Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.8(e) Related to the Exchange's Lead Market Maker Program and To Make Corresponding Changes to its Fee Schedule, 21056-21060 [2020-07947]
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Federal Register / Vol. 85, No. 73 / Wednesday, April 15, 2020 / Notices
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Credit and on ICE
Clear Credit’s website at https://
www.theice.com/clear-credit/regulation.
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–ICC–2020–005 and
should be submitted on or before May
6, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07897 Filed 4–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88617; File No. SR–
CboeBZX–2020–032]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule
11.8(e) Related to the Exchange’s Lead
Market Maker Program and To Make
Corresponding Changes to its Fee
Schedule
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86213
(June 27, 2019), 84 FR 31951 (July 3, 2019) (the
‘‘Original LMM Filing’’).
4 As defined in Rule 14.1(a), the term ‘‘Primary
Equity Security’’ means a Company’s first class of
Common Stock, Ordinary Shares, Shares or
Certificates of Beneficial Interest of Trust, Limited
Partnership Interests or American Depositary
Receipts (‘‘ADRs’’) or Shares (‘‘ADSs’’).
5 As provided in Rule 14.8(a), the term ‘‘ClosedEnd Funds’’ means closed-end management
investment companies registered under the
Investment Company Act of 1940.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
to amend Rule 11.8(e) related to the
Exchange’s Lead Market Maker Program
and to make corresponding changes to
its Fee Schedule.
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.
Exchange’s Lead Market Maker
(‘‘LMM’’) Program 3 for Cboe-listed
securities to include Primary Equity
Securities 4 and Closed-End Funds 5 and
to make corresponding changes to its
Fee Schedule.6 Currently, the LMM
Program includes only ETPs 7 listed on
the Exchange. The Exchange believes
that the proposal will enhance liquidity
in Cboe-listed Primary Equity Securities
and Closed-End Funds by offering daily
incentives that are directly tied to an
LMM meeting market quality metrics in
such securities, as further described
below. The Exchange is not proposing to
make any changes to the LMM Program
itself other than to include Primary
Equity Securities and Closed-End Funds
and to establish the performance
standards applicable to such securities.8
Current LMM Program
Under the LMM Program, the
Exchange offers daily incentives for
LMMs in ETPs listed on the Exchange
for which the LMM meets certain
Minimum Performance Standards.9
Such daily incentives are determined
based on the number of Cboe-listed
ETPs for which the LMM meets such
Minimum Performance Standards and
the average auction volume across such
securities. Generally speaking, the more
LMM Securities 10 for which the LMM
meets the Minimum Performance
Standards and the higher the auction
volume across those ETPs, the greater
the total daily payment to the LMM.
Such daily incentives are structured as
follows:
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 11.8(e) applicable to the
April 10, 2020.
16 17
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 8,
2020, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
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.
6 The Exchange notes that there is currently only
one Primary Equity Security listed on the Exchange
(Cboe Global Markets, Inc., ticker ‘‘CBOE’’) and zero
Closed-End Funds.
7 As defined in Rule 11.8(e)(1)(A), the term ‘‘ETP’’
means any security listed pursuant to Exchange
Rule 14.11.
8 The Exchange notes that the Designated Market
Maker (‘‘DMM’’) Program on the New York Stock
Exchange LLC (‘‘NYSE’’) is comparable to the
Exchange’s LMM Program in that it is designed to
incentivize liquidity provision and create enhanced
market quality in listed securities. The DMM
Program applies to all securities that may be listed
on NYSE, which includes ETPs, Primary Equity
Securities, and Closed-End Funds, consistent with
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this proposal, among others. See NYSE Rule 104,
‘‘Dealings and Responsibilities of DMMs.’’
9 As defined in Rule 11.8(e)(1)(D), the term
‘‘Minimum Performance Standards’’ means a set of
standards applicable to an LMM that may be
determined from time to time by the Exchange.
Such standards will vary between LMM Securities
depending on the price, liquidity, and volatility of
the LMM Security in which the LMM is registered.
The performance measurements will include: (A)
Percent of time at the NBBO; (B) percent of
executions better than the NBBO; (C) average
displayed size; and (D) average quoted spread. For
additional detail, see Original LMM Filing.
10 As defined in Rule 11.8(e)(1)(C), the term
‘‘LMM Security’’ means an ETP that has an LMM.
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Average aggregate daily auction volume in LMM securities
10,001–
100,000
0–10,000
Daily Incentive for each Qualified ETP 1–
5 ............................................................
Daily Incentive for each Qualified ETP 6–
25 ..........................................................
Daily Incentive for each Qualified ETP
26–50 ....................................................
Daily Incentive for each Qualified ETP
51–100 ..................................................
Daily Incentive for each Qualified ETP
Greater Than 100 .................................
By way of example, if an LMM has 30
LMM Securities, each of which is a
Qualified ETP,11 10 of which each have
an average daily auction volume of
5,000 shares (combined between the
opening and closing auction), 10 of
which each have an average daily
auction volume of 50,000 shares
(combined between the opening and
100,001–
500,000
500,001–
1,000,000
1,000,001–
3,000,000
3,000,001 or
greater
$10
$25
$40
$50
$150
$200
10
25
25
30
100
150
10
10
20
25
75
100
10
10
15
20
50
75
10
10
15
15
25
50
closing auction), and 10 of which each
have an average daily auction volume of
200,000 shares (combined between the
opening and closing auction), then the
LMM would fall into the fifth column
(10*5,000 + 10*50,000 + 10*200,000 =
2,550,000 average aggregate daily
auction volume). As such, the LMM
would receive $150 each for five
Qualified ETPs, $100 each for Qualified
ETPs 6–25, and $75 each for Qualified
ETPs 26–30. This would result in a
daily payment of ($150*5) + ($100*20)
+ ($75*5) = $3,125 to the LMM.
LMMs that meet a more stringent set
of standards also receive enhanced daily
incentives, as follows:
Average aggregate daily auction volume in LMM securities
0–10,000
Daily Incentive for each Enhanced ETP
1–5 ........................................................
