Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Applicable to the BZX Top Feed, 6710-6715 [2021-01279]
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices
published a white paper that provides
general information about
characteristics of EGCs (‘‘EGC White
Paper’’).25 In the EGC White Paper, the
PCAOB staff stated that
‘‘[a]pproximately 96% of EGC filers
were audited by accounting firms that
also audit issuers that are not EGC
filers.’’ 26 Additionally, the PCAOB
Adopting Release discussed the
Commission’s intent to improve the
practical application of Rule 2–01 of
Regulation S–X and reduce compliance
burdens, which may lead to increased
competition among auditors and
facilitate capital formation. The Board
noted that if the Proposed Rules were
determined not to apply to the audits of
EGCs, auditors would be required to
address the differing independence
requirements in their independence
policies and procedures and in their
quality control systems as a result of the
differences between the Board and
Commission requirements, which
would create the potential for
confusion.27
We agree with the Board’s analysis.
We believe the Proposed Rules will
benefit EGCs at least as much as nonEGCs, in part, because the Commission’s
amendments to Rule 2–01 were meant
to more effectively focus the
independence analysis on those
relationships or services that are more
likely to pose threats to an auditor’s
objectivity and impartiality.
As such, after considering the
protection of investors and whether the
action will promote efficiency,
competition, and capital formation, we
believe there is a sufficient basis to
determine that applying the Proposed
Rules to the audits of EGCs is necessary
or appropriate in the public interest.
V. Conclusion
jbell on DSKJLSW7X2PROD with NOTICES
The Commission has carefully
reviewed and considered the Proposed
Rules, the information submitted
therewith by the PCAOB and the
comment letters received. In connection
with the PCAOB’s filing and the
Commission’s review,
A. The Commission finds that the
Proposed Rules are consistent with the
requirements of the Sarbanes-Oxley Act
and the securities laws and are
necessary or appropriate in the public
25 See Characteristics of Emerging Growth
Companies and their Audit Firms as of November
15, 2019 (November 9, 2020), available at https://
archive.pcaobus.org/EconomicAndRiskAnalysis/
ProjectsOther/Documents/White-PaperCharacteristics-Emerging-Growth-CompaniesNovember-15-2019.pdf.
26 See EGC White Paper at 13.
27 See PCAOB Adopting Release at 27.
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interest or for the protection of
investors; and
B. Separately, the Commission finds
that the application of the Proposed
Rules to the audits of EGCs is necessary
or appropriate in the public interest,
after considering the protection of
investors and whether the action will
promote efficiency, competition, and
capital formation.
It is therefore ordered, pursuant to
Section 107 of the Sarbanes-Oxley Act
and Section 19(b)(2) of the Exchange
Act, that the Proposed Rules (File
No.PCAOB–2020–01) be and hereby are
approved.
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–01311 Filed 1–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90926; File No. SR–CBOE–
2020–106]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Designation
of a Longer Period for Commission
Action on a Proposed Rule Change, as
Modified by Amendment No. 1, To
Amend Its Rules Regarding the
Minimum Increments for Electronic
Bids and Offers and Exercise Prices of
Certain FLEX Options and Clarify in
the Rules How the System Ranks FLEX
Option Bids and Offers for Allocation
Purposes
Commission has received no comments
on the proposal.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is January 18,
2021. The Commission is extending this
45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,5 designates March 4,
2021, as the date by which the
Commission shall either approve or
disapprove or institute proceedings to
determine whether to disapprove the
proposed rule change, as modified by
Amendment No. 1 (File Number SR–
CBOE–2020–106).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–01282 Filed 1–21–21; 8:45 am]
January 14, 2021.
On November 16, 2020, Cboe
Exchange, Inc. 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
amend its rules regarding the minimum
increments for electronic bids and offers
and exercise prices of certain FLEX
options and clarify how the system
ranks FLEX option bids and offers for
allocation purposes. On November 30,
2020, the Exchange filed Amendment
No. 1 to the proposed rule change,
which amended and replaced the
proposed rule change in its entirety. The
Commission published notice of the
proposed rule change, as modified by
Amendment No. 1, in the Federal
Register on December 4, 2020.3 The
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90919; File No. SR–
CboeBZX–2021–002]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fees Applicable to the BZX Top Feed
January 14, 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
4 15
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90536
(November 30, 2020), 85 FR 78381.
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U.S.C. 78s(b)(2).
5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices
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. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to amend the fees applicable to
the BZX Top Feed. 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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the fees applicable
to the BZX Top Feed, which is an
uncompressed data feed that offers both
top-of-book quotations and execution
information based on equity orders
entered into the System.3 Specifically,
the Exchange proposes to: (1) Increase
the fee for internal distribution of the
BZX Top Feed; and (2) introduce
Professional User fees for internal
Professional Users of the BZX Top Feed.
The current fees for external
distribution of the BZX Top Feed will
continue to apply, without change,
including various incentive programs
that the Exchange has adopted to
3 See
BZX Rule 11.22(d).
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facilitate the provision of lower-cost
market data to retail and other
investors.4
Market Background
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. In
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues, and also recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 5 As
the Commission itself recognized, the
market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 6
Equity trading is currently dispersed
across sixteen exchanges, including
three new U.S. equities exchanges that
launched trading in 2020, 32 alternative
trading systems,7 and numerous brokerdealer internalizers and wholesalers, all
competing fiercely for order flow. Based
on publicly-available information, no
single U.S. equities exchange has more
than 20% market share.8 In turn, the
market for top-of-book data is highly
competitive as national securities
exchanges compete both with each other
and with the securities information
processors (‘‘SIPs’’) to provide efficient,
reliable, and low-cost data to a wide
range of investors and market
participants. In fact, Regulation NMS
requires all U.S. equities exchanges to
provide their best bids and offers, and
executed transactions, to the two
registered SIPs for dissemination to the
public.9 Top-of-book data is therefore
widely available to investors today at a
relatively modest cost. National
securities exchanges may also
4 See e.g., BZX Schedule of Fees, Financial
Product Distribution Program. The Financial
Product Distribution Program lowers the cost of
distributing Derived Data based upon the
Exchange’s top-of-book offerings, including Derived
Data that is often used by retail investors.
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)
(S7–10–04) (Final Rule) (‘‘Regulation NMS
Adopting Release’’).
6 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Transaction Fee Pilot for NMS Stocks Final
Rule) (‘‘Transaction Fee Pilot’’).
7 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsData. A list of alternative trading systems
registered with the Commission is available at
https://www.sec.gov/foia/docs/atslist.htm.
8 See Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
9 See Rule 602 of Regulation NMS.
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6711
disseminate their own top-of-book data,
but no rule or regulation of the
Commission requires market
participants to purchase top-of-book
data from an exchange.10 The BZX Top
Feed therefore competes with the SIP
and with similar products offered by
other national securities exchanges that
offer their own competing market data
products. In fact, there are twelve
competing products offered by other
national securities exchanges today,11
not counting products offered by the
Exchange’s affiliates, and each of the
Exchange’s affiliated U.S. equities
exchanges also offers similar top-ofbook data.
