Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend its Fee Schedule, 21902-21906 [2020-08210]
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Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Notices
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estimates that the annual hour burden of
the collection of information imposed
by rule 19b–1(e) would be
approximately five hours per fund, at a
cost of $6,136.50.6 Because the staff
estimates that, each year, three funds
will file an application pursuant to rule
19b–1(e), the total burden for the
information collection is 15 hours at a
cost of $18,409.50.7
Commission staff estimates that there
is no hour burden associated with
complying with the collection of
information component of rule 19b–1(c).
As noted above, Commission staff
understands that funds that file an
application under rule 19b–1(e)
generally use outside counsel to prepare
the application.8 The staff estimates
that, on average, outside counsel spends
10 hours preparing a rule 19b–1(e)
application, including eight hours by an
associate and two hours by a partner.
Outside counsel billing arrangements
and rates vary based on numerous
factors, but the staff has estimated the
average cost of outside counsel as $400
per hour, based on information received
from funds, intermediaries, and their
counsel. The staff therefore estimates
that the average cost of outside counsel
preparation of the rule 19b–1(e)
exemptive application is $4,000.9
Because the staff estimates that, each
year, five funds will file an application
pursuant to rule 19b–1(e), the total
annual cost burden imposed by the
exemptive application requirements of
rule 19b–1(e) is estimated to be
$12,000.10
The Commission staff estimates that
there are approximately 2,230 UITs 11
that may rely on rule 19b–1(c) to make
capital gains distributions. The staff
estimates that, on average, these UITs
rely on rule 19b–1(c) once a year to
make a capital gains distribution.12 In
6 This estimate is based on the following
calculations: $1,631 (3.5 hours × $466 = $1,631)
plus $40.5 (0.5 hours × $81 = $40.5) plus $4,465
equals $6,136.50 (cost of one application).
7 This estimate is based on the following
calculation: $6,136.50 (cost of one application)
multiplied by 3 applications = $18,409.50 total cost.
8 This understanding is based on conversations
with representatives from the fund industry.
9 This estimate is based on the following
calculation: 10 hours multiplied by $400 per hour
equals $4,000.
10 This estimate is based on the following
calculation: $4,000 multiplied by 3 funds equals
$12,000.
11 See 2019 Investment Company Fact Book,
Investment Company Institute, available at https://
www.ici.org/pdf/2019_factbook.pdf.
12 The number of times UITs rely on the rule to
make capital gains distributions depends on a wide
range of factors and, thus, can vary greatly across
years and UITs. UITs may distribute capital gains
biannually, annually, quarterly, or at other
intervals. Additionally, a number of UITs are
organized as grantor trusts, and therefore do not
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most cases, the trustee of the UIT is
responsible for preparing and sending
the notices that must accompany a
capital gains distribution under rule
19b–1(c)(2). These notices require
limited preparation, the cost of which
accounts for only a small, indiscrete
portion of the comprehensive fee
charged by the trustee for its services to
the UIT. The staff believes that as a
matter of good business practice, and for
tax preparation reasons, UITs would
collect and distribute the capital gains
information required to be sent to
unitholders under rule 19b–1(c) even in
the absence of the rule. The staff
estimates that the cost of preparing a
notice for a capital gains distribution
under rule 19b–1(c)(2) is approximately
$50. There is no separate cost to mail
the notices because they are mailed with
the capital gains distribution. Thus, the
staff estimates that the capital gains
distribution notice requirement imposes
an annual cost on UITs of
approximately $111,500.13 The staff
therefore estimates that the total cost
imposed by rule 19b–1 is $123,500.14
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to (i) www.reginfo.gov/public/do/
PRAMain and (ii) David Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission,
c/o Cynthia Roscoe, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
Dated: April 15, 2020.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08340 Filed 4–17–20; 8:45 am]
BILLING CODE 8011–01–P
generally make capital gains distributions under
rule 19b–1(c), or may not rely on rule 19b–1(c) as
they do not meet the rule’s requirements.
13 This estimate is based on the following
calculation: 2,230 UITs multiplied by $50 equals
$111,500.
14 $111,500 (total cost associated with rule 19b–
1(c)) + $12,000 (total cost associated with rule 19b–
1(e)) = $123,500.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88632; File No. SR–
CboeBZX–2020–033]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend its Fee Schedule
April 14, 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, 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. (the
‘‘Exchange’’ or ‘‘BZX’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend its Fee Schedule. The text of
the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (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.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend its
fee schedule for its equity options
platform (‘‘BZX Options’’).3
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 21% of the market share and
currently the Exchange represents only
12% of the market share.4 Thus, in such
a low-concentrated and highly
competitive market, no single options
exchange, including the Exchange,
possesses significant pricing power in
the execution of option order flow. The
Exchange believes that the ever-shifting
market share among the exchanges from
month to month demonstrates that
market participants can shift order flow,
or discontinue to reduce use of certain
categories of products, in response to fee
changes. Accordingly, competitive
forces constrain the Exchange’s
transaction fees, and market participants
can readily trade on competing venues
if they deem pricing levels at those
other venues to be more favorable. The
Exchange’s fee schedule sets forth
standard rebates and rates applied per
contract. For example, the Exchange
assesses a standard rebate of $0.29 per
contract for Market Maker orders that
add liquidity in Penny Pilot Securities
and a standard rebate of $0.40 per
contract in Non-Penny Pilot Securities.
Additionally, the Exchange assesses a
standard fee of $0.50 per contract for
non-Customer orders that remove
liquidity in Penny Pilot Securities and
a standard fee of $1.07 per contract in
Non-Penny Pilot Securities.
