange’s current pricing, and
compared to the fees charged for a
competitor product, i.e., Nasdaq Basic.
As shown, Cboe One Summary Feed
Data provided pursuant to the Program
would be cheaper than Nasdaq Basic for
23 See U.S. Securities and Exchange Commission,
Strategic Plan, Fiscal Years 2018–2022, available at
https://www.sec.gov/files/SEC_Strategic_Plan_
FY18–FY22_FINAL_0.pdf.
E:\FR\FM\21OCN1.SGM
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Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
firms with more than 1,200 NonProfessional Users, and the benefits of
the pricing structure would continue to
scale up to firms with 5,000 NonProfessional Users. Further, BYX Top
Data, which is already subject to a lower
distribution fee than Nasdaq Basic,
would become even more cost effective.
After 5,000 Non-Professional Users the
firm would no longer be eligible for the
Small Retail Broker Distribution
Program but would already enjoy
significant cost savings compared to
Nasdaq Basic under the current pricing
structure. The Exchange therefore
believes that the Program would allow
the Exchange to better compete with
competitors for smaller firms that
currently pay a lower fee under, for
example, the Nasdaq Basic pricing
model, while also ensuring that larger
firms continue to receive attractive
pricing that is already cheaper than top
of book data offered by the main
competitor product. The Exchange
believes this supplemental information
further validates its assessment that the
proposed fee reduction is reasonable,
BILLING CODE 8011–01–C
of the purposes of the Act. The
Exchange operates in a highly
competitive environment, and its ability
to price these data products is
constrained by: (i) Competition among
exchanges that offer similar data
products to their customers; and (ii) the
existence of inexpensive real-time
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would result
in any burden on competition that is not
necessary or appropriate in furtherance
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equitable, and not unfairly
discriminatory. Without the proposed
fee reduction, small retail brokers that
would otherwise qualify for the reduced
fees proposed would be subject to either
higher fees for accessing Exchange top
of book data, or may switch to
competitor offerings that are also less
cost effective, but at current fees levels,
cheaper than the current Cboe One
Summary fee.
BILLING CODE 8011–01–P
consolidated data disseminated by the
SIPs. Top of book data is disseminated
by both the SIPs and the thirteen
equities exchanges. There are therefore
a number of alternative products
available to market participants and
investors. In this competitive
environment potential subscribers are
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Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
free to choose which competing product
to purchase to satisfy their need for
market information. Often, the choice
comes down to price, as broker-dealers
or vendors look to purchase the
cheapest top of book data product, or
quality, as market participants seek to
purchase data that represents significant
market liquidity. In order to better
compete for this segment of the market,
the Exchange is proposing to reduce the
cost of top of book data provided by
small retail brokers to their retail
investor clients. The Exchange believes
that this would facilitate greater access
to such data, ultimately benefiting the
retail investors that are provided access
to such market data.
The Exchange does not believe that
this price reduction would cause any
unnecessary or inappropriate burden on
intermarket competition as other
exchanges and data vendors are free to
lower their prices to better compete
with the Exchange’s offering. Indeed, as
explained in the basis section of this
proposed rule change, the Exchange’s
decision to lower its distribution and
consolidation fees for small retail
brokers is itself a competitive response
to different fee structures available on
competing markets. The Exchange
therefore believes that the proposed rule
change is pro-competitive as it seeks to
offer pricing incentives to customers to
better position the Exchange as it
competes to attract additional market
data subscribers. The Exchange also
believes that the proposed reduction in
fees for small retail brokers would not
cause any unnecessary or inappropriate
burden on intramarket competition.
Although the proposed fee discount
would be largely limited to small retail
broker subscribers, larger broker-dealers
and vendors can already purchase top of
book data from the Exchange at prices
that represent a significant cost savings
when compared to competitor products
that combine higher subscriber fees with
lower fees for distribution. In light of
the benefits already provided to this
group of subscribers, the Exchange
believes that additional discounts to
small retail brokers would increase
rather than decrease competition among
broker-dealers that participate on the
Exchange. Furthermore, as discussed
earlier in this proposed rule change, the
Exchange believes that offering pricing
benefits to brokers that represent retail
investors facilitates the Commission’s
mission of protecting ordinary investors,
and is therefore consistent with the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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 24 and paragraph (f) of Rule
19b–4 25 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–
CboeBYX–2019–015 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–CboeBYX–2019–015. 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–CboeBYX–2019–015 and
should be submitted on or before
November 12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22831 Filed 10–18–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87308; File No. SR–
PEARL–2019–31]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX
PEARL Fee Schedule
October 15, 2019.