Fees for Internal Distribution of the BZX
Top Feed
Currently, the Exchange charges a
modest fee of $500 per month for
internal distribution of BZX Top Feed
data,12 i.e., distribution within the
distributor’s own firm,13 and does not
charge any additional fees for internal
distribution based on the number of
Professional or Non-Professional Users
that receive access to this information.
These internal distribution fees have
been in place, without change, since
July 2013 when the Exchange first began
charging for access to the BZX Top
Feed, which had previously been
available free of charge.14 In the time
since, the Exchange has made a number
of significant enhancements to its
platform, including, among other things,
a significant expansion of its listing
program for exchange-traded
products,15 that have resulted in
improved trading opportunities for
investors and, consequently, more
valuable market data.
As discussed, the Exchange now
proposes to increase certain fees
applicable to firms that consume this
10 By contrast, Rule 603(c) of Regulation NMS (the
‘‘Vendor Display Rule’’) effectively requires that SIP
data or some other consolidated display be utilized
in any context in which a trading or order-routing
decision can be implemented.
11 Competing top of book products include,
Nasdaq Basic, BX Basic, PSX Basic, NYSE BQT,
NYSE BBO/Trades, NYSE BQT, NYSE Arca BBO/
Trades, NYSE American BBO/Trades, NYSE
Chicago BBO/Trades, IEX TOPS, MIAX PEARL
Equities Top of Market Feed, and MEMX MEMOIR
Top.
12 See BZX Schedule of Fees, BZX Top, Internal
Distribution.
13 The Exchange’s fee schedule defines an
Internal Distributor of an Exchange Market Data
product as a Distributor that receives the Exchange
Market Data product and then distributes that data
to one or more Users within the Distributor’s own
entity. See BZX Schedule of Fees, Market Data Fees,
Definitions.
14 See Securities Exchange Act Release No. 69936
(July 3, 2013), 78 FR 41483 (July 10, 2013) (SR–
BATS–2013–39).
15 See https://markets.cboe.com/services/listings/.
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data as internal distributors, i.e., firms
that use BZX Top Feed data for internal
purposes as opposed to firms that
distribute such data externally to its
customers. As proposed, the Exchange
would increase the monthly charge for
internal distribution of BZX Top Feed
data to $750 per month, which would
continue to be significantly cheaper
than similar products offered by the
Exchange’s main competitors, including
both other national securities exchanges
that offer top-of-book data products to
their customers as well as the SIPs that
provide similar ‘‘core data’’ to vendors
and subscribers pursuant to Regulation
NMS. In addition, the Exchange would
introduce Professional User fees for
internal Professional Users of the BZX
Top Feed. Those Professional User fees
will be the same as the modest fee
currently charged for external
distribution of the BZX Top Feed, i.e.,
$4 per month for each Professional User.
There would continue to be no charge
associated with internal distribution to
Non-Professional Users. Further, as
discussed, the current fees for external
distribution of the BZX Top Feed would
continue to apply, without change,
including various incentive programs
that the Exchange has adopted to
facilitate the provision of lower-cost
market data to retail and other investors.
As a result, the Exchange believes that
the proposed fee changes would allow
it to be appropriately compensated for
the value of its market data, particularly
from professional financial services
firms that use that data for internal
purposes, while simultaneously
ensuring that its data would continue to
be available to a wide range of market
participants at a cost that facilitates
widespread availability of such data.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,16
in general, and furthers the objectives 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 members and
other recipients of Exchange data. In
addition, the Exchange believes that the
proposed rule change is consistent with
Section 11(A) of the Act as it supports
(i) fair competition among brokers and
dealers, among exchange markets, and
between exchange markets and markets
other than exchange markets, and (ii)
the availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
16 15
17 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
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securities.18 Finally, the proposed rule
change is also consistent with Rule 603
of Regulation NMS,19 which provides
that any national securities exchange
that distributes information with respect
to quotations for or transactions in an
NMS stock do so on terms that are not
unreasonably discriminatory.
The Exchange operates in a highly
competitive environment. Indeed, with
the launch of three new national
securities exchanges that trade U.S.
equity securities last September, there
are now sixteen registered U.S equities
exchanges, and with the exception of
Long-Term Stock Exchange, Inc.
(‘‘LTSE’’), which has determined to not
offer any proprietary market data feeds,
each of these exchanges offer associated
market data products to their customers,
either with or without a fee. The
national securities exchanges also
compete with the SIPs for market data
customers, as much of the information
offered to market participants and
investors through the BZX Top Feed is
similarly made available to market
participants and investors through the
SIPs, consolidated with data from each
of the other fifteen exchanges. It is in
this robust and competitive market in
which the Exchange is proposing to
modestly increase its fees.
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets.
Further, with respect to market data, the
decision of the United States Court of
Appeals for the District of Columbia
Circuit in NetCoalition v. SEC upheld
the Commission’s reliance on the
existence of competitive market
mechanisms to evaluate the
reasonableness and fairness of fees for
proprietary market data: ‘‘In fact, the
legislative history indicates that the
Congress intended that the market
system ‘evolve through the interplay of
competitive forces as unnecessary
regulatory restrictions are removed’ and
that the SEC wield its regulatory power
‘in those situations where competition
may not be sufficient,’ such as in the
creation of a ‘consolidated transactional
reporting system.’ ’’ 20 The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
18 15
U.S.C. 78k–1.
17 CFR 242.603.
20 NetCoalition v. SEC, 615 F.3d 525, 535 (D.C.
Cir. 2010) (‘‘NetCoalition I’’) (quoting H.R. Rep. No.
94–229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323).
19 See
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equity securities.’ ’’ 21 As discussed in
this filing, significant competitive forces
constrain the ability of the Exchange to
charge supra-competitive fees.
i. The BZX Top Feed Is an Optional
Market Data Product, and the Exchange
is Constrained in Its Pricing by
Significant Competitive Forces
Subscribing to the BZX Top Feed is
entirely optional. The Exchange is not
required to make the BZX Top Feed
available to any customers, nor is any
customer required to purchase the BZX
Top Feed. Unlike certain other data
products that firms may be required to
purchase in order to fulfill regulatory
obligations,22 e.g., the consolidated
quotation and last-sale information
feeds offered by the SIPs, a customer’s
decision as to whether to purchase the
BZX Top Feed is entirely discretionary,
and is based on that firms individual
business needs. Generally, firms that
choose to subscribe to the BZX Top
Feed do so because they believe that it
is a cost-effective alternative to core data
offered by the SIPs that provides
valuable information about the market
for securities traded on the Exchange,
particularly in cases where a
consolidated display is not required
pursuant to the Vendor Display Rule.
Such firms are able to determine for
themselves whether the BZX Top Feed
helps them to achieve their business
goals, and if so, whether or not it is
attractively priced compared to other
similar products.