Daily Incentive for each Enhanced ETP
6–25 ......................................................
Daily Incentive for each Enhanced ETP
26–50 ....................................................
Daily Incentive for each Enhanced ETP
51–100 ..................................................
Daily Incentive for each Enhanced ETP
Greater Than 100 .................................
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Using the same example as above,
where the LMM has 30 LMM Securities,
10 of which are Enhanced ETPs,12
which have 2,550,000 shares of average
aggregate daily auction volume in LMM
Securities, the issuer would fall into the
fifth column. As such, the LMM would
receive an additional $37.50 for each of
its first five Enhanced ETPs and an
additional $25 each for Enhanced ETPs
6–10. This would result in an additional
daily payment of ($37.50*5) + ($25*5) =
$312.50 to the LMM.
LMMs also receive free transactions in
closing auctions in ETPs for which they
are the LMM in order to incentivize
LMMs to provide liquidity in the
closing auction for their LMM
Securities.
Proposed Changes
As noted above, the Exchange is
proposing to make several limited
changes to Rule 11.8(e) and its Fee
11 As provided in footnote 14 of the Fee Schedule,
a ‘‘Qualified ETP’’ is an ETP for which an LMM is
a Qualified LMM.
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10,001–
100,000
100,001–
500,000
500,001–
1,000,000
1,000,001–
3,000,000
3,000,001 or
greater
$2.50
$6.25
$10
$12.50
$37.50
$50
2.50
6.25
6.25
7.50
25
37.50
2.50
2.50
5
6.25
18.75
25
2.50
2.50
3.75
5
12.50
18.75
2.50
2.50
3.75
3.75
6.25
12.50
Schedule in order to add Primary Equity
Securities and Closed-End Funds to the
existing LMM Program and to establish
the performance standards applicable to
such securities. The Exchange is not
proposing to change any of the
functionality or pricing associated with
the current LMM Program.
Specifically, the Exchange is
proposing to add a new definition under
Rule 11.8(e)(1) for the term ‘‘Listed
Security,’’ which would mean ‘‘any ETP
or any Primary Equity Security or
Closed-End Fund listed on the Exchange
pursuant to Rule 14.8 or 14.9.’’ The
Exchange is also proposing to amend
the definition of ‘‘LMM Security’’ under
Rule 11.8(e)(1) such that it would be
defined as ‘‘a Listed Security that has an
LMM,’’ instead of ‘‘an ETP that has an
LMM.’’ The Exchange is also proposing
to make certain numbering changes in
order to facilitate the addition of the
definition of ‘‘Listed Security.’’
The Exchange is also proposing to
amend Rule 11.8(e)(2) such that one of
the factors that will be used as the basis
for selecting LMMs shall be ‘‘experience
with making markets in the applicable
security type’’ instead of ‘‘experience
making markets in ETPs.’’
The Exchange is also proposing to
replace each instance of the term ‘‘ETP’’
under footnote 14 of its Fee Schedule
with ‘‘Security’’ in order to make clear
that such pricing applies to all LMM
Securities and not just ETPs.
Finally, the Exchange is proposing to
add specific requirements around what
constitutes a Qualified Security and
Enhanced Security for Primary Equity
Securities and Closed End Funds.
Specifically, the Exchange is proposing
to amend the definition of Minimum
Performance Standards in current Rule
11.8(e)(1)(D) such that for Primary
12 As defined in footnote 14 of the Fee Schedule,
an ‘‘Enhanced ETP’’ a Qualified ETP for which an
LMM also meets certain enhanced market quality
standards.
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Equity Securities and Closed-End
Funds, Minimum Performance
Standards will specifically require the
following:
(i) registration as a market maker in
good standing with the Exchange;
(ii) time at the inside requirements,
which, for Qualified Securities, require
that an LMM maintain quotes at the
NBB and the NBO at least 5% of Regular
Trading Hours where the security has a
consolidated average daily volume
equal to or greater than 500,000 shares
and at least 15% of Regular Trading
Hours where the security has a
consolidated average daily volume of
less than 500,000 shares. For Enhanced
Securities, an LMM must quote at the
NBB and the NBO at least 5% of Regular
Trading Hours where the security has a
consolidated average daily volume
equal to or greater than 500,000 shares
and at least 40% of Regular Trading
Hours where the security has a
consolidated average daily volume of
less than 500,000 shares;
(iii) auction participation
requirements, which, for a Qualified
Security, require that the Opening
Auction price is within 4% of the last
Reference Price, as defined in Rule
11.23(a)(19), and 2% for an Enhanced
Security. For a Qualified Security, such
requirements provide that the Closing
Auction price must be within 3% of the
last Reference Price and 1% for an
Enhanced Security;
(iv) market-wide NBB and NBO
spread and size requirements, which
require 300 shares at both the NBB and
NBO during at least 50% of Regular
Trading Hours for both Qualified
Securities and Enhanced Securities. For
Qualified Securities, the NBBO spread
of such shares must be no wider than
2% for a security priced equal to or
greater than $5 and no wider than 7%
for a security priced less than $5. For
Enhanced Securities, the NBBO spread
of such shares must be no wider than
1% for securities priced equal to or
greater than $5 and no wider than 2%
for securities priced less than $5; and
(v) depth of book requirements,
which, for securities priced equal to or
greater than $5 requires at least
$150,000 of displayed posted liquidity
on both the buy and the sell side within
the percentages described below during
at least 90% of Regular Trading Hours
and, for securities priced less than $5,
at least $50,000 of displayed posted
liquidity on both the buy and the sell
side within the percentages described
below during at least 90% of Regular
Trading Hours. For Qualified Securities,
such liquidity must be within 2% of
both the NBB and NBO for securities
priced equal to or greater than $5 and
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within 7% of both the NBB and NBO for
securities priced less than $5. For
Enhanced Securities, such liquidity
must be within 1% of both the NBB and
NBO for securities priced equal to or
greater than $5 and within 2% of both
the NBB and NBO for securities priced
less than $5.