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 October
1, 2019, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a 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.
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
1 15
24 15
U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f).
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]]>Agencies
[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56210-56215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22831]
[[Page 56210]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87305; File No. SR-CboeBYX-2019-015]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Introduce a Small Retail Broker Distribution Program
October 15, 2019.
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 October 1, 2019, Cboe BYX Exchange, Inc. (``Exchange'' or ``BYX'')
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
Self-Regulatory Organization's Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BYX Exchange, Inc. (``BYX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to introduce a Small Retail Broker Distribution
Program. The text of the proposed changes to the fee schedule are
enclosed as Exhibit 5. [sic]
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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
Purpose
The purpose of the proposed rule change is to introduce a pricing
program that would allow small retail brokers that purchase top of book
market data from the Exchange to benefit from discounted fees for
access to such market data. The Small Retail Broker Distribution
Program (the ``Program'') would reduce the distribution and
consolidation fees paid by small broker-dealers that operate a retail
business. In turn, the Program may increase retail investor access to
real-time U.S. equity quote and trade information, and allow the
Exchange to better compete for this business with competitors that
offer similar optional products. The Exchange initially filed to
introduce the Program on August 1, 2019 (``Initial Proposal'') to
further ensure that retail investors served by smaller firms have cost
effective access to its market data products, and as part of its
ongoing efforts to improve the retail investor experience in the public
markets. The Initial Proposal was published in the Federal Register on
August 20, 2019,\3\ and the Commission received no commenter letters on
the proposal. The Program remained in effect until the fee change was
temporarily suspended pursuant to a suspension order (the ``Suspension
Order'').\4\ The Suspension Order also instituted proceedings to
determine whether to approve or disapprove the Initial Proposal.\5\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 86670 (August 14,
2019), 84 FR 43207 (August 20, 2019) (SR-CboeBYX-2019-012).
\4\ See Securities Exchange Act Release No. 87166 (September 30,
2019) (SR-CboeBYX-2019-012) (Federal Register publication pending).
\5\ Id.
---------------------------------------------------------------------------
Current Fees
Today, the Exchange offers two top of book data feeds that provide
real-time U.S. equity quote and trade information to investors. First,
the Exchange offers the BYX Top Feed, which is an uncompressed data
feed that offers top of book quotations and execution information based
on equity orders entered into the System. The fee for external
distribution of BYX Top data is $1,000 per month, and external
distributors are also liable for a fee of $1 per month for each
Professional User, and $0.025 per month for each Non-Professional User.
Second, the Exchange offers the Cboe One Summary Feed, which offers
similar information based on equity orders submitted to the Exchange
and its affiliated equities exchanges--i.e., Cboe BZX Exchange, Inc.,
Cboe EDGX Exchange, Inc., and Cboe EDGA Exchange, Inc. Specifically,
the Cboe One Summary Feed is a data feed that contains the aggregate
best bid and offer of all displayed orders for securities traded on the
Exchange and its affiliated exchanges. The Cboe One Summary Feed also
contains the individual last sale information for the Exchange and each
of its affiliated exchanges, and consolidated volume for all listed
equity securities. The fee for external distribution of the Cboe One
Summary Feed is $5,000 per month, and external distributors are also
liable for a Data Consolidation Fee of $1,000 per month, and User fees
equal to $10 per month for each Professional User, and $0.25 per month
for each Non-Professional User.\6\
---------------------------------------------------------------------------
\6\ The Exchange also offers an Enterprise license for the BYX
Top and Cboe One Summary Feeds. An Enterprise license permits
distribution to an unlimited number of Professional and Non-
Professional Users, keeping costs down for firms that provide access
to a large number of subscribers. An Enterprise license is $10,000
per month for the BYX Top Feed, and $50,000 per month for the Cboe
One Summary Feed.