Indeed, if the BZX Top Feed does not
provide sufficient value to firms based
on the uses those firms may have for it,
such firms may simply choose to
conduct their business operations in
ways that do not use the BZX Top Feed.
In fact, comparing the number of
internal distributors that currently
subscribe to the BZX Top Feed, based
on data compiled by the Exchange as of
November 2020, to the total number of
internal distributors that subscribe to
core data offered by the CTA and UTP
SIPs, as published on plan websites for
Q3 2020,23 less than 9.5% of internal
21 Id.
at 535.
Exchange notes that broker-dealers are not
required to purchase proprietary market data to
comply with their best execution obligations. See In
the Matter of the Application of Securities Industry
and Financial Markets Association for Review of
Actions Taken by Self-Regulatory Organizations,
Release Nos. 34–72182; AP–3–15350; AP–3–15351
(May 16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that
proprietary data be utilized for order routing
decisions, and some broker-dealers and ATSs have
chosen not to do so.
23 See CTA Quarterly Population Metrics (Q3
2020), available at https://www.ctaplan.com/
publicdocs/ctaplan/CTAPLAN_Population_
Metrics_3Q2020.pdf; UTP Quarterly Population
22 The
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices
distributors that purchase U.S. equities
data choose to subscribe to the BZX Top
Feed. The BZX Top Feed therefore
represents an insignificant proportion of
the relevant market for such market
data, and significantly more internal
distributors choose not to purchase this
product than those that do. Given the
insignificant percentage of internal
distributors that consume the BZX Top
Feed, it is clear that such firms can and
do exercise their right to choose to
purchase, or not purchase, this
particular market data product.
Although the Exchange is not
required to make any data, including
top-of-book data, available through its
proprietary market data platform, the
Exchange believes that making such
data available increases investor choice,
and contributes to a fair and competitive
market. Specifically, making such data
publicly available through proprietary
data feeds allows investors to choose
alternative, potentially less costly,
market data based on their business
needs. While some market participants
that desire a consolidated display often
choose the SIP to satisfy their top-ofbook data needs, and in some cases are
effectively required to do so under the
Vendor Display Rule, others may prefer
to purchase data directly from one or
more national securities exchanges. For
example, a buy-side investor or fintech
firm may choose to purchase the BZX
Top Feed, or a similar product from
another exchange, in order to perform
investment analysis, or to provide
general information about the market for
U.S. equity securities, respectively. In
either case the choice to purchase the
BZX Top Feed would be based on the
firm’s determination of the value of the
data offered by their chosen product
compared to the cost of acquiring this
data instead of receiving similar data
from other sources. The BZX Top Feed
serves as a valuable reference for
investors that do not require a
consolidated display that contains
quotations for all sixteen U.S. equities
exchanges. Making alternative products
available to market participants
ultimately ensures competition in the
marketplace, and constrains the ability
of exchanges to charge supracompetitive fees.
Further, in the event that a market
data customer views one exchange’s
top-of-book data product and/or fees as
more or less attractive than a
competitor’s offerings they can and
often do switch between competing
products. As discussed, much of the
Metrics (Q3 2020), available at https://
www.utpplan.com/DOC/UTP_2020_Q3_Stats_with_
Processor_Stats.pdf.
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top-of-book quotation information and
last-sale information offered within the
BZX Top Feed is also available on the
SIP feeds, and for firms that do not
require a consolidated display, as is
typically the case for the subscribers to
the BZX Top Feed, similar top-of-book
information is available from a number
of competing U.S. equities exchanges.24
This include a number of large
established exchanges that charge for
access to such top-of-book data, as well
as certain smaller or new exchange
entrants that provide similar data
without charge, in many cases as a way
of attracting customers to their exchange
while they seek to grow market share. In
this way, the BZX Top Feed, SIP data
products, and other top-of-book
products offered by a number of U.S.
equities exchanges, are all substitutes.
The availability of these substitute
products constrains the Exchange’s
ability to charge supra-competitive
prices as market participants can easily
obtain similar data from one of the
Exchange’s many competitors. In fact,
the impact of competition on the market
in which the BZX Top Feed is offered
to market participants and investors is
showcased by the Exchange’s other
recent fee changes related to this
product, which involved the reduction
of fees to facilitate the Exchange’s
ability to compete for customers.25
Distributors can discontinue use of the
BZX Top Feed at any time and for any
reason, including due to an assessment
of the reasonableness of fees charged.
In setting the proposed fees for the
BZX Top Feed, the Exchange considered
the competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish reasonable fees. Indeed, the
Exchange has no market power and is
not in a position to charge unreasonable
fees for its top-of-book data as there are
a number of competing products in the
market, including products that are
currently offered free of charge by
certain other exchanges that have
determined not to charge for their
24 Although the Exchange does not have access to
the customer lists for other competing products, it
understands based on conversations with
subscribers to the BZX Top Feed that they typically
view exchange top-of-book products as substitutes
and do not generally look to purchase such data
from more than one national securities exchange.
25 See supra note 4. The Exchange also notes that
while this proposed fee change involves an increase
in fees, it is simultaneously filing another proposed
fee change to expand its Financial Products
Distribution Program and further reduce certain
fees. See SR–CboeBZX–2021–003 (pending
publication).
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6713
market data. The existence of
alternatives to the BZX Top Feed
ensures that the Exchange cannot set
unreasonable fees when vendors and
subscribers can freely elect these
alternatives or choose not to purchase a
specific proprietary data product if the
attendant fees are not justified by the
returns that any particular vendor or
data recipient would achieve through
the purchase.
ii. The Proposed Fees Are Reasonable
Given the Value of the Data Provided to
Customers, and When Compared to
Competing Market Data Products
The proposed fees are also reasonable
as they represent a modest increase for
top-of-book data that has proven
valuable for investors, particularly as
the Exchange grows market share due to
its innovative market model that has
been successful in attracting retail limit
orders, increasing the Exchange’s
market share to over 7% consolidated
U.S. equities volume.26 Specifically, the
BZX Top Feed offers competitivelypriced alternative to top-of-book data
disseminated by SIPs, i.e., core data, for
firms that do not need or desire a
consolidated display covering all
sixteen U.S. equities exchanges, or
similar data disseminated by other
national securities exchanges. It is
purchased by a wide variety of market
participants and vendors, including data
platforms, websites, fintech firms, buyside investors, retail brokers, regional
banks, and securities firms inside and
outside of the U.S. that desire low cost,
high quality, real-time U.S. equity
market data. By providing lower cost
access to U.S. equity market data, the
BZX Top Feed benefits a wide range of
investors that participate in the national
market system. As discussed, the
decision to purchase a particular market
data product from a particular exchange
is largely based on two factors: (1) The
quality of the data, and (2) the price
charged for access to that data. The
Exchange believes that the BZX Top
Feed is competitive on both of these
factors.