Additionally, in response to the
competitive environment, the Exchange
also offers tiered pricing, as discussed in
further detail in the following
paragraphs, which provides Members
opportunities to qualify for higher
3 The Exchange initially filed the proposed fee
changes on April 1, 2020 (SR–CboBZX–2020–030).
On April 8, 2020, the Exchange withdrew that filing
and submitted this filing.
4 See Cboe Global Markets U.S. Options Market
Volume Summary (March 27, 2020), available at
https://markets.cboe.com/us/options/market_
statistics/.
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rebates or reduced fees where certain
volume criteria and thresholds are met.
Tiered pricing provides an incremental
incentive for Members to strive for
higher tier levels, which provides
increasingly higher benefits or discounts
for satisfying increasingly more
stringent criteria.
Non-Customer Penny Pilot Take Volume
Tiers
The Exchange currently offers three
Non-Customer Penny Pilot Take Volume
Tiers under footnote 3 of the Fee
Schedule which provides reduced fees
between $0.44 and $0.47 per contract
for qualifying non-Customer orders
which meet certain add liquidity
thresholds and yield fee code PP.5
Under current Non-Customer Penny
Pilot Take Volume Tier 1, a Member
receives a reduced fee of $0.44 per
contract where the Member (1) has an
average daily added volume (‘‘ADAV’’) 6
in Customer orders greater than or equal
to 0.80% of average options
consolidated volume (‘‘OCV’’),7 (2) has
an ADAV in Market Maker orders
greater than or equal to 0.35% of
average OCV; (3) has on BZX Equities an
ADAV 8 greater than or equal to 0.30%
of average total consolidated volume
(‘‘TCV’’); 9 and (4) has an ADAV in
Customer Non-Penny orders greater
than or equal to 0.05% of average OCV.
Now, the Exchange proposes to increase
the applicable fee and modify
thresholds (3) and (4) of Tier 1 listed
previously. Accordingly, under the
proposed thresholds for Tier 1 a
Member would receive a reduced fee of
$0.45 per contract where the Member (1)
has an ADAV in Customer orders greater
than or equal to 0.80% of average OCV;
(2) has an ADAV in Market Maker
orders greater than or equal to 0.35% of
average OCV; (3) has on BZX Equities an
ADAV or greater than or equal to 1.00%
of average TCV; and (4) has an ADAV
5 Orders yielding fee code PP are non-Customer
orders that remove liquidity in Penny Pilot
securities.
6 ADAV means average daily added volume
calculated as the number of contracts added per
day.
7 OCV means the total equity and ETF options
volume that clears in the Customer range at the
Options Clearing Corporation (‘‘OCC’’) for the
month for which the fees apply, excluding volume
on any day that the exchange experiences an
Exchange System Disruption and on any day with
a scheduled early market close.
8 ADAV on BZX Equities means average daily
added volume calculated as the number of shares
added per day.
9 TCV on BZX Equities means average daily
added volume calculated as the number of
displayed shares added that establish a new
National Best Bid and Offer (‘‘NBBO’’) as a
percentage of TCV [sic].
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21903
in Customer Non-Penny orders greater
than or equal to 0.10% of average OCV.
Under current Non-Customer Penny
Take Volume Tier 3, a Member receives
a reduced fee of $0.44 per contract
where the Member has (1) an ADAV in
Customer orders equal to or greater than
1.70% of average OCV; and (2) has an
ADAV in Customer Non-Penny orders
equal to or greater than 0.30% of
average OCV. Now, the Exchange
proposes to increase the fee and modify
thresholds (1) and (2) associated with
Tier 3. Accordingly, under the proposed
thresholds for Tier 3 a Member would
receive a reduced fee of $0.45 per
contract where the Member has (1) an
ADAV in Customer orders equal to or
greater than 2.00% of average OCV; and
(2) has an ADAV in Customer NonPenny orders equal to or greater than
0.40% of average OCV.
Although the proposed fees and
thresholds under Tier 1 and 3 of the
Non-Customer Penny Take Volume
Tiers are higher and more stringent than
the current fees for such tiers, Members
will still have an opportunity to receive
a reduced fee for meeting the applicable
tier thresholds which are in line with
similar fees for non-Customer orders in
place on other options exchanges.10
Based on the above proposed changes,
the Exchange also proposes to make
corresponding changes to the Standard
Rates table included in the Exchange’s
Fee Schedule.
Market-Maker Penny Pilot Add Volume
Tiers
The Exchange currently offers 10
Market Maker Penny Pilot Add Volume
Tiers under footnote 6 of the fee
schedule which provide rebates
between $0.33 and $0.46 per contract
for qualifying Market Maker orders
which meet certain add liquidity
thresholds and yield fee code PM.11
Under current Tier 9 of the Market
Maker Penny Pilot Add Volume Tiers, a
Member receives a rebate of $0.44 per
contract where the Member (1) has an
ADAV in Market Maker orders greater
than or equal to 0.10% of average OCV;
(2) has on BZX Equities an ADV of equal
to or greater than 0.60% of average TCV;
and (3) has a step-up ADAV in Market
maker orders from December 2019 of
equal to or greater than 0.05% of
average OCV. Now, the Exchange
proposes to modify existing thresholds
(1) and (2), eliminate threshold (3), and
10 See e.g., NYSE Arca imposes a fee of $0.50 per
contract for non-Customer orders that remove
liquidity. Similarly, Nasdaq imposes a fee ranging
from $0.48 up to $0.50 for non-customer orders that
remove liquidity.
11 Orders yielding fee code PM are Market Maker
orders that add liquidity in Penny Pilot securities.
