Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule Related to Physical Port Fees, 89734-89738 [2023-28603]

Download as PDF 89734 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices 39 U.S.C. 3642, 39 CFR part 3035, and 39 CFR part 3040, subpart B. Comment deadline(s) for each request appear in section II. equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Docketed Proceeding(s) II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1. Docket No(s).: MC2024–130 and CP2024–136; Filing Title: USPS Request to Add Priority Mail Express, Priority Mail & USPS Ground Advantage Contract 38 to Competitive Product List and Notice of Filing Materials Under Seal; Filing Acceptance Date: December 21, 2023; Filing Authority: 39 U.S.C. 3642, 39 CFR 3040.130 through 3040.135, and 39 CFR 3035.105; Public Representative: Kenneth R. Moeller; Comments Due: January 2, 2024. This Notice will be published in the Federal Register. Jennie L. Jbara, Alternate Certifying Officer. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2023–28651 Filed 12–27–23; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99217; File No. SR– CboeBZX–2023–104] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule Related to Physical Port Fees December 21, 2023. 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 December 12, 2023, 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. khammond on DSKJM1Z7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX Options’’) proposes to amend its Fees 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/ 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 1. Purpose The Exchange proposes to amend its fee schedule for its equity options platform (‘‘BZX Options’’) relating to physical connectivity fees.3 By way of background, a physical port is utilized by a Member or non-Member to connect to the Exchange at the data centers where the Exchange’s servers are located. The Exchange currently assesses the following physical connectivity fees for Members and nonMembers on a monthly basis: $2,500 per physical port for a 1 gigabit (‘‘Gb’’) circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange proposes to increase the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port. The Exchange notes the proposed fee change better enables it to continue to maintain and improve its market technology and services and also notes that the proposed fee amount, even as amended, continues to be in line with, or even lower than, amounts assessed by other exchanges for similar connections.4 The physical ports may 3 The Exchange initially filed the proposed fee changes on July 3, 2023 (SR–CboeBZX–2023–047). On September 1, 2023, the Exchange withdrew that filing and submitted SR–CboeBZX–2023–068. On September 29, 2023, the Securities and Exchange Commission issued a Suspension of and Order Instituting Proceedings to Determine whether to Approve or Disapprove a Proposed Rule Change to Amend its Fees Schedule Related to Physical Port Fees (the ‘‘OIP’’). On September 29, 2023, the Exchange filed the proposed fee change (SR– CboeBZX–2023–79). On October 13, 2023, the Exchange withdrew that filing and submitted SR– CboeBZX–2023–083. On December 12, 2023 the Exchange withdrew that filing and submitted this filing. 4 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 also be used to access the Systems for the following affiliate exchanges and only one monthly fee currently (and will continue) to apply per port: the Exchange’s equities platform (BZX Equities), Cboe EDGX Exchange, Inc. (options and equities platforms), Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe C2 Exchange, Inc. (‘‘Affiliate Exchanges’’).5 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (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 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange also believes the proposed rule change is consistent with section 6(b)(4) 9 of the Act, which requires that Exchange rules provide for the equitable allocation of reasonable dues, fees, and other charges among its Members and other persons using its facilities. The Exchange believes the proposed fee change is reasonable as it reflects a moderate increase in physical connectivity fees for 10 Gb physical ports. Further, the current 10 Gb Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10Gb physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN Circuits (which are analogous to the Exchange’s 10 Gb physical port) are assessed $22,000 per month, per port. 5 The Affiliate Exchanges are also submitting contemporaneous identical rule filings. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). 