As a follow-on to the examples above
and to reiterate that the Exchange is not
proposing to make any changes to the
LMM Program, but only to include
Primary Equity Securities and ClosedEnd Funds in the existing LMM
Program and to establish the
performance standards applicable to
such securities, if an LMM has 30 LMM
Securities, each of which is a Qualified
Security, 10 of which e ach have an
average daily auction volume of 5,000
shares (combined between the opening
and closing auction), 10 of which each
have an average daily auction volume of
50,000 shares (combined between the
opening and closing auction), and 10 of
which each have an average daily
auction volume of 200,000 shares
(combined between the opening and
closing auction), then the LMM would
fall into the fifth column (10*5,000 +
10*50,000 + 10*200,000 = 2,550,000
average aggregate daily auction volume).
As such, the LMM would receive $150
each for five Qualified Securities, $100
each for Qualified Securities 6–25, and
$75 each for Qualified Securities 26–30.
This would result in a daily payment of
($150*5) + ($100*20) + ($75*5) = $3,125
to the LMM. The Exchange notes that
this example is identical to the first
example above and that this would be
the outcome regardless of the
breakdown of how many of the
Qualified Securities are ETPs, Primary
Equity Securities, and Closed-End
Funds, as would the example above
related to Enhanced ETPs.
Implementation Date
The Exchange proposes to implement
these amendments immediately.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.13 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 14 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
13 15
14 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00085
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and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 15 as it is designed to
provide for the equitable allocation of
reasonable dues, fees and other charges
among its Members and other persons
using its facilities. The Exchange also
notes that its listing business operates in
a highly-competitive market in which
market participants, which includes
both issuers of securities and LMMs,
can readily transfer their listings or opt
not to participate, respectively, if they
deem fee levels, liquidity provision
incentive programs, or any other factor
at a particular venue to be insufficient
or excessive. The proposed rule changes
reflect a competitive pricing structure
designed to incentivize issuers to list
new products and transfer existing
products to the Exchange and market
participants to enroll and participate as
LMMs on the Exchange, which the
Exchange believes will enhance market
quality in all ETPs, Primary Equity
Securities, and Closed-End Funds listed
on the Exchange.
The Exchange believes that the
proposal to include Primary Equity
Securities and Closed-End Funds in the
LMM Program is consistent with the Act
for the same reasons that ETPs are
currently include in the LMM Program:
Because it will enhance market quality
in Cboe-listed Primary Equity Securities
and Closed-End Funds both throughout
the day and in the closing auction by
incentivizing liquidity provision on the
Exchange and requiring LMMs to meet
the Minimum Performance Standards.
Specifically, the Exchange believes that
the proposal will enhance market
quality in Cboe-listed Primary Equity
Securities and Closed-End Funds by
incentivizing liquidity provision on the
Exchange in such securities and
requiring LMMs to meet the Minimum
Performance Standards in order to
receive daily incentives in such
securities in the same way that the LMM
Program provides enhanced market
quality on the Exchange in ETPs.
Further, the Exchange believes that
adding Primary Equity Securities and
Closed-End Funds will further act to
strengthen the LMM Program by
providing additional potential securities
for an LMM to take on in order to
15 Id.
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increase their average aggregate daily
auction volume in their LMM
Securities, allowing both new and
existing LMMs with the possibility of
receiving increased daily incentives.
The Exchange also believes that it is
appropriate to include Primary Equity
Securities and Closed-End Funds in the
LMM Program, which currently only
applies to ETPs, because, despite being
issued by different types of
Companies,16 the metrics used to
measure market quality as Minimum
Performance Standards in ETPs under
the current LMM Program are generally
the same metrics that are used to
measure market quality for Primary
Equity Securities and Closed-End
Funds.17 Specifically, tighter spreads,
deeper liquidity, and enhanced auction
executions result in better overall
market quality in an LMM Security and
result in better executions for investors,
regardless of whether the instrument the
investor is buying or selling as a
Primary Equity Security, a Closed-End
Fund, or an ETP. Further to this point,
the term ETP encapsulates all securities
listed on the Exchange pursuant to Rule
14.11, which includes securities issued
by varying types of trusts, debt
instruments issued by banks, among
others, that hold or track varying types
of instruments including U.S. and
foreign equity securities, Closed-End
Funds, corporate debt, treasury
securities, commodities, and more. The
term ETP is already a broad term and
the Exchange believes that adding
Primary Equity Securities and ClosedEnd Funds to the LMM Program is
generally consistent with the rationale
underlying the LMM Program applying
to ETPs. In addition, adding Primary
Equity Securities and Closed-End Funds
to the existing LMM Program will
further incentivize existing LMMs to act
as LMM for Primary Equity Securities
and Close-End Funds by: (i) Allowing
an LMM apply the pricing applicable to
its existing average aggregate daily
auction volume in its LMM Securities to
any new Primary Equity Securities and
Closed-End Funds; and (ii) keeping the
administration of the LMM Program as
straight-forward as possible by simply
adding Primary Equity Securities and
16 As defined in Rule 14.1(a)(3), the term
Company means the issuer of a security listed or
applying to list on the Exchange. For purposes of
Chapter XIV, the term ‘‘Company’’ includes an
issuer that is not incorporated, such as, for example,
a limited partnership.
17 To this point, the Exchange notes that all of the
proposed Minimum Performance Standards
applicable to Primary Equity Securities and ClosedEnd Funds as provided in proposed Rule
11.8(e)(1)(E)(i)-(v) fall within the ranges currently
applicable to ETPs as provided in the Original LMM
Filing.
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Closed-End Funds to the structure that
LMMs are already familiar with.
The Exchange believes that these
changes will both enhance liquidity in
Cboe-listed Primary Equity Securities
and Closed-End Funds and help the
Exchange to compete as a primary
listing venue for such products.