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add a new threshold. Specifically, under
the proposed thresholds for Tier 9, a
Member would receive a rebate of $0.44
per contract where the Member (1) has
an ADAV in Market Maker orders equal
to or greater than 0.50% of average OCV;
(2) has an ADAV in Market Maker NonPenny orders of equal to or greater than
0.15% of average OCV; and (3) has on
BZX Equities an ADV of equal to or
greater than 1.00% of average TCV.
Although the proposed changes to
Tier 9 of the Market Maker Penny Pilot
Add Volume Tiers is more stringent
than the current tier, the Exchange
believes it provides an incremental
incentive proportionate to the proposed
rebate. Furthermore, the proposed
criteria is similar to existing criteria on
the Exchange.12
In addition to the above, the Exchange
proposes to modify Tiers 3, 6, and 8 of
the Market Maker Penny Pilot Add
Volume Tiers in order to clarify that the
applicable average daily removed
volume (‘‘ADRV’’) 13 criteria is
applicable only to Market Maker
orders.14
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Market Maker Non-Penny Add Volume
Tier
The Exchange currently offers three
Market Maker Non-Penny Pilot Add
Volume Tiers under footnote 7 of the fee
schedule which provides enhanced
rebates between $0.45 and $0.86 per
contract for qualifying Market Maker
orders which meet certain add liquidity
thresholds and yield fee code NM.15
Under the current Tier 3 of the Market
Maker Non-Penny Pilot Add Volume
Tiers, a Member receives an enhanced
rebate of $0.86 per contract where the
Member has (1) an ADAV in Market
Maker orders greater or equal to 1.00%
of average OCV and an ADAV in Market
Maker non-penny orders of greater or
equal to a 0.20% of average OCV. Now,
the Exchange proposes to modify the
rebate and threshold (2) of Tier 3.
Specifically, under the proposal a
Member would receive a rebate of $0.88
per contract where the Member (1) has
an ADAV in Market Maker orders
greater than or equal to 1.00% of
average OCV; and (2) has an ADAV in
12 See Tier 2 [sic] of the Market Maker Non-Penny
Pilot Add Volume Tiers (footnote 7).
13 ADRV means average daily removed volume
calculated as the number of contracts removed.
14 The Exchange notes it inadvertently failed to
specify in the Fees Schedule that the ADRV volume
was applicable to Market Maker orders only, but
did address the requirement in the rule filing when
Tiers 3, 6 and 8 were adopted. See Securities
Exchange Act No. 85846 (May 13, 2019) 84 FR
22546 (May 17, 2019) (SR–CboeBZX–2019–038).
15 Orders yielding fee code NM are Market Maker
orders that add liquidity in Non-Penny Pilot
securities.
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Market Maker Non-Penny orders of
greater than or equal to 0.10% of
average OCV. Additionally, the
Exchange proposes to make
corresponding changes to the Standard
Rates table included in the Exchange’s
Fee Schedule.
The proposed changes to Tier 3 of the
Market Maker Non-Penny Pilot Add
Volume Tiers are designed to encourage
a Market Maker’s liquidity adding
volume in Non-Penny orders, and
moreover to encourage Members to
increase their order flow, thereby
contributing to a deeper and more liquid
market, which benefits all market
participants and provides greater
execution opportunities on the
Exchange.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,16 in general, and
furthers the requirements of Section
6(b)(4),17 in particular, as it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its facilities and does not
unfairly discriminate between
customers, issuers, brokers or dealers.
The Exchange operates in a highlycompetitive market in which market
participants can readily direct order
flow to competing venues if they deem
fee levels at a particular venue to be
excessive or incentives to be
insufficient. The proposed rule changes
reflect a competitive pricing structure
designed to incentivize market
participants to direct their order flow to
the Exchange, which the Exchange
believes would enhance market quality
to the benefit of all Members.
In particular, the Exchange believes
the proposed modifications to the NonCustomer Penny Pilot Take Volume
Tiers, Market Maker Penny Pilot Add
Volume Tiers, and Market Maker NonPenny Add Volume Tiers is reasonable
because it provides an additional
opportunity for Members to receive a
higher rebate or lower fee by providing
additional criteria they can reach for.
The Exchange notes that volume-based
incentives and discounts have been
widely adopted by exchanges,18
including the Exchange,19 and are
16 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
18 See e.g., Cboe EDGX U.S. Options Exchange
Fee Schedule, Footnote 2, Market Maker Volume
Tiers, which provide reduced fees between $0.01
and $0.17 per contract for Market Maker Penny and
Non-Penny orders where Members meet certain
volume thresholds.
19 See e.g., Cboe BZX U.S. Options Exchange Fee
Schedule, Footnotes 6 and 7, Market Maker Penny
Pilot and Non-Penny Pilot Volume Tiers which
17 15
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reasonable, equitable and nondiscriminatory because they are open to
all Members on an equal basis and
provide additional benefits or discounts
that are reasonably related to (i) the
value to an exchange’s market quality
and (ii) associated higher levels of
market activity, such as higher levels of
liquidity provision and/or growth
patterns. Additionally, as noted above,
the Exchange operates in highly
competitive market. The Exchange is
only one of several options venues to
which market participants may direct
their order flow, and it represents a
small percentage of the overall market.
Competing options exchanges offer
similar tiered pricing structures to that
of the Exchange, including schedules of
rebates and fees that apply based upon
Members achieving certain volume and/
or growth thresholds. These competing
pricing schedules, moreover, are
presently comparable to those that the
Exchange provides.
Moreover, the Exchange believes the
proposed changes are a reasonable
means to encourage Members to
increase their liquidity on the Exchange.