First, the BZX Top Feed would
remain competitively priced compared
to similar products offered by other
comparable U.S. equities exchanges and
core data offered by the SIPs. Although
the BZX Top Feed is not offered free of
charge like certain other competitor
offerings, particularly those offered by
newer U.S. equities exchanges that are
seeking to grow market share, it is made
available at a price that is significantly
26 See Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
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lower than the prices charged by the
Exchange’s main competitors—i.e.,
those with comparable market shares
and data quality. Notably, even with the
proposed fee increase, the BZX Top
Feed would remain significantly
cheaper than similar products offered by
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE Arca, Inc. (‘‘Arca’’),
and The Nasdaq Stock Market LLC
(‘‘Nasdaq’’) both in terms of the fees
charged for internal distribution and the
fees charge for each Professional User
that is provided access to the feed. For
example, NYSE charges a total of $3,000
per month for internal distribution of
their equivalent products, i.e., $1,500
per month for applicable top-of-book
quotation information,27 and an
additional $1,500 per month for
transaction information,28 both of which
are included in the BZX Top Feed for
a single fee.29 Arca, which has a similar
pricing model to NYSE, also charges a
higher rate of $1,500 per month for
internal distribution of its equivalent
products, separated into a $750 per
month charge for top-of-book quotation
information and an additional $750 per
month charge for transaction
information.30 Finally, Nasdaq charges
its internal distributors a fee of $1,500
per month for Nasdaq Basic, which
includes both top-of-book quotation
information and transaction information
for the same fee, similar to the
Exchange’s pricing model, but again at
a higher cost.31 In each case, the internal
distribution charges associated with
obtaining comparable U.S. equities
market data from NYSE, Arca, and
Nasdaq runs at least double and up to
four times as much as the proposed fee
to be charged by the Exchange, meaning
that the Exchange would continue to be
offering its data at a price that is
attractive compared to the prices
charged by its competitors. Similarly,
each of these exchanges charges a fee for
each Professional User that is higher
than that proposed by the
Exchange—i.e., $26 per month for
Nasdaq,32 and $8 per month total for
both NYSE and Arca.33 Finally, the BZX
Top Feed also remains competitively
priced compared to core data provided
by the SIPs for firms, e.g., buy-side
investors or fintech firms, that do not
need or desire a consolidated display
covering all sixteen U.S. equities
exchanges.34
Second, the proposed fees are
reasonable given the value of the data
provided in the BZX Top Feed and used
by data recipients in their profitgenerating activities. The BZX Top Feed
provides top-of-book quotations and
transactions executed on the Exchange,
and provides a valuable window into
the market for securities traded on a
market that accounts for about 4.5% of
U.S. equity market volume today.35 As
discussed, the Exchange offers the BZX
Top Feed in a competitive environment
where firms may freely choose which
market data products best suit their
business needs. Invariably, firms that
choose to purchase the BZX Top Feed
instead of receiving one of the many free
products offered by other exchanges,36
including free products offered by an
affiliate of the Exchange,37 have decided
that the value of the BZX Top Feed is
greater than that offered by those other
products. Indeed, by incentivizing
market quality improvements through
its Lead Market Maker (‘‘LMM’’) and
other programs designed to enhance the
quality of its market, the Exchange is
able to offer higher quality market data
products to customers. In turn, investors
may choose to rely on those products
instead of other competitor offerings
based on the value they provide in
relation to any additional cost
associated with obtaining that market
data from the Exchange. The Exchange
therefore believes that its proposal is
consistent with the principles enshrined
in Regulation NMS to ‘‘promote the
wide availability of market data and to
27 See NYSE PDP Market Data Pricing, Section
1.3, NYSE BBO.
28 See NYSE PDP Market Data Pricing, Section
1.4, NYSE Trades.
29 See supra note 3 and accompanying text. The
Exchange also offers a separate market data product,
i.e., BZX Last Sale, that exclusively provides last
sale information. See BZX Rule 13.8(d). However,
all of the information contained in the BZX Last
Sale Feed is also made available in the BZX Top
Feed at no additional charge.
30 See NYSE PDP Market Data Pricing, Section
3.3, NYSE Arca BBO; NYSE PDP Market Data
Pricing, Section 3.4, NYSE Arca Trades.
31 See Nasdaq Equity Rules, Equity 7, Pricing
Schedule, Section 147(c)(1). In addition, Nasdaq
also charges distributors a $100 monthly
administrative fee. See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 135.
32 Nasdaq’s Professional User fee is divided into
Nasdaq issues ($13), NYSE issues ($6.50), and other
issues ($6.50) for a total of $26 per month for each
Professional User. See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(b)(1).
33 NYSE and Arca’s fees are both broken down
into $4 per month for BBO information and an
additional $4 per month for Trades information. See
supra notes 27, 28, and 30.
34 See CTA Schedule of Market Data Charges,
available at https://www.ctaplan.com/pricing; UTP
Fee Schedule, available at https://utpplan.com/
DOC/Datapolicies.pdf.
35 See https://markets.cboe.com/us/equities/
market_share/.
36 See e.g., Investors Exchange Fee Schedule,
Market Data fees.
37 See e.g., Cboe EDGA Exchange, Inc., Fee
Schedule, EDGA Top.
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allocate revenues to SROs that produce
the most useful data for investors.’’ 38
iii. The Proposed Fees Are Equitable
and Not Unfairly Discriminatory as
Internal Distributors Will Be Subject to
Uniform Pricing Based on Their Usage
of the Data
The Exchange believes the proposed
fees for internal distribution of the BZX
Top Feed will continue to be allocated
fairly and equitably among subscribers,
and are not unfairly discriminatory, as
the proposed fees will apply equally to
all data recipients that choose to
subscribe to the BZX Top Feed and
distribute that data to internal
subscribers. As proposed, all internal
distributors of the BZX Top Feed will be
subject to the same internal distribution
fee, regardless of the type of business
that they operate, or the use they plan
to make of the data feed. Thus, all
internal distributors would have access
to the BZX Top Feed on the same
equitable and non-discriminatory terms.
Similarly, with the introduction of
Professional User fees, internal
distributors of the BZX Top Feed will be
subject to the same modest fees based
solely on the number of Professional
Users that each internal distributor has
chosen to permission for access to this
information. The Exchange does not
believe that it is inequitable, or unfairly
discriminatory, to charge a fee based on
the number of Professional Users within
a firm that have access to the BZX Top
Feed as this ensures that firms with the
highest usage pay their equitable share
for the data.
The Exchange also believes that it is
fair and equitable, and not unfairly
discriminatory, to continue not to
charge a fee for internal distribution to
Non-Professional Users. The Exchange’s
fee structure is generally designed to
facilitate lower cost access to its market
data by retail investors, either through
substantially lower User fees for NonProfessional Users, or other incentive
programs, such as the Small Retail
Broker Distribution Program, which was
recently implemented to lower the cost
of the Exchange’s market data to small
broker-dealers that serve retail investors.