---------------------------------------------------------------------------
Small Retail Broker Eligibility Requirements
The Exchange proposes to introduce a Program that would reduce
costs for small retail brokers that provide top of book data to their
clients. In order to be approved for the Small Retail Broker
Distribution Program, Distributors would have to provide either the BYX
Top Feed or Cboe One Summary Feed (``BYX Equities Exchange Data'') to a
limited number of clients with which the firm has established a
brokerage relationship, and would have to provide such data primarily
to Non-Professional Data Users. Specifically, distributors would have
to attest that they meet the following criteria: (1) Distributor is a
broker-dealer distributing BYX Equities Exchange Data to Non-
Professional Data Users with whom the broker-dealer has a brokerage
relationship; (2) More than 50% of the Distributor's total Data User
population must consist of Non-Professional Data Users, inclusive of
those not receiving BYX Equities Exchange Data; and (3) Distributor
distributes BYX Equities Exchange Data to no more than 5,000 Non-
Professional Data Users.\7\
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\7\ Distributors would have to meet these requirements for
whichever product they would like to distribute pursuant to the
Program. For example, a distributor that distributes Cboe One
Summary Feed data pursuant to the Program, would be limited to
distributing the Cboe One Summary Feed to no more than 5,000 Non-
Professional Data Users.
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[[Page 56211]]
These proposed requirements for participating in the Program are
designed to ensure that the benefits provided by the Program inure to
the benefit of small retail brokers that provide BYX Equities Exchange
Data to a limited number of subscribers. As explained later in this
filing, distributors that provide BYX Exchange Data to a larger number
of subscribers can benefit from the current pricing structure through
scale, due to subscriber fees that are significantly lower than those
charged by the Exchange's competitors, and an Enterprise license that
caps the total fees to be paid by firms that distribute market data to
a sizeable customer base. The Exchange believes that offering similarly
attractive pricing to small retail brokers, including regional firms
both inside and outside of the U.S. that may not have the same
established client base as the larger retail brokers, would make the
Exchange's data a more competitive alternative for those firms, and
would help ensure that such information is widely available to a larger
number of retail investors globally. The Program would also be
available to retail brokers more generally, regardless of size, that
wish to trial the Exchange's top of book products with a limited number
of subscribers before potentially expanding distribution to additional
clients, potentially further increasing the accessibility of the
Exchange's market data to retail investors. The Program would be
exclusive to the Exchange's top of book offerings as retail investors
typically do not need or use depth of book data to facilitate their
equity investments, and their brokers typically do purchase such market
data on their behalf.
Discounted Fees
Distributors that participate in the Program would be liable for
lower distribution fees for access to the BYX Top Feed, and lower
distribution and consolidation fees for access to the Cboe One Summary
Data Feed.\8\ First, the distribution fee charged for BYX Top would be
lowered by 75% from the current $1,000 per month to $250 per month for
distributors that meet the requirements of the Program. Second, the
distribution fee charged to these distributors for the Cboe One Summary
Feed would be lowered by 30% from the current $5,000 per month to
$3,500 per month. Finally, the Data Consolidation Fee charged for the
Cboe One Summary Feed would be lowered by 65% from the current $1,000
per month to $350 per month. User fees for any Professional or Non-
Professional Users that access BYX Top or Cboe One Summary Feed data
from a distributor that participates in the Program would remain at
their current levels as the current subscriber charges are already
among the most competitive in the industry.\9\
---------------------------------------------------------------------------
\8\ New external distributors of the BYX Top Feed or Cboe One
Summary Feed are not currently charged external distributor fees for
their first month of service. This would continue to be the case for
external distributors that participate in the Program.
\9\ By comparison, The Nasdaq Stock Market LLC (``Nasdaq'')
charges a subscriber fee for Nasdaq Basic that adds up to $26 per
month for Professional Subscribers and $1 per month for Non-
Professional Subscribers (Tapes A, B, and C). See Nasdaq Equity
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
---------------------------------------------------------------------------
The Exchange believes that these fees, which represent a
significant cost savings for small retail brokers, would help ensure
that retail investors continue to have fair and efficient access to
U.S. equity market data. While retail investors normally pay a fixed
commission when buying or selling equities, and do not typically pay
separate fees for market data, the Exchange believes that the proposed
reduction in fees would make the Exchange's data more competitive with
other available alternatives, and may encourage retail brokers to make
such data more readily available to their clients. In sum, the Exchange
believes that the proposed fee reductions may facilitate more cost
effective access to top of book data that is purchased on a voluntary
basis by retail brokers and provided to their retail investor clients.
