Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Introduce a Small Retail Broker Distribution Program, 68508-68513 [2019-26990]

Download as PDF 68508 Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87712; File No. SR– CboeBZX–2019–101] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Introduce a Small Retail Broker Distribution Program December 10, 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 November 27, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (‘‘BZX’’ 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 [sic] as 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. lotter on DSKBCFDHB2PROD with NOTICES 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. VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Order’’).7 The Second Suspension Order also instituted proceedings to determine whether to approve or disapprove the Second Proposal.8 1. Purpose Current Fees The Cboe One Summary Feed is a top of book data feed that provides real-time U.S. equity quote and trade information to investors based on equity orders submitted to the Exchange and its affiliated equities exchanges—i.e., Cboe BYX 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.9 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 comment letters on the Initial Proposal. The Program remained in effect until the fee change was temporarily suspended pursuant to a suspension order (the ‘‘Initial Suspension Order’’).4 The Initial Suspension Order also instituted proceedings to determine whether to approve or disapprove the Initial Proposal.5 On October 1, 2019, the Exchange re-filed its proposed rule change with additional information about the basis for the proposed fee change (‘‘Second Proposal), which as noted above is designed to facilitate retail investor access to reasonably priced market data. The Second Proposal was published in the Federal Register on October 15, 2019,6 and the Commission received no commenter letters on the Second Proposal. The Program again remained in effect until the fee change was temporarily suspended pursuant to a suspension order (the ‘‘Second Suspension 3 See Securities Exchange Act Release No. 86667 (August 14, 2019), 84 FR 43233 (August 20, 2019) (SR–CboeBZX–2019–069). 4 See Securities Exchange Act Release No. 87164 (September 30, 2019), 84 FR 53208 (October 4, 2019) (SR–CboeBZX–2019–069). 5 Id. 6 See Securities Exchange Act Release No. 87312 (October 15, 2019), 84 FR 56235 (October 21, 2019) (SR–CboeBZX–2019–086). PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 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 Cboe One Summary Feed 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 Cboe One Summary Feed Data to Non-Professional Data Users with whom the broker-dealer has a brokerage relationship; (2) At least 90% of the Distributor’s total Data User population must consist of NonProfessional Data Users, inclusive of those not receiving Cboe One Summary Feed Data; and (3) Distributor 7 See Securities Exchange Act Release No. 87629 (November 26, 2019) (SR–CboeBZX–2019–086) (Federal Register publication pending). 8 Id. 9 The Exchange also offers an Enterprise license for the Cboe One Summary Feed at a cost of $50,000 per month. 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. E:\FR\FM\16DEN1.SGM 16DEN1 Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices lotter on DSKBCFDHB2PROD with NOTICES distributes Cboe One Summary Feed Data to no more than 5,000 NonProfessional Data Users. 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 Cboe One Summary Feed Data to a limited number of subscribers. As explained later in this filing, distributors that provide Cboe One Summary Feed 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 Cboe One Summary Feed 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 Cboe One Summary Feed, which is a top of book offering, 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 and consolidation fees for access to the Cboe One Summary Data Feed.10 The distribution fee charged for the Cboe One Summary Feed would be lowered by 30% from the current $5,000 per month to $3,500 per month for distributors that meet the requirements of the Program. In addition, the Data Consolidation Fee charged for the Cboe One Summary Feed would be lowered by 65% from the current $1,000 per 10 New external distributors of the 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. VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 68509 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.12 The Cboe One Summary Feed therefore competes 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.13 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, and a Second Proposal filed and withdrawn [sic], the Exchange believes that its experience in offering the Program while it has been in effect reflect the competitive nature of the market for the creation and distribution of top of book data. Specifically, after the Exchange reduced the fees charged to small retail brokers under the Initial Proposal and Second Proposal, it successfully onboarded two new customers due to the attractive pricing.14 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 pursuant to the Program. The Program has therefore already been successful in increasing competition for such market 11 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). 12 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. 13 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. 14 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/. The second customer will begin participating in the Program on December 1, 2019. month to $350 per month. User fees for any Professional or Non-Professional Users that access 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.11 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. PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 E:\FR\FM\16DEN1.SGM 16DEN1 68510 Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices lotter on DSKBCFDHB2PROD with NOTICES 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. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,15 in general, and furthers the objectives of Section 6(b)(4),16 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.17 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,18 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. The Exchange operates in a highly competitive environment. Indeed, there are thirteen registered national securities exchanges that trade U.S. 15 15 U.S.C. 78f. 16 15 U.S.C. 78f(b)(4). 17 15 U.S.C. 78k–1. 18 See 17 CFR 242.603. VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 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.’’ 19 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 the Cboe One Summary Feed. 