The Exchange does not anticipate any
significant number of Non-Professional
Users to receive BZX Top Feed Data
through internal, i.e., within the
distributor’s firm, as opposed to external
distribution, and in the event that
certain firms may distribute data
internally to Users that qualify as NonProfessional, providing such Users
access without any User fees would
38 See Regulation NMS Adopting Release, supra
note 5, at 37503.
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facilitate the Exchange’s overall goals of
facilitating access to its data by retail
investors, which the Commission has
continually found to be consistent with
the Exchange Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would result
in any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a highly
competitive environment, and its ability
to price these data products is
constrained by: (i) Competition among
exchanges that offer similar data
products to their customers; and (ii) the
existence of inexpensive real-time
consolidated data disseminated by the
SIPs. Top-of-book data is broadly
disseminated by both the SIPs and the
sixteen U.S. equities exchanges. There
are therefore a number of alternative
products available to market
participants and investors, including
products offered by certain competing
U.S. equities exchanges without charge.
In this competitive environment
potential subscribers are free to choose
which competing product to purchase to
satisfy their need for market
information. Often, the choice comes
down to price, as market data customers
look to purchase cheaper top-of-book
data products, and quality, as market
participants seek to purchase data that
represents significant market liquidity.
Intramarket Competition. The
Exchange believes that the proposed
fees do not put any market participants
at a relative disadvantage compared to
other market participants. As discussed,
the proposed fees would apply to all
internal distributors of the BZX Top
Feed on an equal and nondiscriminatory basis. The Exchange
therefore believes that the proposed fees
neither favor nor penalize one or more
categories of market participants in a
manner that would impose an undue
burden on competition. To the extent
that particular fees would apply to only
a subset of subscribers, e.g., Professional
versus Non-Professional Users, those
distinctions are not unfairly
discriminatory and do not unfairly
burden one set of customers over
another.
Intermarket Competition. The
Exchange believes that the proposed
fees do not impose a burden on
competition or on other SROs that is not
necessary or appropriate in furtherance
of the purposes of the Act. In setting the
proposed fees, the Exchange is
constrained by the availability of
numerous substitute products offered by
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other national securities exchanges as
well as core data offered by the SIPs.
Because market data customers can find
suitable substitute feeds, an exchange
that overprices its market data products
stands a high risk that users may
substitute another product. These
competitive pressures ensure that no
one exchange’s market data fees can
impose an undue burden on
competition, and the Exchange’s
proposed fees do not do so here.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 39 and paragraph (f) of Rule
19b–4 40 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2021–002 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–2021–002. 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–2021–002 and
should be submitted on or before
February 12, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–01279 Filed 1–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90928; File No. SR–ICC–
2021–001]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to the ICC
Clearing Rules
January 14, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 7,
2021, ICE Clear Credit LLC (‘‘ICC’’) filed
with the Securities and Exchange
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
39 15
U.S.C. 78s(b)(3)(A).
40 17 CFR 240.19b–4(f).
PO 00000
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6715
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]]>Agencies
[Federal Register Volume 86, Number 13 (Friday, January 22, 2021)]
[Notices]
[Pages 6710-6715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01279]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90919; File No. SR-CboeBZX-2021-002]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fees Applicable to the BZX Top Feed
January 14, 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
[[Page 6711]]
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. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fees applicable to the BZX Top Feed.
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 purpose of the proposed rule change is to amend the fees
applicable to the BZX Top Feed, which is an uncompressed data feed that
offers both top-of-book quotations and execution information based on
equity orders entered into the System.\3\ Specifically, the Exchange
proposes to: (1) Increase the fee for internal distribution of the BZX
Top Feed; and (2) introduce Professional User fees for internal
Professional Users of the BZX Top Feed. The current fees for external
distribution of the BZX Top Feed will continue to apply, without
change, including various incentive programs that the Exchange has
adopted to facilitate the provision of lower-cost market data to retail
and other investors.\4\
---------------------------------------------------------------------------
\3\ See BZX Rule 11.22(d).
\4\ See e.g., BZX Schedule of Fees, Financial Product
Distribution Program. The Financial Product Distribution Program
lowers the cost of distributing Derived Data based upon the
Exchange's top-of-book offerings, including Derived Data that is
often used by retail investors.
---------------------------------------------------------------------------
Market Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \5\ As the Commission
itself recognized, the market for trading services in NMS stocks has
become ``more fragmented and competitive.'' \6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
\6\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
---------------------------------------------------------------------------
Equity trading is currently dispersed across sixteen exchanges,
including three new U.S. equities exchanges that launched trading in
2020, 32 alternative trading systems,\7\ and numerous broker-dealer
internalizers and wholesalers, all competing fiercely for order flow.
Based on publicly-available information, no single U.S. equities
exchange has more than 20% market share.\8\ In turn, the market for
top-of-book data is highly competitive as national securities exchanges
compete both with each other and with the securities information
processors (``SIPs'') to provide efficient, reliable, and low-cost data
to a wide range of investors and market participants. In fact,
Regulation NMS requires all U.S. equities exchanges to provide their
best bids and offers, and executed transactions, to the two registered
SIPs for dissemination to the public.\9\ Top-of-book data is therefore
widely available to investors today at a relatively modest cost.
National securities exchanges may also disseminate their own top-of-
book data, but no rule or regulation of the Commission requires market
participants to purchase top-of-book data from an exchange.\10\ The BZX
Top Feed therefore competes with the SIP and with similar products
offered by other national securities exchanges that offer their own
competing market data products. In fact, there are twelve competing
products offered by other national securities exchanges today,\11\ not
counting products offered by the Exchange's affiliates, and each of the
Exchange's affiliated U.S. equities exchanges also offers similar top-
of-book data.
---------------------------------------------------------------------------
\7\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\8\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\9\ See Rule 602 of Regulation NMS.
\10\ By contrast, Rule 603(c) of Regulation NMS (the ``Vendor
Display Rule'') effectively requires that SIP data or some other
consolidated display be utilized in any context in which a trading
or order-routing decision can be implemented.
\11\ Competing top of book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE BQT, NYSE Arca
BBO/Trades, NYSE American BBO/Trades, NYSE Chicago BBO/Trades, IEX
TOPS, MIAX PEARL Equities Top of Market Feed, and MEMX MEMOIR Top.
---------------------------------------------------------------------------
Fees for Internal Distribution of the BZX Top Feed
Currently, the Exchange charges a modest fee of $500 per month for
internal distribution of BZX Top Feed data,\12\ i.e., distribution
within the distributor's own firm,\13\ and does not charge any
additional fees for internal distribution based on the number of
Professional or Non-Professional Users that receive access to this
information. These internal distribution fees have been in place,
without change, since July 2013 when the Exchange first began charging
for access to the BZX Top Feed, which had previously been available
free of charge.\14\ In the time since, the Exchange has made a number
of significant enhancements to its platform, including, among other
things, a significant expansion of its listing program for exchange-
traded products,\15\ that have resulted in improved trading
opportunities for investors and, consequently, more valuable market
data.