Similarly, the Exchange believes that it
will allow it to better compete as a
listing venue in that it will allow the
Exchange to implement a liquidity
provision program that includes
security types already included in a
liquidity provision program on its
competitor, as described above.
The Exchange also believes that the
proposal to add Primary Equity
Securities and Closed-End Funds to the
LMM Program is a reasonable means to
incentivize liquidity provision in such
securities listed on the Exchange. The
marketplace for listings is extremely
competitive and there are several other
national securities exchanges that offer
listings for ETPs, Primary Equity
Securities, and Closed-End Fund.
Transfers between listing venues occur
frequently 18 for numerous reasons,
including market quality. This proposal
is intended to help the Exchange
compete as a listing venue. Further, the
Exchange notes that the proposed
incentives are not transaction fees, nor
are they fees paid by participants to
access the Exchange. Rather, the
proposed payments are based on
achieving certain objective market
quality metrics.
Further, the Exchange believes that it
is reasonable, equitable, and not
unfairly discriminatory to add Primary
Equity Securities and Closed-End Funds
to the LMM Program. Specifically, the
Exchange believes that the proposal is
reasonable, equitable, and not unfairly
discriminatory because it will enhance
market quality in Cboe-listed Primary
Equity Securities and Closed-End Funds
by incentivizing liquidity provision on
the Exchange in such securities and
requiring LMMs to meet the Minimum
Performance Standards in order to
receive daily incentives in such
securities. While the proposed
payments apply only to LMMs, such
LMMs must meet rigorous Minimum
Performance Standards in order to
receive even the lower Qualified
Security payments, resulting in better
market quality in Exchange-listed
securities and better executions for
investors. Further, in order to qualify as
an Enhanced Security and receive an
18 For example, 16 ETPs transferred their listings
to the Exchange on May 13, 2019. See https://
ir.cboe.com/∼/media/Files/C/CBOE-IR-V2/pressrelease/2019/cboe-welcomes-16-barclays-etns.pdf.
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21059
additional payment above the payment
for Qualified Securities, an LMM must
meet even more rigorous market quality
metrics in the security, which further
enhances market quality and investor
executions in Exchange-listed securities.
Where an LMM does not meet the
Minimum Performance Standards, they
will not receive the payments. Further,
registration as an LMM is available
equally to all Members and allocation of
listed securities between LMMs is
governed by Exchange Rule 11.8(e)(2). If
an LMM does not meet the Minimum
Performance Standards for three out of
the past four months, the LMM is
subject to forfeiture of LMM status for
that LMM Security, at the Exchange’s
discretion.
Further, the daily payment amounts
are based specifically on the Exchange’s
revenue model. For securities with
greater auction volume, the Exchange
generally makes more money and, thus,
is able to offer LMMs with LMM
Securities that have higher average
aggregate daily auction volume higher
payments. The buckets and payments
are modeled based both on current
revenue and product distribution among
LMMs as well as expected revenue and
product distribution in the future
including organic growth among
existing products, securities transferring
to the Exchange, and additional
participants in the LMM Program. The
Exchange believes that it is fair and
reasonable and not unfairly
discriminatory to offer different pricing
between the different auction volume
tiers because those tiers and possible
payments are specifically tailored to the
Exchange’s expected revenue from that
auction volume.
Specifically, the proposed payment
per Qualified Security (and thus the
total payment to an LMM) generally
goes up as the CADV moves from left to
right because as the average aggregate
daily auction volume in LMM Securities
increases, the Exchange will generate
additional revenue and can thus support
increased payments to LMMs. Similarly,
the proposed payments per Qualified
Security generally go down as the
number of Qualified Securities goes up
in order to ensure that the daily
incentive payments do not exceed the
Exchange’s revenue for that LMM’s
LMM Securities while still providing
incentives for LMMs to take on
additional ETPs, Primary Equity
Securities, and Closed-End Funds. As
such, the Exchange believes that the
proposal represents an equitable
allocation of payments.
E:\FR\FM\15APN1.SGM
15APN1
21060
Federal Register / Vol. 85, No. 73 / Wednesday, April 15, 2020 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule changes will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
change burdens competition, but rather,
enhances competition as it is intended
to increase the competitiveness of BZX
both among Members by incentivizing
Members to become LMMs in BZXlisted securities and as a listing venue
by enhancing market quality in BZXlisted securities. The marketplace for
listings is extremely competitive and
there are several other national
securities exchanges that offer listings.
Transfers between listing venues occur
frequently 19 for numerous reasons,
including market quality. This proposal
is intended to help the Exchange
compete as a listing venue. Accordingly,
the Exchange does not believe that the
proposed change will impair the ability
of issuers, LMMs, or competing listing
venues to maintain their competitive
standing. The Exchange also notes that
the proposed change is intended to
enhance market quality in BZX-listed
Primary Equity Securities and ClosedEnd Funds, to the benefit of all investors
in such BZX-listed securities. The
Exchange does not believe the proposed
amendment would burden intramarket
competition as it would be available to
all Members uniformly. Registration as
an LMM is available equally to all
Members and allocation of listed
securities between LMMs is governed by
Exchange Rule 11.8(e)(2). Further, if an
LMM does not meet the Minimum
Performance Standards for three out of
the past four months, the LMM is
subject to forfeiture of LMM status for
that LMM Security, at the Exchange’s
discretion.
jbell on DSKJLSW7X2PROD with NOTICES
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
19 For
example, 16 ETPs transferred their listings
to the Exchange on May 13, 2019. See https://
ir.cboe.com/∼/media/Files/C/CBOE-IR-V2/pressrelease/2019/cboe-welcomes-16-barclays-etns.pdf.
VerDate Sep<11>2014
18:22 Apr 14, 2020
Jkt 250001
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 22 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 23
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. Waiver of the
operative delay would allow the
Exchange to expand its LMM Program to
Primary Equity Securities and ClosedEnd Funds without delay, which the
Exchange believes will provide market
quality enhancements. The Commission
notes that a similar program on another
exchange applies to these types of
securities 24 and that the proposed
performance standards are similar to
those already in place on the Exchange
with respect to ETPs listed on the
Exchange. Therefore, the Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the operative delay and
designates the proposed rule change
operative upon filing.25
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 shall 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
20 15
U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(6).