Market Background
The market for top of book data is highly competitive as national
securities exchanges compete both with each other and with the
securities information processors (``SIPs'') to provide efficient,
reliable, and low cost data to a wide range of investors and market
participants. In fact, Regulation NMS requires all U.S. equities
exchanges to provide their best bids and offers, and executed
transactions, to the two registered SIPs for dissemination to the
public. Top of book data is therefore widely available to investors
today at a relatively modest cost. National securities exchanges may
also disseminate their own top of book data, but no rule or regulation
of the Commission requires market participants to purchase top of book
data from an exchange.\10\ The BYX Top Feed and Cboe One Summary Feed
therefore compete with the SIP and with similar products offered by
other national securities exchanges that offer their own competing top
of book products. In fact, there are ten competing top of book products
offered by other national securities exchanges today, not counting
products offered by the Exchange's affiliates.\11\
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\10\ By contrast, Rule 603(c) of Regulation NMS (the ``Vendor
Display Rule'') effectively requires that SIP data or some other
consolidated display be utilized in any context in which a trading
or order-routing decision can be implemented.
\11\ Competing top of book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BBO/Trades,
NYSE American BBO/Trades, NYSE Chicago BBO/Trades, and IEX TOPS.
---------------------------------------------------------------------------
The purpose of the proposed rule change is to further increase the
competitiveness of the Exchange's top of book market data products
compared to competitor offerings that may currently be cheaper for
firms with a limited subscriber base that do not yet have the scale to
take advantage of the lower subscriber fees offered by the Exchange. In
turn, the Exchange believes that this change may benefit market
participants and investors by spurring additional competition and
increasing the accessibility of the Exchange's top of book data.
As explained, the Exchange filed the Initial Proposal to introduce
the Program in August in order to provide an attractive pricing option
for small retail brokers. Although that filing was ultimately suspended
by the Commission, the Exchange believes that its experience in
offering the Program while it was in effect reflect the competitive
nature of the market for the creation and distribution of top of book
data. Specifically, after the Exchange initially reduced the fees
charged to small retail brokers under the Initial Proposal, it
successfully onboarded one new customer due to the attractive pricing,
and is currently in the process of onboarding another customer.\12\
These customers are now able to offer high quality and cost effective
data to their retail investor clients. The Exchange has also been
discussing the Program with a handful of additional prospective clients
that are interested in providing top of book data to retail investors.
Without the proposed pricing discounts, the Exchange believes that
those customers and prospective customers may not be interested in
purchasing top of book data from the Exchange, and would instead
purchase such data from other national securities exchanges or the
SIPs, potentially at a higher cost than would be available
[[Page 56212]]
pursuant to the Program. The Program has therefore already been
successful in increasing competition for such market data, and
continued operation of the Program would serve to both reduce fees for
such customers and to provide alternatives to data and pricing offered
by competitors. Ultimately, the Exchange believes that it is critical
that it be allowed to compete by offering attractive pricing to
customers as increasing the availability of such products ensures
continued competition with alternative offerings. Such competition may
be constrained when competitors are impeded from offering alternative
and cost effective solutions to customers.
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\12\ See e.g., Cboe Innovation Spotlight, ``dough--The
commission-free online broker with premium content and insights,''
available at https://markets.cboe.com/us/equities/market_data_products/spotlight/.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(4),\14\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act.\15\ Specifically, the
proposed rule change supports (i) fair competition among brokers and
dealers, among exchange markets, and between exchange markets and
markets other than exchange markets, and (ii) the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. In addition, the
proposed rule change is consistent with Rule 603 of Regulation NMS,\16\
which provides that any national securities exchange that distributes
information with respect to quotations for or transactions in an NMS
stock do so on terms that are not unreasonably discriminatory.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78k-1.
\16\ See 17 CFR 242.603.
---------------------------------------------------------------------------
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that the proposed fee change would further broaden
the availability of U.S. equity market data to investors, and in
particular retail investors, consistent with the principles of
Regulation NMS.