---------------------------------------------------------------------------
\12\ See BZX Schedule of Fees, BZX Top, Internal Distribution.
\13\ The Exchange's fee schedule defines an Internal Distributor
of an Exchange Market Data product as a Distributor that receives
the Exchange Market Data product and then distributes that data to
one or more Users within the Distributor's own entity. See BZX
Schedule of Fees, Market Data Fees, Definitions.
\14\ See Securities Exchange Act Release No. 69936 (July 3,
2013), 78 FR 41483 (July 10, 2013) (SR-BATS-2013-39).
\15\ See https://markets.cboe.com/services/listings/.
---------------------------------------------------------------------------
As discussed, the Exchange now proposes to increase certain fees
applicable to firms that consume this
[[Page 6712]]
data as internal distributors, i.e., firms that use BZX Top Feed data
for internal purposes as opposed to firms that distribute such data
externally to its customers. As proposed, the Exchange would increase
the monthly charge for internal distribution of BZX Top Feed data to
$750 per month, which would continue to be significantly cheaper than
similar products offered by the Exchange's main competitors, including
both other national securities exchanges that offer top-of-book data
products to their customers as well as the SIPs that provide similar
``core data'' to vendors and subscribers pursuant to Regulation NMS. In
addition, the Exchange would introduce Professional User fees for
internal Professional Users of the BZX Top Feed. Those Professional
User fees will be the same as the modest fee currently charged for
external distribution of the BZX Top Feed, i.e., $4 per month for each
Professional User. There would continue to be no charge associated with
internal distribution to Non-Professional Users. Further, as discussed,
the current fees for external distribution of the BZX Top Feed would
continue to apply, without change, including various incentive programs
that the Exchange has adopted to facilitate the provision of lower-cost
market data to retail and other investors. As a result, the Exchange
believes that the proposed fee changes would allow it to be
appropriately compensated for the value of its market data,
particularly from professional financial services firms that use that
data for internal purposes, while simultaneously ensuring that its data
would continue to be available to a wide range of market participants
at a cost that facilitates widespread availability of such data.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\16\ in general, and
furthers the objectives 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 members and other recipients of
Exchange data. In addition, the Exchange believes that the proposed
rule change is consistent with Section 11(A) of the Act as it supports
(i) fair competition among brokers and dealers, among exchange markets,
and between exchange markets and markets other than exchange markets,
and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities.\18\ Finally, the proposed rule change is also consistent
with Rule 603 of Regulation NMS,\19\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78k-1.
\19\ See 17 CFR 242.603.
---------------------------------------------------------------------------
The Exchange operates in a highly competitive environment. Indeed,
with the launch of three new national securities exchanges that trade
U.S. equity securities last September, there are now sixteen registered
U.S equities exchanges, and with the exception of Long-Term Stock
Exchange, Inc. (``LTSE''), which has determined to not offer any
proprietary market data feeds, each of these exchanges offer associated
market data products to their customers, either with or without a fee.
The national securities exchanges also compete with the SIPs for market
data customers, as much of the information offered to market
participants and investors through the BZX Top Feed is similarly made
available to market participants and investors through the SIPs,
consolidated with data from each of the other fifteen exchanges. It is
in this robust and competitive market in which the Exchange is
proposing to modestly increase its fees.
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Further, with respect
to market data, the decision of the United States Court of Appeals for
the District of Columbia Circuit in NetCoalition v. SEC upheld the
Commission's reliance on the existence of competitive market mechanisms
to evaluate the reasonableness and fairness of fees for proprietary
market data: ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' '' \20\
The court agreed with the Commission's conclusion that ``Congress
intended that `competitive forces should dictate the services and
practices that constitute the U.S. national market system for trading
equity securities.' '' \21\ As discussed in this filing, significant
competitive forces constrain the ability of the Exchange to charge
supra-competitive fees.
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\20\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
\21\ Id. at 535.
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i. The BZX Top Feed Is an Optional Market Data Product, and the
Exchange is Constrained in Its Pricing by Significant Competitive
Forces
Subscribing to the BZX Top Feed is entirely optional. The Exchange
is not required to make the BZX Top Feed available to any customers,
nor is any customer required to purchase the BZX Top Feed. Unlike
certain other data products that firms may be required to purchase in
order to fulfill regulatory obligations,\22\ e.g., the consolidated
quotation and last-sale information feeds offered by the SIPs, a
customer's decision as to whether to purchase the BZX Top Feed is
entirely discretionary, and is based on that firms individual business
needs. Generally, firms that choose to subscribe to the BZX Top Feed do
so because they believe that it is a cost-effective alternative to core
data offered by the SIPs that provides valuable information about the
market for securities traded on the Exchange, particularly in cases
where a consolidated display is not required pursuant to the Vendor
Display Rule. Such firms are able to determine for themselves whether
the BZX Top Feed helps them to achieve their business goals, and if so,
whether or not it is attractively priced compared to other similar
products.
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\22\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May 16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
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Indeed, if the BZX Top Feed does not provide sufficient value to
firms based on the uses those firms may have for it, such firms may
simply choose to conduct their business operations in ways that do not
use the BZX Top Feed. In fact, comparing the number of internal
distributors that currently subscribe to the BZX Top Feed, based on
data compiled by the Exchange as of November 2020, to the total number
of internal distributors that subscribe to core data offered by the CTA
and UTP SIPs, as published on plan websites for Q3 2020,\23\ less than
9.5% of internal
[[Page 6713]]
distributors that purchase U.S. equities data choose to subscribe to
the BZX Top Feed. The BZX Top Feed therefore represents an
insignificant proportion of the relevant market for such market data,
and significantly more internal distributors choose not to purchase
this product than those that do. Given the insignificant percentage of
internal distributors that consume the BZX Top Feed, it is clear that
such firms can and do exercise their right to choose to purchase, or
not purchase, this particular market data product.
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\23\ See CTA Quarterly Population Metrics (Q3 2020), available
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2020.pdf; UTP Quarterly Population
Metrics (Q3 2020), available at https://www.utpplan.com/DOC/UTP_2020_Q3_Stats_with_Processor_Stats.pdf.
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Although the Exchange is not required to make any data, including
top-of-book data, available through its proprietary market data
platform, the Exchange believes that making such data available
increases investor choice, and contributes to a fair and competitive
market. Specifically, making such data publicly available through
proprietary data feeds allows investors to choose alternative,
potentially less costly, market data based on their business needs.