22 17 CFR 240.19b–4(f)(6).
23 17 CFR 240.19b–4(f)(6)(iii).
24 See supra note 8.
25 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00087
Fmt 4703
Sfmt 9990
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–2020–032 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–2020–032. 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–2020–032, and
should be submitted on or before May
6, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07947 Filed 4–14–20; 8:45 am]
BILLING CODE 8011–01–P
26 17
E:\FR\FM\15APN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 85, Number 73 (Wednesday, April 15, 2020)]
[Notices]
[Pages 21056-21060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07947]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88617; File No. SR-CboeBZX-2020-032]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 11.8(e) Related to the Exchange's Lead Market Maker Program and To
Make Corresponding Changes to its Fee Schedule
April 10, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 8, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a rule change to amend Rule 11.8(e) related
to the Exchange's Lead Market Maker Program and to make corresponding
changes to its Fee Schedule.
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 Exchange proposes to amend Rule 11.8(e) applicable to the
Exchange's Lead Market Maker (``LMM'') Program \3\ for Cboe-listed
securities to include Primary Equity Securities \4\ and Closed-End
Funds \5\ and to make corresponding changes to its Fee Schedule.\6\
Currently, the LMM Program includes only ETPs \7\ listed on the
Exchange. The Exchange believes that the proposal will enhance
liquidity in Cboe-listed Primary Equity Securities and Closed-End Funds
by offering daily incentives that are directly tied to an LMM meeting
market quality metrics in such securities, as further described below.
The Exchange is not proposing to make any changes to the LMM Program
itself other than to include Primary Equity Securities and Closed-End
Funds and to establish the performance standards applicable to such
securities.\8\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 86213 (June 27,
2019), 84 FR 31951 (July 3, 2019) (the ``Original LMM Filing'').
\4\ As defined in Rule 14.1(a), the term ``Primary Equity
Security'' means a Company's first class of Common Stock, Ordinary
Shares, Shares or Certificates of Beneficial Interest of Trust,
Limited Partnership Interests or American Depositary Receipts
(``ADRs'') or Shares (``ADSs'').
\5\ As provided in Rule 14.8(a), the term ``Closed-End Funds''
means closed-end management investment companies registered under
the Investment Company Act of 1940.
\6\ The Exchange notes that there is currently only one Primary
Equity Security listed on the Exchange (Cboe Global Markets, Inc.,
ticker ``CBOE'') and zero Closed-End Funds.
\7\ As defined in Rule 11.8(e)(1)(A), the term ``ETP'' means any
security listed pursuant to Exchange Rule 14.11.
\8\ The Exchange notes that the Designated Market Maker
(``DMM'') Program on the New York Stock Exchange LLC (``NYSE'') is
comparable to the Exchange's LMM Program in that it is designed to
incentivize liquidity provision and create enhanced market quality
in listed securities. The DMM Program applies to all securities that
may be listed on NYSE, which includes ETPs, Primary Equity
Securities, and Closed-End Funds, consistent with this proposal,
among others. See NYSE Rule 104, ``Dealings and Responsibilities of
DMMs.''
---------------------------------------------------------------------------
Current LMM Program
Under the LMM Program, the Exchange offers daily incentives for
LMMs in ETPs listed on the Exchange for which the LMM meets certain
Minimum Performance Standards.\9\ Such daily incentives are determined
based on the number of Cboe-listed ETPs for which the LMM meets such
Minimum Performance Standards and the average auction volume across
such securities. Generally speaking, the more LMM Securities \10\ for
which the LMM meets the Minimum Performance Standards and the higher
the auction volume across those ETPs, the greater the total daily
payment to the LMM. Such daily incentives are structured as follows:
---------------------------------------------------------------------------
\9\ As defined in Rule 11.8(e)(1)(D), the term ``Minimum
Performance Standards'' means a set of standards applicable to an
LMM that may be determined from time to time by the Exchange. Such
standards will vary between LMM Securities depending on the price,
liquidity, and volatility of the LMM Security in which the LMM is
registered. The performance measurements will include: (A) Percent
of time at the NBBO; (B) percent of executions better than the NBBO;
(C) average displayed size; and (D) average quoted spread. For
additional detail, see Original LMM Filing.
\10\ As defined in Rule 11.8(e)(1)(C), the term ``LMM Security''
means an ETP that has an LMM.
[[Page 21057]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average aggregate daily auction volume in LMM securities
-----------------------------------------------------------------------------------------------------
3,000,001 or
0-10,000 10,001-100,000 100,001- 500,001- 1,000,001- greater
----------------------------------------------------------------------------------------500,000---------1,000,000----------3,000,000--------------------
Daily Incentive for each Qualified ETP 1-5........ $10 $25 $40 $50 $150 $200
Daily Incentive for each Qualified ETP 6-25....... 10 25 25 30 100 150
Daily Incentive for each Qualified ETP 26-50...... 10 10 20 25 75 100
Daily Incentive for each Qualified ETP 51-100..... 10 10 15 20 50 75
Daily Incentive for each Qualified ETP Greater 10 10 15 15 25 50
Than 100.........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
By way of example, if an LMM has 30 LMM Securities, each of which
is a Qualified ETP,\11\ 10 of which each have an average daily auction
volume of 5,000 shares (combined between the opening and closing
auction), 10 of which each have an average daily auction volume of
50,000 shares (combined between the opening and closing auction), and
10 of which each have an average daily auction volume of 200,000 shares
(combined between the opening and closing auction), then the LMM would
fall into the fifth column (10*5,000 + 10*50,000 + 10*200,000 =
2,550,000 average aggregate daily auction volume). As such, the LMM
would receive $150 each for five Qualified ETPs, $100 each for
Qualified ETPs 6-25, and $75 each for Qualified ETPs 26-30. This would
result in a daily payment of ($150*5) + ($100*20) + ($75*5) = $3,125 to
the LMM.