The Exchange operates in a highly competitive environment. Indeed,
there are thirteen registered national securities exchanges that trade
U.S. equities and offer associated top of book market data products to
their customers. The national securities exchanges also compete with
the SIPs for market data customers. 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.''\17\ The proposed fee change is a result of the competitive
environment, as the Exchange seeks to amend its fees to attract
additional subscribers for its proprietary top of book data offerings.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
The proposed fee change would reduce fees charged to small retail
brokers that provide access to two top of book data products: The BYX
Top Feed and the Cboe One Summary Feed. The BYX Top Feed provides top
of book quotations and transactions executed on the Exchange, and
provides a valuable window into the market for securities traded on a
market that accounts for about 4% of U.S. equity market volume
today.\18\ The Cboe One Summary Feed is a competitively-priced
alternative to top of book data disseminated by SIPs, or similar data
disseminated by other national securities exchanges.\19\ It provides
subscribers with consolidated top of book quotes and trades from four
Cboe U.S. equities markets, which together account for about 17% of
consolidated U.S. equities trading volume.\20\ Together, these products
are purchased by a wide variety of market participants and vendors,
including data platforms, websites, fintech firms, buy-side investors,
retail brokers, regional banks, and securities firms inside and outside
of the U.S. that desire low cost, high quality, real-time U.S. equity
market data. By providing lower cost access to U.S. equity market data,
the BYX Top and Cboe One Summary Feeds benefit a wide range of
investors that participate in the national market system. Reducing fees
for broker-dealers that represent retail investors and that may have
more limited resources than some of their larger competitors would
further increase access to such data and facilitate a competitive
market for U.S. equity securities, consistent with the goals of the
Act.
---------------------------------------------------------------------------
\18\ See https://markets.cboe.com/us/equities/market_share/.
\19\ See e.g., supra note 9 (discussing Nasdaq Basic).
\20\ Id.
---------------------------------------------------------------------------
While the Exchange is not required to make any data, including top
of book data, available through its proprietary market data platform,
the Exchange believes that making such data available increases
investor choice, and contributes to a fair and competitive market.
Specifically, making such data publicly available through proprietary
data feeds allows investors to choose alternative, potentially less
costly, market data based on their business needs. While some market
participants that desire a consolidated display choose the SIP for
their top of book data needs, and in some cases are effectively
required to do so under the Vendor Display Rule, others may prefer to
purchase data directly from one or more national securities exchanges.
For example, a buy-side investor may choose to purchase the Cboe One
Summary Feed, or a similar product from another exchange, in order to
perform investment analysis. The Cboe One Summary Feed represents
quotes from four highly liquid equities markets. As a result, the Cboe
One Summary Feed is within 1% of the national best bid and offer
approximately 98% of the time,\21\ and therefore serves as a valuable
reference for investors that do not require a consolidated display that
contains quotations for all U.S. equities exchanges. Making alternative
products available to market participants ultimately ensures increased
competition in the marketplace, and constrains the ability of exchanges
to charge supracompetitive fees. In the event that a market participant
views one exchanges top of book data fees as more or less attractive
than the competition they can and frequently do switch between
competing products. In fact, the competiveness of the market for such
top of book data products is one of the primary factors animating this
proposed rule change, which is designed to allow the Exchange to
further compete for this business.
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\21\ See https://markets.cboe.com/us/equities/market_data_services/cboe_one/.
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Indeed, the Exchange has already successfully onboarded one new
Distributor that has decided to purchase Cboe One Summary Data from the
Exchange rather than purchasing top of book data from a competitor
exchange,
[[Page 56213]]
and is in the process of onboarding another new Distributor. In
addition, the Exchange is in discussions with a handful of other
Distributors that are interested in procuring market data from the
Exchange due to the attractive pricing offered pursuant to the Program.
Distributors can discontinue use at any time and for any reason,
including due to an assessment of the reasonableness of fees charged.
Further, firms have a wide variety of alternative market data products
from which to choose, such as similar proprietary data products offered
by other national securities exchanges. Making the Exchange's top of
book data available at a lower cost, ultimately serves the interests of
retail investors that rely on the public markets. The Exchange
understands that the Commission is interested in ensuring that retail
investors are appropriately served in the U.S. equities market. The
Exchange agrees that it is important to ensure that our markets
continue to serve the needs of ordinary investors, and the Program is
consistent with this goal.
