Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee Schedule Relating to LMM Financial Incentives, 2473-2476 [2021-00349]
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Notices
(A) By order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
III. 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:
khammond on DSKJM1Z7X2PROD with NOTICES
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–
ICEEU–2020–018 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–ICEEU–2020–018. 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 such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website https://
www.theice.com/clear-europe/
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
VerDate Sep<11>2014
19:25 Jan 11, 2021
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to File Number SR–ICEEU–2020–018
and should be submitted on or before
February 2, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–00350 Filed 1–11–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90863; File No. SR–
CboeBZX–2021–004]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Fee Schedule Relating to LMM
Financial Incentives
January 6, 2021.
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 January 4,
2021, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the 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 the 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
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 the
fee schedule applicable to its equities
trading platform (‘‘BZX Equities’’) to
update the Standard Rates and
Enhanced Rates provided under the
Lead Market Maker (‘‘LMM’’) Liquidity
Provision Rates, effective January 4,
2021. The Exchange believes the
proposed changes will better incentivize
LMMs to meet the Standard and
Enhanced Minimum Performance
Standards where their average aggregate
daily auction volume is 1,000,000
shares or less.
The Exchange first notes that its
listing business operates in a highlycompetitive market in which market
participants, which includes issuers of
securities, LMMs, and other liquidity
providers, can readily transfer their
listings, opt not to participate, or direct
order flow to competing venues 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 market
participants to participate as LMMs in
the Exchange’s LMM Program, which
the Exchange believes will enhance
market quality in all securities listed on
the Exchange and encourage issuers to
list new products and transfer existing
products to the Exchange.
The Exchange currently offers daily
incentives for LMMs in Exchange
Traded Products (‘‘ETPs’’) listed on the
Exchange for which the LMM meets
certain Minimum Performance
Standards.3 Such daily incentives are
3 As defined in Rule 11.8(e)(1)(E), 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.
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Notices
volume across such securities. Generally
speaking, the more LMM Securities 4 for
which the LMM meets the Minimum
Performance Standards and the higher
determined based on the number of
Cboe-listed ETPs for which the LMM
meets such Minimum Performance
Standards and the average auction
the auction volume across those ETPs,
the greater the total daily payment to the
LMM. Such daily incentive Standard
Rates are structured as follows:
Average aggregate daily auction volume in LMM Securities
10,001–
100,000
0–10,000
Daily Incentive for each Qualified Security 1–5 ..............
Daily Incentive for each Qualified Security 6–25 ............
Daily Incentive for each Qualified Security 26–50 ..........
Daily Incentive for each Qualified Security 51–100 ........
Daily Incentive for each Qualified Security Greater Than
100 ................................................................................
By way of example, if an LMM has 30
LMM Securities, each of which is a
Qualified ETP,5 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
10
10
10
$25
25
10
10
$40
25
20
15
$50
30
25
20
$150
100
75
50
$200
150
100
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 (i.e., the Enhanced Rates), as
follows:
Average aggregate daily auction volume in LMM Securities
0–10,000
Daily Incentive for each Enhanced Security 1–5 ............
Daily Incentive for each Enhanced Security 6–25 ..........
Daily Incentive for each Enhanced Security 26–50 ........
Daily Incentive for each Enhanced Security 51–100 ......
Daily Incentive for each Enhanced Security Greater
Than 100 ......................................................................
Using the same example as above,
where the LMM has 30 LMM Securities,
10 of which are Enhanced ETPs, 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.
khammond on DSKJM1Z7X2PROD with NOTICES
Proposed Changes
The Exchange proposes to amend the
Standard Rates and Enhanced Rates
discussed above. First, the Exchange
proposes to eliminate the sixth column
of both the Standard Rates and
Enhanced Rates so that average
aggregate daily auction volume of
1,000,001 shares or more is considered
the highest average aggregate daily
auction volume column.
4 As defined in Rule 11.8(e)(1)(D), the term ‘‘LMM
Security’’ means an ETP that has an LMM.