---------------------------------------------------------------------------
\11\ As provided in footnote 14 of the Fee Schedule, a
``Qualified ETP'' is an ETP for which an LMM is a Qualified LMM.
---------------------------------------------------------------------------
LMMs that meet a more stringent set of standards also receive
enhanced daily incentives, as follows:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average aggregate daily auction volume in LMM securities
-----------------------------------------------------------------------------------------------------
3,000,001 or
0-10,000 10,001-100,000 100,001- 500,001- 1,000,001- greater
----------------------------------------------------------------------------------------500,000---------1,000,000----------3,000,000--------------------
Daily Incentive for each Enhanced ETP 1-5......... $2.50 $6.25 $10 $12.50 $37.50 $50
Daily Incentive for each Enhanced ETP 6-25........ 2.50 6.25 6.25 7.50 25 37.50
Daily Incentive for each Enhanced ETP 26-50....... 2.50 2.50 5 6.25 18.75 25
Daily Incentive for each Enhanced ETP 51-100...... 2.50 2.50 3.75 5 12.50 18.75
Daily Incentive for each Enhanced ETP Greater Than 2.50 2.50 3.75 3.75 6.25 12.50
100..............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Using the same example as above, where the LMM has 30 LMM
Securities, 10 of which are Enhanced ETPs,\12\ which have 2,550,000
shares of average aggregate daily auction volume in LMM Securities, the
issuer would fall into the fifth column. As such, the LMM would receive
an additional $37.50 for each of its first five Enhanced ETPs and an
additional $25 each for Enhanced ETPs 6-10. This would result in an
additional daily payment of ($37.50*5) + ($25*5) = $312.50 to the LMM.
---------------------------------------------------------------------------
\12\ As defined in footnote 14 of the Fee Schedule, an
``Enhanced ETP'' a Qualified ETP for which an LMM also meets certain
enhanced market quality standards.
---------------------------------------------------------------------------
LMMs also receive free transactions in closing auctions in ETPs for
which they are the LMM in order to incentivize LMMs to provide
liquidity in the closing auction for their LMM Securities.
Proposed Changes
As noted above, the Exchange is proposing to make several limited
changes to Rule 11.8(e) and its Fee Schedule in order to add Primary
Equity Securities and Closed-End Funds to the existing LMM Program and
to establish the performance standards applicable to such securities.
The Exchange is not proposing to change any of the functionality or
pricing associated with the current LMM Program.
Specifically, the Exchange is proposing to add a new definition
under Rule 11.8(e)(1) for the term ``Listed Security,'' which would
mean ``any ETP or any Primary Equity Security or Closed-End Fund listed
on the Exchange pursuant to Rule 14.8 or 14.9.'' The Exchange is also
proposing to amend the definition of ``LMM Security'' under Rule
11.8(e)(1) such that it would be defined as ``a Listed Security that
has an LMM,'' instead of ``an ETP that has an LMM.'' The Exchange is
also proposing to make certain numbering changes in order to facilitate
the addition of the definition of ``Listed Security.''
The Exchange is also proposing to amend Rule 11.8(e)(2) such that
one of the factors that will be used as the basis for selecting LMMs
shall be ``experience with making markets in the applicable security
type'' instead of ``experience making markets in ETPs.''
The Exchange is also proposing to replace each instance of the term
``ETP'' under footnote 14 of its Fee Schedule with ``Security'' in
order to make clear that such pricing applies to all LMM Securities and
not just ETPs.
Finally, the Exchange is proposing to add specific requirements
around what constitutes a Qualified Security and Enhanced Security for
Primary Equity Securities and Closed End Funds. Specifically, the
Exchange is proposing to amend the definition of Minimum Performance
Standards in current Rule 11.8(e)(1)(D) such that for Primary
[[Page 21058]]
Equity Securities and Closed-End Funds, Minimum Performance Standards
will specifically require the following:
(i) registration as a market maker in good standing with the
Exchange;
(ii) time at the inside requirements, which, for Qualified
Securities, require that an LMM maintain quotes at the NBB and the NBO
at least 5% of Regular Trading Hours where the security has a
consolidated average daily volume equal to or greater than 500,000
shares and at least 15% of Regular Trading Hours where the security has
a consolidated average daily volume of less than 500,000 shares. For
Enhanced Securities, an LMM must quote at the NBB and the NBO at least
5% of Regular Trading Hours where the security has a consolidated
average daily volume equal to or greater than 500,000 shares and at
least 40% of Regular Trading Hours where the security has a
consolidated average daily volume of less than 500,000 shares;
(iii) auction participation requirements, which, for a Qualified
Security, require that the Opening Auction price is within 4% of the
last Reference Price, as defined in Rule 11.23(a)(19), and 2% for an
Enhanced Security. For a Qualified Security, such requirements provide
that the Closing Auction price must be within 3% of the last Reference
Price and 1% for an Enhanced Security;
(iv) market-wide NBB and NBO spread and size requirements, which
require 300 shares at both the NBB and NBO during at least 50% of
Regular Trading Hours for both Qualified Securities and Enhanced
Securities. For Qualified Securities, the NBBO spread of such shares
must be no wider than 2% for a security priced equal to or greater than
$5 and no wider than 7% for a security priced less than $5. For
Enhanced Securities, the NBBO spread of such shares must be no wider
than 1% for securities priced equal to or greater than $5 and no wider
than 2% for securities priced less than $5; and
(v) depth of book requirements, which, for securities priced equal
to or greater than $5 requires at least $150,000 of displayed posted
liquidity on both the buy and the sell side within the percentages
described below during at least 90% of Regular Trading Hours and, for
securities priced less than $5, at least $50,000 of displayed posted
liquidity on both the buy and the sell side within the percentages
described below during at least 90% of Regular Trading Hours. For
Qualified Securities, such liquidity must be within 2% of both the NBB
and NBO for securities priced equal to or greater than $5 and within 7%
of both the NBB and NBO for securities priced less than $5. For
Enhanced Securities, such liquidity must be within 1% of both the NBB
and NBO for securities priced equal to or greater than $5 and within 2%
of both the NBB and NBO for securities priced less than $5.