The Exchange believes that the proposed fees are reasonable as they
represent a significant cost reduction for smaller, primarily regional,
retail brokers that provide top of book data from BYX and its
affiliated equities exchanges to their retail investor clients. The
market for top of book data is intensely competitive due to the
availability of substitutable products that can be purchased either
from other national securities exchanges, or from registered SIPs that
make such top of book data publicly available to investors at a modest
cost. The proposed fee reduction is being made to make the Exchange's
fees more competitive with such offerings for this segment of market
participants, thereby increasing the availability of the Exchange's
data products, and expanding the options available to firms making data
purchasing decisions based on their business needs. The Exchange
believes that this is consistent with the principles enshrined in
Regulation NMS to ``promote the wide availability of market data and to
allocate revenues to SROs that produce the most useful data for
investors.'' \22\
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\22\ See Regulation NMS Adopting Release, supra note 17, at
37503.
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Today, the Exchange's top of book market data products are among
the most competitively priced in the industry due to modest subscriber
fees, and a lower Enterprise cap, both of which keep fees at a
relatively modest level for larger firms that provide market data to a
sizeable number of Professional or Non-Professional Users. Distributors
with a smaller user base, however, may choose to use competitor
products that have a lower distribution fee and higher subscriber fees.
The Program would help the Exchange compete for this segment of the
market, and may broaden the reach of the Exchange's data products by
providing an additional low cost alternative to competitor products for
small retail brokers. While such firms may already utilize similar
market data products from other sources, the Exchange believes that
offering its own data to small retail brokers at lower distribution and
data consolidation costs has the potential to increase choice for
market participants, and ultimately increase the data available to
retail investors when coupled with the Exchange's lower subscriber
fees.
The Exchange also believes that the proposed fees are equitable and
not unfairly discriminatory as the proposed fee structure is designed
to decrease the price and increase the availability of U.S. equities
market data to retail investors. The Program is designed to reduce the
cost of top of book market data for broker-dealers that provide such
data to Non-Professional Data User clients that make up the majority of
the distributor's total subscriber population. While there is no
``exact science'' to choosing one eligibility threshold compared to
another, the Exchange believes that having more Non-Professional Data
Users than Professional Data User across a firm's entire business,
i.e., not limited exclusively to Data Users that are provided access to
the Exchange's data products, is indicative of a broker-dealer that is
primarily and actively engaged in the business of serving retail
investors. This understanding is confirmed by the current customers
that participate in or are soon to participate in the Program, each of
which are focused on providing trading services to ordinary investors.
As such, the Program would be broadly available to a wide range of
retail brokers that either purchase the Cboe One Summary Feed today, or
that may choose to switch from competing products due to the potential
cost savings. In addition to the subscribers that are participating and
are soon to participate in the Program, dozens of distributors that
currently purchase top of book data from one of the four Cboe U.S.
equities exchanges, and many more prospective customers, could benefit
from the Program. Each of these current or prospective retail broker
customers would receive the same benefits in terms of reduced
distribution and consolidation fees based on the product that they
purchase from the Exchange.
The Commission has long stressed the need to ensure that the
equities markets are structured in a way that meets the needs of
ordinary investors. For example, the Commission's strategic plan for
fiscal years 2018-2022 touts ``focus on the long-term interests of our
Main Street investors'' as the Commission's number one strategic
goal.\23\ The Program would be consistent with the Commission's stated
goal of improving the retail investor experience in the public markets.
Furthermore, national securities exchanges commonly charge reduced fees
and offer market structure benefits to retail investors, and the
Commission has consistently held that such incentives are consistent
with the Act. The Exchange believes that the Program is consistent with
longstanding precedent indicating that it is consistent with the Act to
provide reasonable incentives to retail investors that rely on the
public markets for their investment needs.
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\23\ See U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf.
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In addition, while the Program would be effectively limited to
smaller firms that distribute data to no more than 5,000 Non-
Professional Data Users, the Exchange does not believe that this
limitation makes the fees inequitable, unfairly discriminatory, or
otherwise contrary to the purposes of the Act. Large broker-dealers
and/or vendors that distribute the Exchange's data products to a
sizeable number of investors benefit from the current fee structure,
which includes lower subscriber fees and Enterprise licenses. Due to
lower subscriber fees, distributors that provide BYX Equities Exchange
Data to more than 5,000 Non-Professional Data Users already enjoy cost
savings compared to competitor products. The Program would therefore
ensure that small retail brokers that distribute top of book data to
their retail investor customers could also benefit from reduced
pricing, and would aid in increasing the competitiveness of the
Exchange's data products for this key segment of the market.