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.20 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.21 The Cboe One Summary Feed is 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 Cboe One Summary Feed benefits a wide range of investors that participate in the national market system. Reducing fees for brokerdealers 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 19 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 20 See e.g., supra note 11 (discussing Nasdaq Basic). 21 Id. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 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,22 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 two new Distributors that have decided to purchase Cboe One Summary Data from the Exchange rather than purchasing top of book data from a competitor exchange. 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 22 See https://markets.cboe.com/us/equities/ market_data_services/cboe_one/. E:\FR\FM\16DEN1.SGM 16DEN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices 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 BZX 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.’’ 23 Today, the Cboe One Summary Feed is among the most competitively priced top of book offerings 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 NonProfessional 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 a significant 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 significantly 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 an analysis conducted by the Exchange on the user population of its retail broker clients that purchase market data from the Exchange and its affiliated exchanges. When the Exchange initially filed to introduce the Program, it included a simple majority requirement—i.e., more than 50% of the broker dealer’s user population would have to be Non-Professional Users. The Exchange’s experience to date has been that this requirement has been sufficient to ensure that the benefits of the Program go to retail brokers, and indeed each of the current customers that participate in or are soon to participate in the Program have been focused on providing trading services to ordinary investors. Based on additional analysis, however, the Exchange believes that this threshold can be safely increased to require at least 90% Non-Professional Users, as proposed today, without limiting the benefits provided to broker dealers that primarily serve retail investors. To perform its analysis, the Exchange reviewed user populations for each broker dealer that it identified as primarily engaged in serving retail investors (i.e., retail brokers), and for which the Exchange has reported usage broken down into Professional and NonProfessional Users.24 This analysis 23 See Regulation NMS Adopting Release, supra note 19, at 37503. 24 Broker dealers with an Enterprise license are required to report total user populations but not VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 68511 showed that each retail broker identified currently provides market data from the Exchange or its affiliates to at least 90% Non-Professional Users, with the Professional/Non-Professional breakdown ranging from 90.9% NonProfessional Users on the low end to 100% Non-Professional Users on the high end. As such, even with the higher threshold proposed, 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, a number 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.25 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 whether each user is a Professional or NonProfessional User. As a result, the Exchange has excluded those firms from this portion of its analysis. That said, the Exchange believes those firms may have a similar Professional/NonProfessional breakdown to other retail brokers. 25 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\16DEN1.SGM 16DEN1 Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices Exchange does not believe that this limitation makes the fees inequitable, unfairly discriminatory, or otherwise contrary to the purposes of the Act. The Program is designed to ensure that small retail brokers have access to Exchange data at a modest cost, and therefore contains an eligibility cutoff based on the number of Non-Professional Users that would receive Cboe One Summary Feed Data. The retail broker clients identified by the Exchange provide data from the Exchange or its affiliates to an average of more than 160,000 NonProfessional Users, with a small handful of large retail brokers operating pursuant to an Enterprise license accounting for about 95% of those NonProfessional Users.26 Many retail broker clients, however, have significantly smaller Non-Professional User populations, with retail brokers that are not operating pursuant to an Enterprise license providing data from the Exchange or its affiliates to an average of 8,845 Non-Professional Users. The 5,000 Non-Professional User threshold would therefore ensure that the benefits of the Program flow to small retail brokers, as intended, and not larger firms that already benefit from the current fee structure. 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 Cboe One Summary Feed 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 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. After 5,000 NonProfessional 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. 26 As explained, broker dealers with an Enterprise license are required to report total user populations but not whether each user is a Professional or Non- Professional User. See supra note 24. To perform this analysis, the Exchange therefore assumed that retail brokers qualifying for the enterprise cap had a similar breakdown of Professional/NonProfessional Users as retail brokers that reported this information. VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 PO 00000 Frm 00121 Fmt 4703 Sfmt 4725 E:\FR\FM\16DEN1.SGM 16DEN1 EN16DE19.074</GPH> lotter on DSKBCFDHB2PROD with NOTICES 68512 Federal Register / Vol. 84, No. 241 / Monday, December 16, 2019 / Notices lotter on DSKBCFDHB2PROD with NOTICES 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 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. VerDate Sep<11>2014 19:21 Dec 13, 2019 Jkt 250001 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 27 and paragraph (f) of Rule 19b–4 28 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–2019–101 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–2019–101. 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–2019–101 and should be submitted on or before January 6, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–26990 Filed 12–13–19; 8:45 am] BILLING CODE 8011–01–P U.S.C. 78s(b)(3)(A). 28 17 CFR 240.19b–4(f). 27 15 PO 00000 Frm 00122 Fmt 4703 29 17 Sfmt 4703 68513 E:\FR\FM\16DEN1.SGM CFR 200.30–3(a)(12). 16DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 241 (Monday, December 16, 2019)]
[Notices]
[Pages 68508-68513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26990]