The Exchange believes that the modified
criteria to certain of the existing NonCustomer Penny Pilot Take Volume
Tiers, Market Maker Penny Pilot Add
Volume Tiers, and Market Maker NonPenny Add Volume Tiers may
encourage Members to increase their
order flow on the Exchange. Increased
liquidity benefits all investors by
deepening the Exchange’s liquidity
pool, offering additional flexibility for
all investors to enjoy cost savings,
supporting the quality of price
discovery, promoting market
transparency and improving investor
protection. The Exchange also believes
that proposed changes are reasonable
based on the difficulty of satisfying each
tier’s criteria and ensures the proposed
rebate/fee and threshold appropriately
reflects the incremental difficulty to
achieve the applicable tier.
The Exchange believes that the
proposal represents an equitable
allocation of fees and is not unfairly
discriminatory because it applies
uniformly to either non-Customer or
Market Maker orders, as applicable.
Further, the Exchange provides for
similar standard fees to Customer 20
orders for liquidity removing volume in
Penny Pilot securities as compared to
proposed modified Tiers 1 and 3 of the
Non-Customer Penny Pilot Take Volume
provide enhanced rebates for Market Maker orders
where Members meet certain volume thresholds.
20 See the Standard Rates table which provides
that Customer orders that remove liquidity in Penny
Pilot securities incur a fee of $0.50 per contract.
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Tiers. Similarly, the Exchange offers
similar tiers to Joint-Back Office,21
Away Market Maker,22 and Customer 23
orders for liquidity adding volume in
both Penny Pilot and Non-Penny Pilot
securities as compared to proposed
modified Tier 9 of the Market Maker
Penny Pilot Add Volume Tiers and Tier
3 of the Market Maker Non-Penny Pilot
Add Volume Tiers.
Additionally, a number of NonCustomers have a reasonable
opportunity to satisfy the proposed
modified Tier 1 and Tier 3 of the NonCustomer Penny Pilot Take Volume
Tiers, which the Exchange believes are
more stringent than existing Tier 1 and
Tier 3. While the Exchange has no way
of knowing whether this proposed rule
change would definitively result in any
particular Non-Customer qualifying for
the proposed modified tiers, the
Exchange anticipates at least two
Members to compete for and reasonably
achieve each the proposed modified
tiers; however, the proposed modified
tiers are open to any Non-Customer that
satisfies the applicable tier’s criteria.
The Exchange believes the proposed tier
could provide an incentive for other
Members to submit additional liquidity
on the Exchange to qualify for the
proposed enhanced rebate.
Similarly, a number of Market Makers
have a reasonable opportunity to satisfy
the proposed modified Tier 9 of the
Market Maker Penny Pilot Add Volume
Tiers (footnote 6) and Tier 3 of the
Market Maker Non-Penny Pilot Add
Volume Tiers (footnote 7). While the
Exchange has no way of knowing
whether this proposed rule change
would definitively result in any
particular Market Maker qualifying for
the proposed modified tiers, the
Exchange anticipates at least three
Market Makers to compete for and
reasonably achieve proposed modified
Tier 9 of the Market Maker Penny Pilot
Add Volume Tiers and at least one
Market Maker to compete for and
reasonably achieve proposed modified
Tier 3 of the Market Maker Non-Penny
Pilot Add Volume Tiers; however, the
proposed modified tiers are open to any
Non-Customer that satisfies the
applicable tier’s criteria. The Exchange
21 See e.g., the Firm, Broker Dealer, and Joint Back
Office Non-Penny Pilot Add Volume Tiers in the
Exchange’s Fee Schedule. Tier 4 offers a rebate of
up to $0.82 per contract to Members satisfying the
tier.
22 See e.g., the Away Market Maker Non-Penny
Pilot Add Volume Tiers in the Exchange’s Fee
Schedule. Tier 2 offers a rebate of up to $0.52 per
contract to Members satisfying the tier.
23 See e.g., the Customer Non-Penny Pilot Add
Volume Tiers in the Exchange’s Fee Schedule. Tier
4 offers a rebate of up $1.05 per contract to
Members satisfying the tier.
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believes the proposed modified tiers
could provide an incentive for other
Members to submit additional liquidity
on the Exchange to qualify for the
proposed enhanced rebate.
The Exchange also notes that the
proposal will not adversely impact any
Member’s pricing or their ability to
qualify for other tiers. Rather, should a
Member not meet the proposed criteria,
the Member will merely not receive the
proposed enhanced rebate or reduced
fee. Furthermore, the proposed
enhanced rebate or reduced fee would
apply to all Members that meet the
required criteria under the applicable
proposed tier of Non-Customer Penny
Pilot Take Volume Tiers, Market Maker
Penny Pilot Add Volume Tiers, and
Market Maker Non-Penny Add Volume
Tiers.
Lastly, the Exchange notes that the
proposed changes to Tiers 3, 6, and 8 of
the Market Maker Penny Pilot Add
Volume Tiers is non-substantive and is
merely intended to provide clarity to
market participants that the ADRV
criteria is applied based on Market
Maker orders. As such, the Exchange
believes that the proposed changes
would eliminate any potential
confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket or
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, as
discussed above, the Exchange believes
that the proposed changes would
encourage the submission of additional
liquidity to a public exchange, thereby
promoting market depth, price
discovery and transparency and
enhancing order execution
opportunities for all Members. As a
result, the Exchange believes that the
proposed change furthers the
Commission’s goal in adopting
Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 24
The Exchange believes the proposed
rule change does not impose any burden
on intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Particularly,
the proposed changes apply to all
Members equally in that all Members
are eligible for the proposed modified
24 Securities Exchange Act Release No. 51808, 70
FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
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21905
tiers, have a reasonably opportunity to
meet each tier’s criteria and will all
receive the proposed reduced fee or
enhanced rebate if such criteria is met.