The table below illustrates the impact of the proposed pricing on
firms that qualify for the Program, both compared to the Exchange's
current pricing, and compared to the fees charged for a competitor
product, i.e., Nasdaq Basic. As shown, Cboe One Summary Feed Data
provided pursuant to the Program would be cheaper than Nasdaq Basic for
[[Page 56214]]
firms with more than 1,200 Non-Professional Users, and the benefits of
the pricing structure would continue to scale up to firms with 5,000
Non-Professional Users. Further, BYX Top Data, which is already subject
to a lower distribution fee than Nasdaq Basic, would become even more
cost effective. After 5,000 Non-Professional Users the firm would no
longer be eligible for the Small Retail Broker Distribution Program but
would already enjoy significant cost savings compared to Nasdaq Basic
under the current pricing structure. The Exchange therefore believes
that the Program would allow the Exchange to better compete with
competitors for smaller firms that currently pay a lower fee under, for
example, the Nasdaq Basic pricing model, while also ensuring that
larger firms continue to receive attractive pricing that is already
cheaper than top of book data offered by the main competitor product.
The Exchange believes this supplemental information further validates
its assessment that the proposed fee reduction is reasonable,
equitable, and not unfairly discriminatory. Without the proposed fee
reduction, small retail brokers that would otherwise qualify for the
reduced fees proposed would be subject to either higher fees for
accessing Exchange top of book data, or may switch to competitor
offerings that are also less cost effective, but at current fees
levels, cheaper than the current Cboe One Summary fee.
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BILLING CODE 8011-01-C
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by: (i) Competition among exchanges
that offer similar data products to their customers; and (ii) the
existence of inexpensive real-time consolidated data disseminated by
the SIPs. Top of book data is disseminated by both the SIPs and the
thirteen equities exchanges. There are therefore a number of
alternative products available to market participants and investors. In
this competitive environment potential subscribers are
[[Page 56215]]
free to choose which competing product to purchase to satisfy their
need for market information. Often, the choice comes down to price, as
broker-dealers or vendors look to purchase the cheapest top of book
data product, or quality, as market participants seek to purchase data
that represents significant market liquidity. In order to better
compete for this segment of the market, the Exchange is proposing to
reduce the cost of top of book data provided by small retail brokers to
their retail investor clients. The Exchange believes that this would
facilitate greater access to such data, ultimately benefiting the
retail investors that are provided access to such market data.
The Exchange does not believe that this price reduction would cause
any unnecessary or inappropriate burden on intermarket competition as
other exchanges and data vendors are free to lower their prices to
better compete with the Exchange's offering. Indeed, as explained in
the basis section of this proposed rule change, the Exchange's decision
to lower its distribution and consolidation fees for small retail
brokers is itself a competitive response to different fee structures
available on competing markets. The Exchange therefore believes that
the proposed rule change is pro-competitive as it seeks to offer
pricing incentives to customers to better position the Exchange as it
competes to attract additional market data subscribers. The Exchange
also believes that the proposed reduction in fees for small retail
brokers would not cause any unnecessary or inappropriate burden on
intramarket competition. Although the proposed fee discount would be
largely limited to small retail broker subscribers, larger broker-
dealers and vendors can already purchase top of book data from the
Exchange at prices that represent a significant cost savings when
compared to competitor products that combine higher subscriber fees
with lower fees for distribution. In light of the benefits already
provided to this group of subscribers, the Exchange believes that
additional discounts to small retail brokers would increase rather than
decrease competition among broker-dealers that participate on the
Exchange. Furthermore, as discussed earlier in this proposed rule
change, the Exchange believes that offering pricing benefits to brokers
that represent retail investors facilitates the Commission's mission of
protecting ordinary investors, and is therefore consistent with the
Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \24\ and paragraph (f) of Rule 19b-4 \25\
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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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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-CboeBYX-2019-015 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-CboeBYX-2019-015. 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-CboeBYX-2019-015 and should be submitted
on or before November 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22831 Filed 10-18-19; 8:45 am]
BILLING CODE 8011-01-P