While some market participants that desire a consolidated display often
choose the SIP to satisfy their top-of-book data needs, and in some
cases are effectively required to do so under the Vendor Display Rule,
others may prefer to purchase data directly from one or more national
securities exchanges. For example, a buy-side investor or fintech firm
may choose to purchase the BZX Top Feed, or a similar product from
another exchange, in order to perform investment analysis, or to
provide general information about the market for U.S. equity
securities, respectively. In either case the choice to purchase the BZX
Top Feed would be based on the firm's determination of the value of the
data offered by their chosen product compared to the cost of acquiring
this data instead of receiving similar data from other sources. The BZX
Top Feed serves as a valuable reference for investors that do not
require a consolidated display that contains quotations for all sixteen
U.S. equities exchanges. Making alternative products available to
market participants ultimately ensures competition in the marketplace,
and constrains the ability of exchanges to charge supra-competitive
fees.
Further, in the event that a market data customer views one
exchange's top-of-book data product and/or fees as more or less
attractive than a competitor's offerings they can and often do switch
between competing products. As discussed, much of the top-of-book
quotation information and last-sale information offered within the BZX
Top Feed is also available on the SIP feeds, and for firms that do not
require a consolidated display, as is typically the case for the
subscribers to the BZX Top Feed, similar top-of-book information is
available from a number of competing U.S. equities exchanges.\24\ This
include a number of large established exchanges that charge for access
to such top-of-book data, as well as certain smaller or new exchange
entrants that provide similar data without charge, in many cases as a
way of attracting customers to their exchange while they seek to grow
market share. In this way, the BZX Top Feed, SIP data products, and
other top-of-book products offered by a number of U.S. equities
exchanges, are all substitutes. The availability of these substitute
products constrains the Exchange's ability to charge supra-competitive
prices as market participants can easily obtain similar data from one
of the Exchange's many competitors. In fact, the impact of competition
on the market in which the BZX Top Feed is offered to market
participants and investors is showcased by the Exchange's other recent
fee changes related to this product, which involved the reduction of
fees to facilitate the Exchange's ability to compete for customers.\25\
Distributors can discontinue use of the BZX Top Feed at any time and
for any reason, including due to an assessment of the reasonableness of
fees charged.
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\24\ Although the Exchange does not have access to the customer
lists for other competing products, it understands based on
conversations with subscribers to the BZX Top Feed that they
typically view exchange top-of-book products as substitutes and do
not generally look to purchase such data from more than one national
securities exchange.
\25\ See supra note 4. The Exchange also notes that while this
proposed fee change involves an increase in fees, it is
simultaneously filing another proposed fee change to expand its
Financial Products Distribution Program and further reduce certain
fees. See SR-CboeBZX-2021-003 (pending publication).
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In setting the proposed fees for the BZX Top Feed, the Exchange
considered the competitiveness of the market for proprietary data and
all of the implications of that competition. The Exchange believes that
it has considered all relevant factors and has not considered
irrelevant factors in order to establish reasonable fees. Indeed, the
Exchange has no market power and is not in a position to charge
unreasonable fees for its top-of-book data as there are a number of
competing products in the market, including products that are currently
offered free of charge by certain other exchanges that have determined
not to charge for their market data. The existence of alternatives to
the BZX Top Feed ensures that the Exchange cannot set unreasonable fees
when vendors and subscribers can freely elect these alternatives or
choose not to purchase a specific proprietary data product if the
attendant fees are not justified by the returns that any particular
vendor or data recipient would achieve through the purchase.
ii. The Proposed Fees Are Reasonable Given the Value of the Data
Provided to Customers, and When Compared to Competing Market Data
Products
The proposed fees are also reasonable as they represent a modest
increase for top-of-book data that has proven valuable for investors,
particularly as the Exchange grows market share due to its innovative
market model that has been successful in attracting retail limit
orders, increasing the Exchange's market share to over 7% consolidated
U.S. equities volume.\26\ Specifically, the BZX Top Feed offers
competitively-priced alternative to top-of-book data disseminated by
SIPs, i.e., core data, for firms that do not need or desire a
consolidated display covering all sixteen U.S. equities exchanges, or
similar data disseminated by other national securities exchanges. It is
purchased by a wide variety of market participants and vendors,
including data platforms, websites, fintech firms, buy-side investors,
retail brokers, regional banks, and securities firms inside and outside
of the U.S. that desire low cost, high quality, real-time U.S. equity
market data. By providing lower cost access to U.S. equity market data,
the BZX Top Feed benefits a wide range of investors that participate in
the national market system. As discussed, the decision to purchase a
particular market data product from a particular exchange is largely
based on two factors: (1) The quality of the data, and (2) the price
charged for access to that data. The Exchange believes that the BZX Top
Feed is competitive on both of these factors.
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\26\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
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First, the BZX Top Feed would remain competitively priced compared
to similar products offered by other comparable U.S. equities exchanges
and core data offered by the SIPs. Although the BZX Top Feed is not
offered free of charge like certain other competitor offerings,
particularly those offered by newer U.S. equities exchanges that are
seeking to grow market share, it is made available at a price that is
significantly
[[Page 6714]]
lower than the prices charged by the Exchange's main competitors--i.e.,
those with comparable market shares and data quality. Notably, even
with the proposed fee increase, the BZX Top Feed would remain
significantly cheaper than similar products offered by New York Stock
Exchange LLC (``NYSE''), NYSE Arca, Inc. (``Arca''), and The Nasdaq
Stock Market LLC (``Nasdaq'') both in terms of the fees charged for
internal distribution and the fees charge for each Professional User
that is provided access to the feed. For example, NYSE charges a total
of $3,000 per month for internal distribution of their equivalent
products, i.e., $1,500 per month for applicable top-of-book quotation
information,\27\ and an additional $1,500 per month for transaction
information,\28\ both of which are included in the BZX Top Feed for a
single fee.\29\ Arca, which has a similar pricing model to NYSE, also
charges a higher rate of $1,500 per month for internal distribution of
its equivalent products, separated into a $750 per month charge for
top-of-book quotation information and an additional $750 per month
charge for transaction information.\30\ Finally, Nasdaq charges its
internal distributors a fee of $1,500 per month for Nasdaq Basic, which
includes both top-of-book quotation information and transaction
information for the same fee, similar to the Exchange's pricing model,
but again at a higher cost.\31\ In each case, the internal distribution
charges associated with obtaining comparable U.S. equities market data
from NYSE, Arca, and Nasdaq runs at least double and up to four times
as much as the proposed fee to be charged by the Exchange, meaning that
the Exchange would continue to be offering its data at a price that is
attractive compared to the prices charged by its competitors.
Similarly, each of these exchanges charges a fee for each Professional
User that is higher than that proposed by the Exchange--i.e., $26 per
month for Nasdaq,\32\ and $8 per month total for both NYSE and
Arca.\33\ Finally, the BZX Top Feed also remains competitively priced
compared to core data provided by the SIPs for firms, e.g., buy-side
investors or fintech firms, that do not need or desire a consolidated
display covering all sixteen U.S. equities exchanges.\34\
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\27\ See NYSE PDP Market Data Pricing, Section 1.3, NYSE BBO.
\28\ See NYSE PDP Market Data Pricing, Section 1.4, NYSE Trades.