Although the proposed changes to the
Non-Customer Penny Pilot Take Volume
Tiers 1 and 3 and Tier 9 of the Market
Maker Penny Pilot Add Volume Tiers
are more stringent than the current
applicable tier, the Exchange believes
they provide an incremental incentive
proportionate to the proposed rebate or
reduced fee. Furthermore, the Exchange
believes the proposed modifications to
Tier 3 of the Market Maker Non-Penny
Pilot Add Volume Tiers will encourage
Members to increase their order flow in
Non-Penny Pilot securities on the
Exchange. Increased liquidity benefits
all investors by deepening the
Exchange’s liquidity pool, offering
additional flexibility for all investors to
enjoy cost savings, supporting the
quality of price discovery, promoting
market transparency and improving
investor protection. The Exchange
believes the proposed rule changes to
Tiers 3, 6, and 8 will have no impact on
intramarket competition as the proposed
changes are non-substantive.
Next, the Exchange believes the
proposed rule changes do not impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
As previously discussed, the Exchange
operates in a highly competitive market.
Members have numerous alternative
venues that they may participate on and
director their order flow, including 15
other options exchanges and offexchange venues. Additionally, the
Exchange represents a small percentage
of the overall market. Based on publicly
available information, no single options
exchange has more than 21% of the
market share.25 Therefore, no exchange
possesses significant pricing power in
the execution of option order flow.
Indeed, participants can readily choose
to send their orders to other exchange
and off-exchange venues if they deem
fee levels at those other venues to be
more favorable. Moreover, the
Commission has repeatedly expressed
its preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. Specifically, in
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
25 Supra
E:\FR\FM\20APN1.SGM
note 3 [sic].
20APN1
21906
Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Notices
investors and listed companies.’’ 26 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . ..’’.27 Accordingly, the
Exchange does not believe its proposed
fee changes impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 28 and paragraph (f) of Rule
19b–4 29 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
jbell on DSKJLSW7X2PROD with NOTICES
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.
26 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
27 NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
28 15 U.S.C. 78s(b)(3)(A).
29 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
18:34 Apr 17, 2020
Jkt 250001
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–88634; File No. SR–BOX–
2019–19]
• 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–2020–033 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–2020–033. 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–2020–033 and
should be submitted on or before May
11, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08210 Filed 4–17–20; 8:45 am]
BILLING CODE 8011–01–P
30 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00085
Fmt 4703
Sfmt 4703
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Designation
of Longer Period for Commission
Action on Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by
Amendment No. 2, To Adopt Rules
Governing the Trading of Equity
Securities on the Exchange Through a
Facility of the Exchange Known as the
Boston Security Token Exchange LLC
April 14, 2020.
On September 27, 2019, BOX
Exchange LLC (the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt rules governing the
listing and trading of equity securities
that would be NMS stocks on the
Exchange through a facility of the
Exchange known as the Boston Security
Token Exchange LLC. The proposed
rule change was published for comment
in the Federal Register on October 18,
2019.3
On November 29, 2019, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.5
On December 26, 2019, the Exchange
filed Amendment No. 1 to the proposed
rule change, which amended the
proposed rule change as originally
filed.6 On January 16, 2020, the
Commission published Amendment No.
1 for notice and comment and instituted
proceedings to determine whether to
approve or disapprove the proposed
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 87287
(October 11, 2019), 84 FR 56022 (October 18, 2019)
(‘‘Original Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 87641
(November 29, 2019), 84 FR 66701 (December 5,
2019). The Commission designated January 16,
2020, as the date by which the Commission shall
approve or disapprove, or institute proceedings to
determine whether to approve or disapprove, the
proposed rule change.
6 When the Exchange filed Amendment No. 1 to
BOX–2019–19, it also submitted the text of the
partial amendment as a comment letter to the filing,
which the Commission made publicly available at
https://www.sec.gov/comments/sr-box-2019-19/
srbox201919-6613675-202939.pdf (‘‘Amendment
No. 1’’).
2 17
E:\FR\FM\20APN1.SGM
20APN1
]]>Agencies
[Federal Register Volume 85, Number 76 (Monday, April 20, 2020)]
[Notices]
[Pages 21902-21906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08210]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88632; File No. SR-CboeBZX-2020-033]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend its Fee Schedule
April 14, 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, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend its Fee Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (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.
[[Page 21903]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule for its equity
options platform (``BZX Options'').\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
April 1, 2020 (SR-CboBZX-2020-030). On April 8, 2020, the Exchange
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 21% of the market share and
currently the Exchange represents only 12% of the market share.\4\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange, including the Exchange, possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow, or discontinue to reduce use of certain categories of products,
in response to fee changes. Accordingly, competitive forces constrain
the Exchange's transaction fees, and market participants can readily
trade on competing venues if they deem pricing levels at those other
venues to be more favorable. The Exchange's fee schedule sets forth
standard rebates and rates applied per contract. For example, the
Exchange assesses a standard rebate of $0.29 per contract for Market
Maker orders that add liquidity in Penny Pilot Securities and a
standard rebate of $0.40 per contract in Non-Penny Pilot Securities.
Additionally, the Exchange assesses a standard fee of $0.50 per
contract for non-Customer orders that remove liquidity in Penny Pilot
Securities and a standard fee of $1.07 per contract in Non-Penny Pilot
Securities. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, as discussed in further detail
in the following paragraphs, which provides Members opportunities to
qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. Tiered pricing provides an incremental
incentive for Members to strive for higher tier levels, which provides
increasingly higher benefits or discounts for satisfying increasingly
more stringent criteria.