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10,001–
100,000
100,001–
500,000
500,001–
1,000,000
$6.25
6.25
2.50
2.50
$10
6.25
5
3.75
$12.50
7.50
6.25
5
$37.50
25
18.75
12.50
$50
37.50
25
18.75
2.50
2.50
3.75
3.75
6.25
12.50
For instance, using the same example
as above, where the LMM has 30 LMM
Securities, 10 of which each have an
average daily auction volume of 5,000
shares, 10 of which each have an
average daily auction volume of 50,000
shares, and 10 of which each have an
average daily auction volume of 200,000
shares, 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, under the proposed Standard
Rates the LMM would receive $100 each
for Qualified ETPs 1–5, $70 each for
Qualified ETPs 6–25, and $50 each for
Qualified ETPs 26–30. This would
result in a daily payment of ($100 * 5)
+ ($70 * 20) + ($50 * 5) = $2,150 to the
LMM.
Third, the Exchange proposes to
decrease the Enhanced Rates payments
for securities with average aggregate
daily auction volume over 1,000,000
shares and increase the Enhanced Rates
payments for securities with average
aggregate daily auction volume of
1,000,000 shares or lower. Specifically,
the Exchange proposes the following
Enhanced Rates:
5 As provided in footnote 14 of the Fee Schedule,
a ‘‘Qualified ETP’’ is an ETP for which an LMM is
a Qualified LMM.
Frm 00095
3,000,001
or greater
$2.50
2.50
2.50
2.50
Second, the Exchange proposes to
reduce the Standard Rates payments for
average aggregate daily auction volume
of 1,000,001 shares or more for each row
of Qualified Security ranges.
Specifically, the Exchange proposes to
reduce the payments in the fifth column
as follows: $100 Daily Incentive for each
Qualified Security 1–5, $70 Daily
Incentive for each Qualified Security
6–25, $50 Daily Incentive for each
Qualified Security 26–50, $25 Daily
Incentive for each Qualified Security
51–100, and $20 Daily Incentive for
each Qualified Security greater than
100.
PO 00000
1,000,001–
3,000,000
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Notices
Average aggregate daily auction volume in LMM Securities
0–10,000
khammond on DSKJM1Z7X2PROD with NOTICES
Daily
Daily
Daily
Daily
Daily
Incentive
Incentive
Incentive
Incentive
Incentive
for
for
for
for
for
each
each
each
each
each
Enhanced
Enhanced
Enhanced
Enhanced
Enhanced
Security
Security
Security
Security
Security
1–5 ....................................
6–25 ..................................
26–50 ................................
51–100 ..............................
Greater Than 100 ..............
The proposed changes are designed to
encourage LMMs with average aggregate
daily auction volume of 1,000,000
shares or less to meet the Standard and
Enhanced Minimum Performance
Standards. The proposed changes would
decrease payments in LMM securities
with average aggregate daily auction
volume of 1,000,001 shares or greater.
Using the same example above, where
the LMM has 30 LMM Securities, 10 of
which are Enhanced ETPs, 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 $30 for each of its
first five Enhanced ETPs and an
additional $21 each for Enhanced ETPs
6–10. This would result in an additional
daily payment of ($30 * 5) + ($21 * 5)
= $255 to the LMM as opposed to the
$312.50 it would receive under the
current Enhanced Rates.
However, the proposed Enhanced
Rates are also designed to increase
payments in LMM Securities with
1,000,000 or less average aggregate daily
auction volume. For example, if an
LMM has 30 LMM Securities, each of
which is a Qualified ETP, 10 of which
each have an average daily auction
volume of 500 shares, 10 of which each
have an average daily auction volume of
10,000 shares, and 10 of which each
have an average daily auction volume of
20,000 shares, then the LMM would fall
into the third column (10 * 500 + 10 *
10,000 + 10 * 20,000 = 305,000 average
aggregate daily auction volume). As
such, the LMM would receive $12 each
for Qualified ETPs 1–5, $7.50 each for
Qualified ETPs 6–25, and $6 each for
Qualified ETPs 26–30. This would
result in a daily payment of ($12 * 5) +
($7.50 * 20) + ($6 * 5) = $240 to the
LMM. Under the current Enhanced
Rates, the LMM would receive a daily
payment of ($10 * 5) + (6.25 * 20) + (5
* 5) = $200.