As a follow-on to the examples above and to reiterate that the
Exchange is not proposing to make any changes to the LMM Program, but
only to include Primary Equity Securities and Closed-End Funds in the
existing LMM Program and to establish the performance standards
applicable to such securities, if an LMM has 30 LMM Securities, each of
which is a Qualified Security, 10 of which e ach have an average daily
auction volume of 5,000 shares (combined between the opening and
closing auction), 10 of which each have an average daily auction volume
of 50,000 shares (combined between the opening and closing auction),
and 10 of which each have an average daily auction volume of 200,000
shares (combined between the opening and closing auction), then the LMM
would fall into the fifth column (10*5,000 + 10*50,000 + 10*200,000 =
2,550,000 average aggregate daily auction volume). As such, the LMM
would receive $150 each for five Qualified Securities, $100 each for
Qualified Securities 6-25, and $75 each for Qualified Securities 26-30.
This would result in a daily payment of ($150*5) + ($100*20) + ($75*5)
= $3,125 to the LMM. The Exchange notes that this example is identical
to the first example above and that this would be the outcome
regardless of the breakdown of how many of the Qualified Securities are
ETPs, Primary Equity Securities, and Closed-End Funds, as would the
example above related to Enhanced ETPs.
Implementation Date
The Exchange proposes to implement these amendments immediately.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\13\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \14\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \15\ as it is designed to provide
for the equitable allocation of reasonable dues, fees and other charges
among its Members and other persons using its facilities. The Exchange
also notes that its listing business operates in a highly-competitive
market in which market participants, which includes both issuers of
securities and LMMs, can readily transfer their listings or opt not to
participate, respectively, if they deem fee levels, liquidity provision
incentive programs, or any other factor at a particular venue to be
insufficient or excessive. The proposed rule changes reflect a
competitive pricing structure designed to incentivize issuers to list
new products and transfer existing products to the Exchange and market
participants to enroll and participate as LMMs on the Exchange, which
the Exchange believes will enhance market quality in all ETPs, Primary
Equity Securities, and Closed-End Funds listed on the Exchange.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposal to include Primary Equity
Securities and Closed-End Funds in the LMM Program is consistent with
the Act for the same reasons that ETPs are currently include in the LMM
Program: Because it will enhance market quality in Cboe-listed Primary
Equity Securities and Closed-End Funds both throughout the day and in
the closing auction by incentivizing liquidity provision on the
Exchange and requiring LMMs to meet the Minimum Performance Standards.
Specifically, the Exchange believes that the proposal will enhance
market quality in Cboe-listed Primary Equity Securities and Closed-End
Funds by incentivizing liquidity provision on the Exchange in such
securities and requiring LMMs to meet the Minimum Performance Standards
in order to receive daily incentives in such securities in the same way
that the LMM Program provides enhanced market quality on the Exchange
in ETPs. Further, the Exchange believes that adding Primary Equity
Securities and Closed-End Funds will further act to strengthen the LMM
Program by providing additional potential securities for an LMM to take
on in order to
[[Page 21059]]
increase their average aggregate daily auction volume in their LMM
Securities, allowing both new and existing LMMs with the possibility of
receiving increased daily incentives. The Exchange also believes that
it is appropriate to include Primary Equity Securities and Closed-End
Funds in the LMM Program, which currently only applies to ETPs,
because, despite being issued by different types of Companies,\16\ the
metrics used to measure market quality as Minimum Performance Standards
in ETPs under the current LMM Program are generally the same metrics
that are used to measure market quality for Primary Equity Securities
and Closed-End Funds.\17\ Specifically, tighter spreads, deeper
liquidity, and enhanced auction executions result in better overall
market quality in an LMM Security and result in better executions for
investors, regardless of whether the instrument the investor is buying
or selling as a Primary Equity Security, a Closed-End Fund, or an ETP.
Further to this point, the term ETP encapsulates all securities listed
on the Exchange pursuant to Rule 14.11, which includes securities
issued by varying types of trusts, debt instruments issued by banks,
among others, that hold or track varying types of instruments including
U.S. and foreign equity securities, Closed-End Funds, corporate debt,
treasury securities, commodities, and more. The term ETP is already a
broad term and the Exchange believes that adding Primary Equity
Securities and Closed-End Funds to the LMM Program is generally
consistent with the rationale underlying the LMM Program applying to
ETPs. In addition, adding Primary Equity Securities and Closed-End
Funds to the existing LMM Program will further incentivize existing
LMMs to act as LMM for Primary Equity Securities and Close-End Funds
by: (i) Allowing an LMM apply the pricing applicable to its existing
average aggregate daily auction volume in its LMM Securities to any new
Primary Equity Securities and Closed-End Funds; and (ii) keeping the
administration of the LMM Program as straight-forward as possible by
simply adding Primary Equity Securities and Closed-End Funds to the
structure that LMMs are already familiar with.
---------------------------------------------------------------------------
\16\ As defined in Rule 14.1(a)(3), the term Company means the
issuer of a security listed or applying to list on the Exchange. For
purposes of Chapter XIV, the term ``Company'' includes an issuer
that is not incorporated, such as, for example, a limited
partnership.
\17\ To this point, the Exchange notes that all of the proposed
Minimum Performance Standards applicable to Primary Equity
Securities and Closed-End Funds as provided in proposed Rule
11.8(e)(1)(E)(i)-(v) fall within the ranges currently applicable to
ETPs as provided in the Original LMM Filing.
---------------------------------------------------------------------------
The Exchange believes that these changes will both enhance
liquidity in Cboe-listed Primary Equity Securities and Closed-End Funds
and help the Exchange to compete as a primary listing venue for such
products. Similarly, the Exchange believes that it will allow it to
better compete as a listing venue in that it will allow the Exchange to
implement a liquidity provision program that includes security types
already included in a liquidity provision program on its competitor, as
described above.