---------------------------------------------------------------------------
\4\ See Cboe Global Markets U.S. Options Market Volume Summary
(March 27, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
Non-Customer Penny Pilot Take Volume Tiers
The Exchange currently offers three Non-Customer Penny Pilot Take
Volume Tiers under footnote 3 of the Fee Schedule which provides
reduced fees between $0.44 and $0.47 per contract for qualifying non-
Customer orders which meet certain add liquidity thresholds and yield
fee code PP.\5\
---------------------------------------------------------------------------
\5\ Orders yielding fee code PP are non-Customer orders that
remove liquidity in Penny Pilot securities.
---------------------------------------------------------------------------
Under current Non-Customer Penny Pilot Take Volume Tier 1, a Member
receives a reduced fee of $0.44 per contract where the Member (1) has
an average daily added volume (``ADAV'') \6\ in Customer orders greater
than or equal to 0.80% of average options consolidated volume
(``OCV''),\7\ (2) has an ADAV in Market Maker orders greater than or
equal to 0.35% of average OCV; (3) has on BZX Equities an ADAV \8\
greater than or equal to 0.30% of average total consolidated volume
(``TCV''); \9\ and (4) has an ADAV in Customer Non-Penny orders greater
than or equal to 0.05% of average OCV. Now, the Exchange proposes to
increase the applicable fee and modify thresholds (3) and (4) of Tier 1
listed previously. Accordingly, under the proposed thresholds for Tier
1 a Member would receive a reduced fee of $0.45 per contract where the
Member (1) has an ADAV in Customer orders greater than or equal to
0.80% of average OCV; (2) has an ADAV in Market Maker orders greater
than or equal to 0.35% of average OCV; (3) has on BZX Equities an ADAV
or greater than or equal to 1.00% of average TCV; and (4) has an ADAV
in Customer Non-Penny orders greater than or equal to 0.10% of average
OCV.
---------------------------------------------------------------------------
\6\ ADAV means average daily added volume calculated as the
number of contracts added per day.
\7\ OCV means the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
\8\ ADAV on BZX Equities means average daily added volume
calculated as the number of shares added per day.
\9\ TCV on BZX Equities means average daily added volume
calculated as the number of displayed shares added that establish a
new National Best Bid and Offer (``NBBO'') as a percentage of TCV
[sic].
---------------------------------------------------------------------------
Under current Non-Customer Penny Take Volume Tier 3, a Member
receives a reduced fee of $0.44 per contract where the Member has (1)
an ADAV in Customer orders equal to or greater than 1.70% of average
OCV; and (2) has an ADAV in Customer Non-Penny orders equal to or
greater than 0.30% of average OCV. Now, the Exchange proposes to
increase the fee and modify thresholds (1) and (2) associated with Tier
3. Accordingly, under the proposed thresholds for Tier 3 a Member would
receive a reduced fee of $0.45 per contract where the Member has (1) an
ADAV in Customer orders equal to or greater than 2.00% of average OCV;
and (2) has an ADAV in Customer Non-Penny orders equal to or greater
than 0.40% of average OCV.
Although the proposed fees and thresholds under Tier 1 and 3 of the
Non-Customer Penny Take Volume Tiers are higher and more stringent than
the current fees for such tiers, Members will still have an opportunity
to receive a reduced fee for meeting the applicable tier thresholds
which are in line with similar fees for non-Customer orders in place on
other options exchanges.\10\
---------------------------------------------------------------------------
\10\ See e.g., NYSE Arca imposes a fee of $0.50 per contract for
non-Customer orders that remove liquidity. Similarly, Nasdaq imposes
a fee ranging from $0.48 up to $0.50 for non-customer orders that
remove liquidity.
---------------------------------------------------------------------------
Based on the above proposed changes, the Exchange also proposes to
make corresponding changes to the Standard Rates table included in the
Exchange's Fee Schedule.
Market-Maker Penny Pilot Add Volume Tiers
The Exchange currently offers 10 Market Maker Penny Pilot Add
Volume Tiers under footnote 6 of the fee schedule which provide rebates
between $0.33 and $0.46 per contract for qualifying Market Maker orders
which meet certain add liquidity thresholds and yield fee code PM.\11\
---------------------------------------------------------------------------
\11\ Orders yielding fee code PM are Market Maker orders that
add liquidity in Penny Pilot securities.
---------------------------------------------------------------------------
Under current Tier 9 of the Market Maker Penny Pilot Add Volume
Tiers, a Member receives a rebate of $0.44 per contract where the
Member (1) has an ADAV in Market Maker orders greater than or equal to
0.10% of average OCV; (2) has on BZX Equities an ADV of equal to or
greater than 0.60% of average TCV; and (3) has a step-up ADAV in Market
maker orders from December 2019 of equal to or greater than 0.05% of
average OCV. Now, the Exchange proposes to modify existing thresholds
(1) and (2), eliminate threshold (3), and
[[Page 21904]]
add a new threshold. Specifically, under the proposed thresholds for
Tier 9, a Member would receive a rebate of $0.44 per contract where the
Member (1) has an ADAV in Market Maker orders equal to or greater than
0.50% of average OCV; (2) has an ADAV in Market Maker Non-Penny orders
of equal to or greater than 0.15% of average OCV; and (3) has on BZX
Equities an ADV of equal to or greater than 1.00% of average TCV.
Although the proposed changes to Tier 9 of the Market Maker Penny
Pilot Add Volume Tiers is more stringent than the current tier, the
Exchange believes it provides an incremental incentive proportionate to
the proposed rebate. Furthermore, the proposed criteria is similar to
existing criteria on the Exchange.\12\
---------------------------------------------------------------------------
\12\ See Tier 2 [sic] of the Market Maker Non-Penny Pilot Add
Volume Tiers (footnote 7).