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
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$3
3
3
3
3
10,001–
100,000
$7.50
7.50
3
3
3
Section 6(b) of the Act.6 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 7 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) 8 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
issuers of securities, LMMs, and other
liquidity providers, can readily transfer
their listings, opt not to participate, or
direct order flow to competing venues 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 market
participants to participate as LMMs in
the Exchange’s LMM Program, which
the Exchange believes will enhance
market quality in all securities listed on
the Exchange and encourage issuers to
list new products and transfer existing
products to the Exchange.
The Exchange believes that the
proposed changes to the Standard Rates
and Enhanced Rates of the LMM
Liquidity Provision Rates are consistent
with the Act and represent a reasonable,
equitable, and not unfairly
discriminatory means to incentivize
liquidity provision in ETPs listed on the
Exchange. The marketplace for listings
6 15
7 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
8 Id.
PO 00000
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Fmt 4703
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100,001–
500,000
$12
7.50
6
4.50
4.50
500,001–
1,000,000
$15
9
7.50
6
4.50
1,000,001
or greater
$30
21
15
7.50
6
is extremely competitive and there are
several other national securities
exchanges that offer ETP listings.
Transfers between listing venues occur
frequently for numerous reasons,
including market quality. This proposal
is intended to help the Exchange
compete as an ETP listing venue.
Specifically, the Exchange believes that
the proposal is reasonable because it
believes that the proposed amendments
will encourage LMMs with lower
aggregate auction volumes to meet the
Enhanced Minimum Performance
Standards. The Exchange believes that
incentivizing such LMMs to meet the
Enhanced Minimum Performance
Standards will increase market quality
in lower volume BZX-listed ETPs. To
the extent that market quality in any
BZX-listed ETP is negatively impacted,
competitive forces would generally
dictate that the primary listing venue
enhance their own liquidity provision
programs or that the security would
transfer to a different primary listing
venue.
The Exchange believes that the
proposal represents an equitable
allocation of payments and is not
unfairly discriminatory because, while
the proposed payments apply only to
LMMs, such LMMs must meet rigorous
Minimum Performance Standards in
order to receive the payments. Where an
LMM does not meet the Minimum
Performance Standards for the Standard
and Enhanced Rates, they will not
receive the applicable payment. Further,
registration as an LMM is available
equally to all Members and allocation of
listed ETPs 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 proposed daily payment
amounts would continue to be based
specifically on the Exchange’s revenue
model. For ETPs 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
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volume higher payments. Specifically,
the payment per Qualified ETP (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 payments per
Qualified ETP generally go down as the
number of Qualified ETPs 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. While
the proposed changes would reduce
payments to LMMs with higher average
aggregate daily auction volume, such
payments would still be higher than the
proposed increased payments for LMMs
with lower average aggregate daily
auction volume. As such, the Exchange
believes that the proposal is an
equitable allocation of payments and is
not unfairly discriminatory.
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 ETPs and as a listing venue by
enhancing market quality in BZX-listed
ETPs. The marketplace for listings is
extremely competitive and there are
several other national securities
exchanges that offer ETP listings.
Transfers between listing venues occur
frequently for numerous reasons,
including market quality. This proposal
is intended to help the Exchange
compete as an ETP listing venue.
Accordingly, the Exchange does not
believe that the proposed change will
impair the ability of issuers, LMMs, or
competing ETP listing venues to
maintain their competitive standing.
The Exchange also notes that the
proposed change is intended to enhance
market quality in BZX-listed ETPs, to
the benefit of all investors in BZX-listed
ETPs. The Exchange does not believe
the proposed amendment would burden
intra-market competition as it would be
available to all Members uniformly.
Registration as an LMM is available
equally to all Members and allocation of
listed ETPs between LMMs is governed
by Exchange Rule 11.8(e)(2). Further, if
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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.