[[Page 68508]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87712; File No. SR-CboeBZX-2019-101]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Introduce a Small Retail Broker Distribution Program

December 10, 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 November 27, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' 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 [sic] as 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 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 comment letters on 
the Initial Proposal. The Program remained in effect until the fee 
change was temporarily suspended pursuant to a suspension order (the 
``Initial Suspension Order'').\4\ The Initial Suspension Order also 
instituted proceedings to determine whether to approve or disapprove 
the Initial Proposal.\5\ On October 1, 2019, the Exchange re-filed its 
proposed rule change with additional information about the basis for 
the proposed fee change (``Second Proposal), which as noted above is 
designed to facilitate retail investor access to reasonably priced 
market data. The Second Proposal was published in the Federal Register 
on October 15, 2019,\6\ and the Commission received no commenter 
letters on the Second Proposal. The Program again remained in effect 
until the fee change was temporarily suspended pursuant to a suspension 
order (the ``Second Suspension Order'').\7\ The Second Suspension Order 
also instituted proceedings to determine whether to approve or 
disapprove the Second Proposal.\8\
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    \3\ See Securities Exchange Act Release No. 86667 (August 14, 
2019), 84 FR 43233 (August 20, 2019) (SR-CboeBZX-2019-069).
    \4\ See Securities Exchange Act Release No. 87164 (September 30, 
2019), 84 FR 53208 (October 4, 2019) (SR-CboeBZX-2019-069).
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 87312 (October 15, 
2019), 84 FR 56235 (October 21, 2019) (SR-CboeBZX-2019-086).
    \7\ See Securities Exchange Act Release No. 87629 (November 26, 
2019) (SR-CboeBZX-2019-086) (Federal Register publication pending).
    \8\ Id.
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Current Fees
    The Cboe One Summary Feed is a top of book data feed that provides 
real-time U.S. equity quote and trade information to investors based on 
equity orders submitted to the Exchange and its affiliated equities 
exchanges--i.e., Cboe BYX 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.\9\
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    \9\ The Exchange also offers an Enterprise license for the Cboe 
One Summary Feed at a cost of $50,000 per month. 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.
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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 Cboe One 
Summary Feed 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 Cboe One 
Summary Feed Data to Non-Professional Data Users with whom the broker-
dealer has a brokerage relationship; (2) At least 90% of the 
Distributor's total Data User population must consist of Non-
Professional Data Users, inclusive of those not receiving Cboe One 
Summary Feed Data; and (3) Distributor

[[Page 68509]]

distributes Cboe One Summary Feed Data to no more than 5,000 Non-
Professional Data Users.
    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 Cboe One Summary Feed 
Data to a limited number of subscribers. As explained later in this 
filing, distributors that provide Cboe One Summary Feed 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 Cboe One Summary Feed 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 Cboe One Summary Feed, which is a top of book 
offering, 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 and consolidation fees for access to the Cboe One 
Summary Data Feed.\10\ The distribution fee charged for the Cboe One 
Summary Feed would be lowered by 30% from the current $5,000 per month 
to $3,500 per month for distributors that meet the requirements of the 
Program. In addition, 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 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.\11\
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    \10\ New external distributors of the 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.
    \11\ 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.\12\ The Cboe One Summary Feed therefore competes 
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.\13\
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    \12\ 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.
    \13\ 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, and a Second Proposal filed and withdrawn [sic], the 
Exchange believes that its experience in offering the Program while it 
has been in effect reflect the competitive nature of the market for the 
creation and distribution of top of book data. Specifically, after the 
Exchange reduced the fees charged to small retail brokers under the 
Initial Proposal and Second Proposal, it successfully onboarded two new 
customers due to the attractive pricing.\14\ 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 pursuant to the Program. The Program has 
therefore already been successful in increasing competition for such 
market

[[Page 68510]]

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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    \14\ 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/. The second customer will begin 
participating in the Program on December 1, 2019.
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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,\15\ in general, and 
furthers the objectives of Section 6(b)(4),\16\ 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.
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    \15\ 15 U.S.C. 78f.
    \16\ 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.\17\ 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,\18\ 
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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78k-1.
    \18\ 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.'' \19\ 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.
---------------------------------------------------------------------------