---------------------------------------------------------------------------
In addition to the above, the Exchange proposes to modify Tiers 3,
6, and 8 of the Market Maker Penny Pilot Add Volume Tiers in order to
clarify that the applicable average daily removed volume (``ADRV'')
\13\ criteria is applicable only to Market Maker orders.\14\
---------------------------------------------------------------------------
\13\ ADRV means average daily removed volume calculated as the
number of contracts removed.
\14\ The Exchange notes it inadvertently failed to specify in
the Fees Schedule that the ADRV volume was applicable to Market
Maker orders only, but did address the requirement in the rule
filing when Tiers 3, 6 and 8 were adopted. See Securities Exchange
Act No. 85846 (May 13, 2019) 84 FR 22546 (May 17, 2019) (SR-CboeBZX-
2019-038).
---------------------------------------------------------------------------
Market Maker Non-Penny Add Volume Tier
The Exchange currently offers three Market Maker Non-Penny Pilot
Add Volume Tiers under footnote 7 of the fee schedule which provides
enhanced rebates between $0.45 and $0.86 per contract for qualifying
Market Maker orders which meet certain add liquidity thresholds and
yield fee code NM.\15\
---------------------------------------------------------------------------
\15\ Orders yielding fee code NM are Market Maker orders that
add liquidity in Non-Penny Pilot securities.
---------------------------------------------------------------------------
Under the current Tier 3 of the Market Maker Non-Penny Pilot Add
Volume Tiers, a Member receives an enhanced rebate of $0.86 per
contract where the Member has (1) an ADAV in Market Maker orders
greater or equal to 1.00% of average OCV and an ADAV in Market Maker
non-penny orders of greater or equal to a 0.20% of average OCV. Now,
the Exchange proposes to modify the rebate and threshold (2) of Tier 3.
Specifically, under the proposal a Member would receive a rebate of
$0.88 per contract where the Member (1) has an ADAV in Market Maker
orders greater than or equal to 1.00% of average OCV; and (2) has an
ADAV in Market Maker Non-Penny orders of greater than or equal to 0.10%
of average OCV. Additionally, the Exchange proposes to make
corresponding changes to the Standard Rates table included in the
Exchange's Fee Schedule.
The proposed changes to Tier 3 of the Market Maker Non-Penny Pilot
Add Volume Tiers are designed to encourage a Market Maker's liquidity
adding volume in Non-Penny orders, and moreover to encourage Members to
increase their order flow, thereby contributing to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\16\ in general, and furthers the
requirements of Section 6(b)(4),\17\ in particular, as it is designed
to provide for the equitable allocation of reasonable dues, fees and
other charges among its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers. The Exchange operates
in a highly-competitive market in which market participants can readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive or incentives to be insufficient. The
proposed rule changes reflect a competitive pricing structure designed
to incentivize market participants to direct their order flow to the
Exchange, which the Exchange believes would enhance market quality to
the benefit of all Members.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed modifications to
the Non-Customer Penny Pilot Take Volume Tiers, Market Maker Penny
Pilot Add Volume Tiers, and Market Maker Non-Penny Add Volume Tiers is
reasonable because it provides an additional opportunity for Members to
receive a higher rebate or lower fee by providing additional criteria
they can reach for. The Exchange notes that volume-based incentives and
discounts have been widely adopted by exchanges,\18\ including the
Exchange,\19\ and are reasonable, equitable and non-discriminatory
because they are open to all Members on an equal basis and provide
additional benefits or discounts that are reasonably related to (i) the
value to an exchange's market quality and (ii) associated higher levels
of market activity, such as higher levels of liquidity provision and/or
growth patterns. Additionally, as noted above, the Exchange operates in
highly competitive market. The Exchange is only one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer similar tiered pricing structures to that of the
Exchange, including schedules of rebates and fees that apply based upon
Members achieving certain volume and/or growth thresholds. These
competing pricing schedules, moreover, are presently comparable to
those that the Exchange provides.
---------------------------------------------------------------------------
\18\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule,
Footnote 2, Market Maker Volume Tiers, which provide reduced fees
between $0.01 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
\19\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule,
Footnotes 6 and 7, Market Maker Penny Pilot and Non-Penny Pilot
Volume Tiers which provide enhanced rebates for Market Maker orders
where Members meet certain volume thresholds.
---------------------------------------------------------------------------
Moreover, the Exchange believes the proposed changes are a
reasonable means to encourage Members to increase their liquidity on
the Exchange. The Exchange believes that the modified criteria to
certain of the existing Non-Customer Penny Pilot Take Volume Tiers,
Market Maker Penny Pilot Add Volume Tiers, and Market Maker Non-Penny
Add Volume Tiers may encourage Members to increase their order flow on
the Exchange. Increased liquidity benefits all investors by deepening
the Exchange's liquidity pool, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection. The Exchange also believes that proposed changes are
reasonable based on the difficulty of satisfying each tier's criteria
and ensures the proposed rebate/fee and threshold appropriately
reflects the incremental difficulty to achieve the applicable tier.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because it
applies uniformly to either non-Customer or Market Maker orders, as
applicable. Further, the Exchange provides for similar standard fees to
Customer \20\ orders for liquidity removing volume in Penny Pilot
securities as compared to proposed modified Tiers 1 and 3 of the Non-
Customer Penny Pilot Take Volume
[[Page 21905]]
Tiers. Similarly, the Exchange offers similar tiers to Joint-Back
Office,\21\ Away Market Maker,\22\ and Customer \23\ orders for
liquidity adding volume in both Penny Pilot and Non-Penny Pilot
securities as compared to proposed modified Tier 9 of the Market Maker
Penny Pilot Add Volume Tiers and Tier 3 of the Market Maker Non-Penny
Pilot Add Volume Tiers.
---------------------------------------------------------------------------
\20\ See the Standard Rates table which provides that Customer
orders that remove liquidity in Penny Pilot securities incur a fee
of $0.50 per contract.