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 9 and paragraph (f) of Rule
19b–4 thereunder.10 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2021–004 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–2021–004. 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
9 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
10 17
PO 00000
Frm 00097
Fmt 4703
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–2021–004 and
should be submitted on or before
February 2, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–00349 Filed 1–11–21; 8:45 am]
BILLING CODE 8011–01–P
SELECTIVE SERVICE SYSTEM
Forms Submitted to the Office of
Management and Budget for Extension
of Clearance
ACTION:
The following forms have been
submitted to the Office of Management
and Budget (OMB) for extension of
clearance in compliance with the
Paperwork Reduction Act (44 U.S.C.
Chapter 35):
SSS FORMS 2, 3A, 3B and 3C
Title: Selective Service System
Change of Information, Correction/
Change Form, and Registration Status
Forms.
Purpose: To insure the accuracy and
completeness of the Selective Service
System registration data.
11 17
Sfmt 4703
Selective Service System.
Notice.
AGENCY:
E:\FR\FM\12JAN1.SGM
CFR 200.30–3(a)(12).
12JAN1
]]>Agencies
[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Notices]
[Pages 2473-2476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00349]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90863; File No. SR-CboeBZX-2021-004]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its
Fee Schedule Relating to LMM Financial Incentives
January 6, 2021.
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 January 4, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
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 the 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.
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 the fee schedule applicable to its
equities trading platform (``BZX Equities'') to update the Standard
Rates and Enhanced Rates provided under the Lead Market Maker (``LMM'')
Liquidity Provision Rates, effective January 4, 2021. The Exchange
believes the proposed changes will better incentivize LMMs to meet the
Standard and Enhanced Minimum Performance Standards where their average
aggregate daily auction volume is 1,000,000 shares or less.
The Exchange first notes that its listing business operates in a
highly-competitive market in which market participants, which includes
issuers of securities, LMMs, and other liquidity providers, can readily
transfer their listings, opt not to participate, or direct order flow
to competing venues 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 market
participants to participate as LMMs in the Exchange's LMM Program,
which the Exchange believes will enhance market quality in all
securities listed on the Exchange and encourage issuers to list new
products and transfer existing products to the Exchange.
The Exchange currently offers daily incentives for LMMs in Exchange
Traded Products (``ETPs'') listed on the Exchange for which the LMM
meets certain Minimum Performance Standards.\3\ Such daily incentives
are
[[Page 2474]]
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 \4\
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 incentive Standard Rates are
structured as follows:
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\3\ As defined in Rule 11.8(e)(1)(E), 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.
\4\ As defined in Rule 11.8(e)(1)(D), the term ``LMM Security''
means an ETP that has an LMM.
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Average aggregate daily auction volume in LMM Securities
----------------------------------------------------------------------------------------------
3,000,001
0-10,000 10,001- 100,001- 500,001- 1,000,001- or greater
---------------------------------------------------------------------------100,000---------500,000---------1,000,000----------3,000,000-----------------
Daily Incentive for each Qualified Security 1-5.......... $10 $25 $40 $50 $150 $200
Daily Incentive for each Qualified Security 6-25......... 10 25 25 30 100 150
Daily Incentive for each Qualified Security 26-50........ 10 10 20 25 75 100
Daily Incentive for each Qualified Security 51-100....... 10 10 15 20 50 75
Daily Incentive for each Qualified Security Greater Than 10 10 15 15 25 50
100.....................................................
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By way of example, if an LMM has 30 LMM Securities, each of which
is a Qualified ETP,\5\ 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.
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\5\ 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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LMMs that meet a more stringent set of standards also receive
enhanced daily incentives (i.e., the Enhanced Rates), as follows:
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Average aggregate daily auction volume in LMM Securities
----------------------------------------------------------------------------------------------
3,000,001
0-10,000 10,001- 100,001- 500,001- 1,000,001- or greater
---------------------------------------------------------------------------100,000---------500,000---------1,000,000----------3,000,000-----------------
Daily Incentive for each Enhanced Security 1-5........... $2.50 $6.25 $10 $12.50 $37.50 $50
Daily Incentive for each Enhanced Security 6-25.......... 2.50 6.25 6.25 7.50 25 37.50
Daily Incentive for each Enhanced Security 26-50......... 2.50 2.50 5 6.25 18.75 25
Daily Incentive for each Enhanced Security 51-100........ 2.50 2.50 3.75 5 12.50 18.75
Daily Incentive for each Enhanced Security Greater Than 2.50 2.50 3.75 3.75 6.25 12.50
100.....................................................