    \19\ 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 the Cboe One Summary Feed. 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.\20\ 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.\21\ The Cboe One Summary Feed is 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 Cboe One Summary Feed 
benefits 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.
---------------------------------------------------------------------------

    \20\ See e.g., supra note 11 (discussing Nasdaq Basic).
    \21\ 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,\22\ 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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    \22\ See https://markets.cboe.com/us/equities/market_data_services/cboe_one/.
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    Indeed, the Exchange has already successfully onboarded two new 
Distributors that have decided to purchase Cboe One Summary Data from 
the Exchange rather than purchasing top of book data from a competitor 
exchange. 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

[[Page 68511]]

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 BZX 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.'' \23\
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    \23\ See Regulation NMS Adopting Release, supra note 19, at 
37503.
---------------------------------------------------------------------------

    Today, the Cboe One Summary Feed is among the most competitively 
priced top of book offerings 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 a significant 
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 significantly 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 an analysis conducted by the 
Exchange on the user population of its retail broker clients that 
purchase market data from the Exchange and its affiliated exchanges. 
When the Exchange initially filed to introduce the Program, it included 
a simple majority requirement--i.e., more than 50% of the broker 
dealer's user population would have to be Non-Professional Users. The 
Exchange's experience to date has been that this requirement has been 
sufficient to ensure that the benefits of the Program go to retail 
brokers, and indeed each of the current customers that participate in 
or are soon to participate in the Program have been focused on 
providing trading services to ordinary investors. Based on additional 
analysis, however, the Exchange believes that this threshold can be 
safely increased to require at least 90% Non-Professional Users, as 
proposed today, without limiting the benefits provided to broker 
dealers that primarily serve retail investors. To perform its analysis, 
the Exchange reviewed user populations for each broker dealer that it 
identified as primarily engaged in serving retail investors (i.e., 
retail brokers), and for which the Exchange has reported usage broken 
down into Professional and Non-Professional Users.\24\ This analysis 
showed that each retail broker identified currently provides market 
data from the Exchange or its affiliates to at least 90% Non-
Professional Users, with the Professional/Non-Professional breakdown 
ranging from 90.9% Non-Professional Users on the low end to 100% Non-
Professional Users on the high end.
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    \24\ Broker dealers with an Enterprise license are required to 
report total user populations but not whether each user is a 
Professional or Non-Professional User. As a result, the Exchange has 
excluded those firms from this portion of its analysis. That said, 
the Exchange believes those firms may have a similar Professional/
Non-Professional breakdown to other retail brokers.
---------------------------------------------------------------------------

    As such, even with the higher threshold proposed, 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, a number 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.\25\ 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.
---------------------------------------------------------------------------

    \25\ 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

[[Page 68512]]

Exchange does not believe that this limitation makes the fees 
inequitable, unfairly discriminatory, or otherwise contrary to the 
purposes of the Act. The Program is designed to ensure that small 
retail brokers have access to Exchange data at a modest cost, and 
therefore contains an eligibility cutoff based on the number of Non-
Professional Users that would receive Cboe One Summary Feed Data. The 
retail broker clients identified by the Exchange provide data from the 
Exchange or its affiliates to an average of more than 160,000 Non-
Professional Users, with a small handful of large retail brokers 
operating pursuant to an Enterprise license accounting for about 95% of 
those Non-Professional Users.\26\ Many retail broker clients, however, 
have significantly smaller Non-Professional User populations, with 
retail brokers that are not operating pursuant to an Enterprise license 
providing data from the Exchange or its affiliates to an average of 
8,845 Non-Professional Users. The 5,000 Non-Professional User threshold 
would therefore ensure that the benefits of the Program flow to small 
retail brokers, as intended, and not larger firms that already benefit 
from the current fee structure.
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    \26\ As explained, broker dealers with an Enterprise license are 
required to report total user populations but not whether each user 
is a Professional or Non-Professional User. See supra note 24. To 
perform this analysis, the Exchange therefore assumed that retail 
brokers qualifying for the enterprise cap had a similar breakdown of 
Professional/Non-Professional Users as retail brokers that reported 
this information.
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    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 Cboe One Summary Feed 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 
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. 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.
[GRAPHIC] [TIFF OMITTED] TN16DE19.074


[[Page 68513]]



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 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 \27\ and paragraph (f) of Rule 19b-4 \28\ 
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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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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-2019-101 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-2019-101. 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-2019-101 and should be submitted 
on or before January 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26990 Filed 12-13-19; 8:45 am]
 BILLING CODE 8011-01-P

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