\29\ See supra note 3 and accompanying text. The Exchange also
offers a separate market data product, i.e., BZX Last Sale, that
exclusively provides last sale information. See BZX Rule 13.8(d).
However, all of the information contained in the BZX Last Sale Feed
is also made available in the BZX Top Feed at no additional charge.
\30\ See NYSE PDP Market Data Pricing, Section 3.3, NYSE Arca
BBO; NYSE PDP Market Data Pricing, Section 3.4, NYSE Arca Trades.
\31\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(c)(1). In addition, Nasdaq also charges distributors a
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7,
Pricing Schedule, Section 135.
\32\ Nasdaq's Professional User fee is divided into Nasdaq
issues ($13), NYSE issues ($6.50), and other issues ($6.50) for a
total of $26 per month for each Professional User. See Nasdaq Equity
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
\33\ NYSE and Arca's fees are both broken down into $4 per month
for BBO information and an additional $4 per month for Trades
information. See supra notes 27, 28, and 30.
\34\ See CTA Schedule of Market Data Charges, available at
https://www.ctaplan.com/pricing; UTP Fee Schedule, available at
https://utpplan.com/DOC/Datapolicies.pdf.
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Second, the proposed fees are reasonable given the value of the
data provided in the BZX Top Feed and used by data recipients in their
profit-generating activities. The BZX Top Feed provides top-of-book
quotations and transactions executed on the Exchange, and provides a
valuable window into the market for securities traded on a market that
accounts for about 4.5% of U.S. equity market volume today.\35\ As
discussed, the Exchange offers the BZX Top Feed in a competitive
environment where firms may freely choose which market data products
best suit their business needs. Invariably, firms that choose to
purchase the BZX Top Feed instead of receiving one of the many free
products offered by other exchanges,\36\ including free products
offered by an affiliate of the Exchange,\37\ have decided that the
value of the BZX Top Feed is greater than that offered by those other
products. Indeed, by incentivizing market quality improvements through
its Lead Market Maker (``LMM'') and other programs designed to enhance
the quality of its market, the Exchange is able to offer higher quality
market data products to customers. In turn, investors may choose to
rely on those products instead of other competitor offerings based on
the value they provide in relation to any additional cost associated
with obtaining that market data from the Exchange. The Exchange
therefore believes that its proposal is consistent with the principles
enshrined in Regulation NMS to ``promote the wide availability of
market data and to allocate revenues to SROs that produce the most
useful data for investors.'' \38\
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\35\ See https://markets.cboe.com/us/equities/market_share/.
\36\ See e.g., Investors Exchange Fee Schedule, Market Data
fees.
\37\ See e.g., Cboe EDGA Exchange, Inc., Fee Schedule, EDGA Top.
\38\ See Regulation NMS Adopting Release, supra note 5, at
37503.
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iii. The Proposed Fees Are Equitable and Not Unfairly Discriminatory as
Internal Distributors Will Be Subject to Uniform Pricing Based on Their
Usage of the Data
The Exchange believes the proposed fees for internal distribution
of the BZX Top Feed will continue to be allocated fairly and equitably
among subscribers, and are not unfairly discriminatory, as the proposed
fees will apply equally to all data recipients that choose to subscribe
to the BZX Top Feed and distribute that data to internal subscribers.
As proposed, all internal distributors of the BZX Top Feed will be
subject to the same internal distribution fee, regardless of the type
of business that they operate, or the use they plan to make of the data
feed. Thus, all internal distributors would have access to the BZX Top
Feed on the same equitable and non-discriminatory terms. Similarly,
with the introduction of Professional User fees, internal distributors
of the BZX Top Feed will be subject to the same modest fees based
solely on the number of Professional Users that each internal
distributor has chosen to permission for access to this information.
The Exchange does not believe that it is inequitable, or unfairly
discriminatory, to charge a fee based on the number of Professional
Users within a firm that have access to the BZX Top Feed as this
ensures that firms with the highest usage pay their equitable share for
the data.
The Exchange also believes that it is fair and equitable, and not
unfairly discriminatory, to continue not to charge a fee for internal
distribution to Non-Professional Users. The Exchange's fee structure is
generally designed to facilitate lower cost access to its market data
by retail investors, either through substantially lower User fees for
Non-Professional Users, or other incentive programs, such as the Small
Retail Broker Distribution Program, which was recently implemented to
lower the cost of the Exchange's market data to small broker-dealers
that serve retail investors. The Exchange does not anticipate any
significant number of Non-Professional Users to receive BZX Top Feed
Data through internal, i.e., within the distributor's firm, as opposed
to external distribution, and in the event that certain firms may
distribute data internally to Users that qualify as Non-Professional,
providing such Users access without any User fees would
[[Page 6715]]
facilitate the Exchange's overall goals of facilitating access to its
data by retail investors, which the Commission has continually found to
be consistent with the Exchange Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by: (i) Competition among exchanges
that offer similar data products to their customers; and (ii) the
existence of inexpensive real-time consolidated data disseminated by
the SIPs. Top-of-book data is broadly disseminated by both the SIPs and
the sixteen U.S. equities exchanges. There are therefore a number of
alternative products available to market participants and investors,
including products offered by certain competing U.S. equities exchanges
without charge. In this competitive environment potential subscribers
are free to choose which competing product to purchase to satisfy their
need for market information. Often, the choice comes down to price, as
market data customers look to purchase cheaper top-of-book data
products, and quality, as market participants seek to purchase data
that represents significant market liquidity.
Intramarket Competition. The Exchange believes that the proposed
fees do not put any market participants at a relative disadvantage
compared to other market participants. As discussed, the proposed fees
would apply to all internal distributors of the BZX Top Feed on an
equal and non-discriminatory basis. The Exchange therefore believes
that the proposed fees neither favor nor penalize one or more
categories of market participants in a manner that would impose an
undue burden on competition. To the extent that particular fees would
apply to only a subset of subscribers, e.g., Professional versus Non-
Professional Users, those distinctions are not unfairly discriminatory
and do not unfairly burden one set of customers over another.
Intermarket Competition. The Exchange believes that the proposed
fees do not impose a burden on competition or on other SROs that is not
necessary or appropriate in furtherance of the purposes of the Act. In
setting the proposed fees, the Exchange is constrained by the
availability of numerous substitute products offered by other national
securities exchanges as well as core data offered by the SIPs. Because
market data customers can find suitable substitute feeds, an exchange
that overprices its market data products stands a high risk that users
may substitute another product. These competitive pressures ensure that
no one exchange's market data fees can impose an undue burden on
competition, and the Exchange's proposed fees do not do so here.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \39\ and paragraph (f) of Rule 19b-4 \40\
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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\39\ 15 U.S.C. 78s(b)(3)(A).
\40\ 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-2021-002 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-2021-002. 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-2021-002 and should be submitted
on or before February 12, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01279 Filed 1-21-21; 8:45 am]
BILLING CODE 8011-01-P