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Using the same example as above, where the LMM has 30 LMM
Securities, 10 of which are Enhanced ETPs, 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.
Proposed Changes
The Exchange proposes to amend the Standard Rates and Enhanced
Rates discussed above. First, the Exchange proposes to eliminate the
sixth column of both the Standard Rates and Enhanced Rates so that
average aggregate daily auction volume of 1,000,001 shares or more is
considered the highest average aggregate daily auction volume column.
Second, the Exchange proposes to reduce the Standard Rates payments
for average aggregate daily auction volume of 1,000,001 shares or more
for each row of Qualified Security ranges. Specifically, the Exchange
proposes to reduce the payments in the fifth column as follows: $100
Daily Incentive for each Qualified Security 1-5, $70 Daily Incentive
for each Qualified Security 6-25, $50 Daily Incentive for each
Qualified Security 26-50, $25 Daily Incentive for each Qualified
Security 51-100, and $20 Daily Incentive for each Qualified Security
greater than 100.
For instance, using the same example as above, where the LMM has 30
LMM Securities, 10 of which each have an average daily auction volume
of 5,000 shares, 10 of which each have an average daily auction volume
of 50,000 shares, and 10 of which each have an average daily auction
volume of 200,000 shares, 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, under the proposed Standard Rates the
LMM would receive $100 each for Qualified ETPs 1-5, $70 each for
Qualified ETPs 6-25, and $50 each for Qualified ETPs 26-30. This would
result in a daily payment of ($100 * 5) + ($70 * 20) + ($50 * 5) =
$2,150 to the LMM.
Third, the Exchange proposes to decrease the Enhanced Rates
payments for securities with average aggregate daily auction volume
over 1,000,000 shares and increase the Enhanced Rates payments for
securities with average aggregate daily auction volume of 1,000,000
shares or lower. Specifically, the Exchange proposes the following
Enhanced Rates:
[[Page 2475]]
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Average aggregate daily auction volume in LMM Securities
--------------------------------------------------------------------------
1,000,001
0-10,000 10,001- 100,001- 500,001- or greater
-------------------------------------------------------100,000---------500,000---------1,000,000----------------
Daily Incentive for each Enhanced $3 $7.50 $12 $15 $30
Security 1-5........................
Daily Incentive for each Enhanced 3 7.50 7.50 9 21
Security 6-25.......................
Daily Incentive for each Enhanced 3 3 6 7.50 15
Security 26-50......................
Daily Incentive for each Enhanced 3 3 4.50 6 7.50
Security 51-100.....................
Daily Incentive for each Enhanced 3 3 4.50 4.50 6
Security Greater Than 100...........
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The proposed changes are designed to encourage LMMs with average
aggregate daily auction volume of 1,000,000 shares or less to meet the
Standard and Enhanced Minimum Performance Standards. The proposed
changes would decrease payments in LMM securities with average
aggregate daily auction volume of 1,000,001 shares or greater. Using
the same example above, where the LMM has 30 LMM Securities, 10 of
which are Enhanced ETPs, 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 $30
for each of its first five Enhanced ETPs and an additional $21 each for
Enhanced ETPs 6-10. This would result in an additional daily payment of
($30 * 5) + ($21 * 5) = $255 to the LMM as opposed to the $312.50 it
would receive under the current Enhanced Rates.