The Exchange also believes that the proposal to add Primary Equity
Securities and Closed-End Funds to the LMM Program is a reasonable
means to incentivize liquidity provision in such securities listed on
the Exchange. The marketplace for listings is extremely competitive and
there are several other national securities exchanges that offer
listings for ETPs, Primary Equity Securities, and Closed-End Fund.
Transfers between listing venues occur frequently \18\ for numerous
reasons, including market quality. This proposal is intended to help
the Exchange compete as a listing venue. Further, the Exchange notes
that the proposed incentives are not transaction fees, nor are they
fees paid by participants to access the Exchange. Rather, the proposed
payments are based on achieving certain objective market quality
metrics.
---------------------------------------------------------------------------
\18\ For example, 16 ETPs transferred their listings to the
Exchange on May 13, 2019. See https://ir.cboe.com/~/media/Files/C/
CBOE-IR-V2/press-release/2019/cboe-welcomes-16-barclays-etns.pdf.
---------------------------------------------------------------------------
Further, the Exchange believes that it is reasonable, equitable,
and not unfairly discriminatory to add Primary Equity Securities and
Closed-End Funds to the LMM Program. Specifically, the Exchange
believes that the proposal is reasonable, equitable, and not unfairly
discriminatory because it will enhance market quality in Cboe-listed
Primary Equity Securities and Closed-End Funds by incentivizing
liquidity provision on the Exchange in such securities and requiring
LMMs to meet the Minimum Performance Standards in order to receive
daily incentives in such securities. While the proposed payments apply
only to LMMs, such LMMs must meet rigorous Minimum Performance
Standards in order to receive even the lower Qualified Security
payments, resulting in better market quality in Exchange-listed
securities and better executions for investors. Further, in order to
qualify as an Enhanced Security and receive an additional payment above
the payment for Qualified Securities, an LMM must meet even more
rigorous market quality metrics in the security, which further enhances
market quality and investor executions in Exchange-listed securities.
Where an LMM does not meet the Minimum Performance Standards, they will
not receive the payments. Further, registration as an LMM is available
equally to all Members and allocation of listed securities between LMMs
is governed by Exchange Rule 11.8(e)(2). If an LMM does not meet the
Minimum Performance Standards for three out of the past four months,
the LMM is subject to forfeiture of LMM status for that LMM Security,
at the Exchange's discretion.
Further, the daily payment amounts are based specifically on the
Exchange's revenue model. For securities with greater auction volume,
the Exchange generally makes more money and, thus, is able to offer
LMMs with LMM Securities that have higher average aggregate daily
auction volume higher payments. The buckets and payments are modeled
based both on current revenue and product distribution among LMMs as
well as expected revenue and product distribution in the future
including organic growth among existing products, securities
transferring to the Exchange, and additional participants in the LMM
Program. The Exchange believes that it is fair and reasonable and not
unfairly discriminatory to offer different pricing between the
different auction volume tiers because those tiers and possible
payments are specifically tailored to the Exchange's expected revenue
from that auction volume.
Specifically, the proposed payment per Qualified Security (and thus
the total payment to an LMM) generally goes up as the CADV moves from
left to right because as the average aggregate daily auction volume in
LMM Securities increases, the Exchange will generate additional revenue
and can thus support increased payments to LMMs. Similarly, the
proposed payments per Qualified Security generally go down as the
number of Qualified Securities goes up in order to ensure that the
daily incentive payments do not exceed the Exchange's revenue for that
LMM's LMM Securities while still providing incentives for LMMs to take
on additional ETPs, Primary Equity Securities, and Closed-End Funds. As
such, the Exchange believes that the proposal represents an equitable
allocation of payments.
[[Page 21060]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
the proposed change burdens competition, but rather, enhances
competition as it is intended to increase the competitiveness of BZX
both among Members by incentivizing Members to become LMMs in BZX-
listed securities and as a listing venue by enhancing market quality in
BZX-listed securities. The marketplace for listings is extremely
competitive and there are several other national securities exchanges
that offer listings. Transfers between listing venues occur frequently
\19\ for numerous reasons, including market quality. This proposal is
intended to help the Exchange compete as a listing venue. Accordingly,
the Exchange does not believe that the proposed change will impair the
ability of issuers, LMMs, or competing listing venues to maintain their
competitive standing. The Exchange also notes that the proposed change
is intended to enhance market quality in BZX-listed Primary Equity
Securities and Closed-End Funds, to the benefit of all investors in
such BZX-listed securities. The Exchange does not believe the proposed
amendment would burden intramarket competition as it would be available
to all Members uniformly. Registration as an LMM is available equally
to all Members and allocation of listed securities between LMMs is
governed by Exchange Rule 11.8(e)(2). Further, if an LMM does not meet
the Minimum Performance Standards for three out of the past four
months, the LMM is subject to forfeiture of LMM status for that LMM
Security, at the Exchange's discretion.
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\19\ For example, 16 ETPs transferred their listings to the
Exchange on May 13, 2019. See https://ir.cboe.com/~/media/Files/C/
CBOE-IR-V2/press-release/2019/cboe-welcomes-16-barclays-etns.pdf.
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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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \22\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. Waiver
of the operative delay would allow the Exchange to expand its LMM
Program to Primary Equity Securities and Closed-End Funds without
delay, which the Exchange believes will provide market quality
enhancements. The Commission notes that a similar program on another
exchange applies to these types of securities \24\ and that the
proposed performance standards are similar to those already in place on
the Exchange with respect to ETPs listed on the Exchange. Therefore,
the Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the operative delay and
designates the proposed rule change operative upon filing.\25\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ See supra note 8.
\25\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 shall 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 [email protected]. Please include
File Number SR-CboeBZX-2020-032 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-2020-032. 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-2020-032, and should be
submitted on or before May 6, 2020.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07947 Filed 4-14-20; 8:45 am]
BILLING CODE 8011-01-P