\21\ See e.g., the Firm, Broker Dealer, and Joint Back Office
Non-Penny Pilot Add Volume Tiers in the Exchange's Fee Schedule.
Tier 4 offers a rebate of up to $0.82 per contract to Members
satisfying the tier.
\22\ See e.g., the Away Market Maker Non-Penny Pilot Add Volume
Tiers in the Exchange's Fee Schedule. Tier 2 offers a rebate of up
to $0.52 per contract to Members satisfying the tier.
\23\ See e.g., the Customer Non-Penny Pilot Add Volume Tiers in
the Exchange's Fee Schedule. Tier 4 offers a rebate of up $1.05 per
contract to Members satisfying the tier.
---------------------------------------------------------------------------
Additionally, a number of Non-Customers have a reasonable
opportunity to satisfy the proposed modified Tier 1 and Tier 3 of the
Non-Customer Penny Pilot Take Volume Tiers, which the Exchange believes
are more stringent than existing Tier 1 and Tier 3. While the Exchange
has no way of knowing whether this proposed rule change would
definitively result in any particular Non-Customer qualifying for the
proposed modified tiers, the Exchange anticipates at least two Members
to compete for and reasonably achieve each the proposed modified tiers;
however, the proposed modified tiers are open to any Non-Customer that
satisfies the applicable tier's criteria. The Exchange believes the
proposed tier could provide an incentive for other Members to submit
additional liquidity on the Exchange to qualify for the proposed
enhanced rebate.
Similarly, a number of Market Makers have a reasonable opportunity
to satisfy the proposed modified Tier 9 of the Market Maker Penny Pilot
Add Volume Tiers (footnote 6) and Tier 3 of the Market Maker Non-Penny
Pilot Add Volume Tiers (footnote 7). While the Exchange has no way of
knowing whether this proposed rule change would definitively result in
any particular Market Maker qualifying for the proposed modified tiers,
the Exchange anticipates at least three Market Makers to compete for
and reasonably achieve proposed modified Tier 9 of the Market Maker
Penny Pilot Add Volume Tiers and at least one Market Maker to compete
for and reasonably achieve proposed modified Tier 3 of the Market Maker
Non-Penny Pilot Add Volume Tiers; however, the proposed modified tiers
are open to any Non-Customer that satisfies the applicable tier's
criteria. The Exchange believes the proposed modified tiers could
provide an incentive for other Members to submit additional liquidity
on the Exchange to qualify for the proposed enhanced rebate.
The Exchange also notes that the proposal will not adversely impact
any Member's pricing or their ability to qualify for other tiers.
Rather, should a Member not meet the proposed criteria, the Member will
merely not receive the proposed enhanced rebate or reduced fee.
Furthermore, the proposed enhanced rebate or reduced fee would apply to
all Members that meet the required criteria under the applicable
proposed tier of Non-Customer Penny Pilot Take Volume Tiers, Market
Maker Penny Pilot Add Volume Tiers, and Market Maker Non-Penny Add
Volume Tiers.
Lastly, the Exchange notes that the proposed changes to Tiers 3, 6,
and 8 of the Market Maker Penny Pilot Add Volume Tiers is non-
substantive and is merely intended to provide clarity to market
participants that the ADRV criteria is applied based on Market Maker
orders. As such, the Exchange believes that the proposed changes would
eliminate any potential confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Rather, as discussed above, the Exchange believes that the proposed
changes would encourage the submission of additional liquidity to a
public exchange, thereby promoting market depth, price discovery and
transparency and enhancing order execution opportunities for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \24\
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\24\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange believes the proposed rule change does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes apply to all Members equally in that all Members are eligible
for the proposed modified tiers, have a reasonably opportunity to meet
each tier's criteria and will all receive the proposed reduced fee or
enhanced rebate if such criteria is met. Although the proposed changes
to the Non-Customer Penny Pilot Take Volume Tiers 1 and 3 and Tier 9 of
the Market Maker Penny Pilot Add Volume Tiers are more stringent than
the current applicable tier, the Exchange believes they provide an
incremental incentive proportionate to the proposed rebate or reduced
fee. Furthermore, the Exchange believes the proposed modifications to
Tier 3 of the Market Maker Non-Penny Pilot Add Volume Tiers will
encourage Members to increase their order flow in Non-Penny Pilot
securities on the Exchange. Increased liquidity benefits all investors
by deepening the Exchange's liquidity pool, offering additional
flexibility for all investors to enjoy cost savings, supporting the
quality of price discovery, promoting market transparency and improving
investor protection. The Exchange believes the proposed rule changes to
Tiers 3, 6, and 8 will have no impact on intramarket competition as the
proposed changes are non-substantive.
Next, the Exchange believes the proposed rule changes do not impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and director their order flow, including 15 other options exchanges and
off-exchange venues. Additionally, the Exchange represents a small
percentage of the overall market. Based on publicly available
information, no single options exchange has more than 21% of the market
share.\25\ Therefore, no exchange possesses significant pricing power
in the execution of option order flow. Indeed, participants can readily
choose to send their orders to other exchange and off-exchange venues
if they deem fee levels at those other venues to be more favorable.
Moreover, the Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to
[[Page 21906]]
investors and listed companies.'' \26\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers' . . ..''.\27\ Accordingly, the Exchange
does not believe its proposed fee changes impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\25\ Supra note 3 [sic].
\26\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\27\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \28\ and paragraph (f) of Rule 19b-4 \29\
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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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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-2020-033 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-2020-033. 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-2020-033 and should be submitted
on or before May 11, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08210 Filed 4-17-20; 8:45 am]
BILLING CODE 8011-01-P