However, the proposed Enhanced Rates are also designed to increase
payments in LMM Securities with 1,000,000 or less average aggregate
daily auction volume. For example, if an LMM has 30 LMM Securities,
each of which is a Qualified ETP, 10 of which each have an average
daily auction volume of 500 shares, 10 of which each have an average
daily auction volume of 10,000 shares, and 10 of which each have an
average daily auction volume of 20,000 shares, then the LMM would fall
into the third column (10 * 500 + 10 * 10,000 + 10 * 20,000 = 305,000
average aggregate daily auction volume). As such, the LMM would receive
$12 each for Qualified ETPs 1-5, $7.50 each for Qualified ETPs 6-25,
and $6 each for Qualified ETPs 26-30. This would result in a daily
payment of ($12 * 5) + ($7.50 * 20) + ($6 * 5) = $240 to the LMM. Under
the current Enhanced Rates, the LMM would receive a daily payment of
($10 * 5) + (6.25 * 20) + (5 * 5) = $200.
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.\6\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \7\ 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) \8\ 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 issuers of
securities, LMMs, and other liquidity providers, can readily transfer
their listings, opt not to participate, or direct order flow to
competing venues 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 market participants to participate as
LMMs in the Exchange's LMM Program, which the Exchange believes will
enhance market quality in all securities listed on the Exchange and
encourage issuers to list new products and transfer existing products
to the Exchange.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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The Exchange believes that the proposed changes to the Standard
Rates and Enhanced Rates of the LMM Liquidity Provision Rates are
consistent with the Act and represent a reasonable, equitable, and not
unfairly discriminatory means to incentivize liquidity provision in
ETPs listed on the Exchange. The marketplace for listings is extremely
competitive and there are several other national securities exchanges
that offer ETP listings. Transfers between listing venues occur
frequently for numerous reasons, including market quality. This
proposal is intended to help the Exchange compete as an ETP listing
venue. Specifically, the Exchange believes that the proposal is
reasonable because it believes that the proposed amendments will
encourage LMMs with lower aggregate auction volumes to meet the
Enhanced Minimum Performance Standards. The Exchange believes that
incentivizing such LMMs to meet the Enhanced Minimum Performance
Standards will increase market quality in lower volume BZX-listed ETPs.
To the extent that market quality in any BZX-listed ETP is negatively
impacted, competitive forces would generally dictate that the primary
listing venue enhance their own liquidity provision programs or that
the security would transfer to a different primary listing venue.
The Exchange believes that the proposal represents an equitable
allocation of payments and is not unfairly discriminatory because,
while the proposed payments apply only to LMMs, such LMMs must meet
rigorous Minimum Performance Standards in order to receive the
payments. Where an LMM does not meet the Minimum Performance Standards
for the Standard and Enhanced Rates, they will not receive the
applicable payment. Further, registration as an LMM is available
equally to all Members and allocation of listed ETPs 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 proposed daily payment amounts would continue to be
based specifically on the Exchange's revenue model. For ETPs 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
[[Page 2476]]
volume higher payments. Specifically, the payment per Qualified ETP
(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 payments per Qualified ETP generally go down as the
number of Qualified ETPs 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. While the proposed changes would reduce payments to
LMMs with higher average aggregate daily auction volume, such payments
would still be higher than the proposed increased payments for LMMs
with lower average aggregate daily auction volume. As such, the
Exchange believes that the proposal is an equitable allocation of
payments and is not unfairly discriminatory.
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 ETPs and as a listing venue by enhancing market quality in BZX-
listed ETPs. The marketplace for listings is extremely competitive and
there are several other national securities exchanges that offer ETP
listings. Transfers between listing venues occur frequently for
numerous reasons, including market quality. This proposal is intended
to help the Exchange compete as an ETP listing venue. Accordingly, the
Exchange does not believe that the proposed change will impair the
ability of issuers, LMMs, or competing ETP listing venues to maintain
their competitive standing. The Exchange also notes that the proposed
change is intended to enhance market quality in BZX-listed ETPs, to the
benefit of all investors in BZX-listed ETPs. The Exchange does not
believe the proposed amendment would burden intra-market competition as
it would be available to all Members uniformly. Registration as an LMM
is available equally to all Members and allocation of listed ETPs
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.
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 \9\ and paragraph (f) of Rule 19b-4
thereunder.\10\ 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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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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-2021-004 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-2021-004. 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-2021-004 and should be submitted
on or before February 2, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00349 Filed 1-11-21; 8:45 am]
BILLING CODE 8011-01-P