8 Id. 9 15 U.S.C. 78f(b)(4). E:\FR\FM\28DEN1.SGM 28DEN1 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES physical port fee has remained unchanged since June 2018.10 Since its last increase 5 years ago however, there has been notable inflation. Particularly, the dollar has had an average inflation rate of 3.9% per year between 2018 and today, producing a cumulative price increase of approximately 21.1% inflation since the fee for the 10 Gb physical port was last modified.11 Moreover, the Exchange historically does not increase fees every year, notwithstanding inflation. Accordingly, the Exchange believes the proposed fee is reasonable as it represents only an approximate 13% increase from the rates adopted five years ago, notwithstanding the cumulative rate of 21.1%. The Exchange is also unaware of any standard that suggests any fee proposal that exceeds a certain yearly or cumulative inflation rate is unreasonable. The Exchange also believes the proposed fee is reasonable as it is still in line with, or even lower than, amounts assessed by other exchanges for similar connections.12 Indeed, the Exchange believes assessing fees that are a lower rate than fees assessed by other exchanges for analogous connectivity (which were similarly adopted via the rule filing process and filed with the Commission) is reasonable. As noted above, the proposed fee is also the same as is concurrently being proposed for its Affiliate Exchanges. Further, Members are able to utilize a single port to connect to any of the Affiliate Exchanges with no additional fee assessed for that same physical port. Particularly, the Exchange believes the proposed monthly per port fee is reasonable, equitable and not unfairly discriminatory as it is assessed only once, even if it connects with another affiliate exchange since only one port is being used and the Exchange does not wish to charge multiple fees for the same port. Indeed, the Exchange notes that several ports are in fact purchased and utilized across one or more of the 10 See Securities and Exchange Release No. 83429 (June 14, 2018), 83 FR 28685 (June 20, 2018) (SR– CboeBZX–2018–038). 11 See https://www.officialdata.org/us/inflation/ 2010?amount=1. 12 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10Gb physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN Circuits (which are analogous to the Exchange’s 10 Gb physical port) are assessed $22,000 per month, per port. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 Exchange’s affiliated Exchanges (and charged only once). The Exchange also believes that the proposed fee change is not unfairly discriminatory because it would be assessed uniformly across all market participants that purchase the physical ports. The Exchange believes increasing the fee for 10 Gb physical ports and charging a higher fee as compared to the 1 Gb physical port is equitable as the 1 Gb physical port is 1/10th the size of the 10 Gb physical port and therefore does not offer access to many of the products and services offered by the Exchange (e.g., ability to receive certain market data products). Thus, the value of the 1 Gb alternative is lower than the value of the 10 Gb alternative, when measured based on the type of Exchange access it offers. Moreover, market participants that purchase 10 Gb physical ports utilize the most bandwidth and therefore consume the most resources from the network. As such, the Exchange believes the proposed fee change for 10 Gb physical ports is reasonably and appropriately allocated. The Exchange also notes Members and non-Members will continue to choose the method of connectivity based on their specific needs and no broker-dealer is required to become a Member of, let alone connect directly to, the Exchange. There is also no regulatory requirement that any market participant connect to any one particular exchange. Moreover, direct connectivity is not a requirement to participate on the Exchange. The Exchange also believes substitutable products and services are available to market participants, including, among other things, other options exchanges that a market participant may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller of connectivity, and/or trading of any options product, such as within the Over-the-Counter (OTC) markets which do not require connectivity to the Exchange. Indeed, there are currently 17 registered options exchanges that trade options (13 of which are not affiliated with Cboe), some of which have similar or lower connectivity fees.13 Based on publicly available information, no single options exchange has more than approximately 20% of the market share.14 Further, low barriers to entry mean that new exchanges may rapidly enter the market and offer additional substitute platforms 13 Id. 14 See Cboe Global Markets U.S. Options Market Volume Summary (October 13, 2023), available at https://markets.cboe.com/us/options/market_ statistics/. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 89735 to further compete with the Exchange and the products it offers. For example, there are 3 exchanges that have been added in the U.S. options markets in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, MIAX Emerald LLC, and most recently, MEMX LLC). As noted above, there is no regulatory requirement that any market participant connect to any one options exchange, nor that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. By way of example, while the Exchange has 61 members that trade options, Cboe EDGX has 51 members that trade options, and Cboe C2 has 52 Trading Permit Holders (‘‘TPHs’’) (i.e., members). There is also no firm that is a Member of BZX Options only. Further, based on publicly available information regarding a sample of the Exchange’s competitors, NYSE American Options has 71 members,15 and NYSE Arca Options has 69 members,16 MIAX Options has 46 members 17 and MIAX Pearl Options has 40 members.18 A market participant may submit orders to the Exchange via a Member broker or a third-party reseller of connectivity. The Exchange notes that third-party non-Members also resell exchange connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange connectivity fees), which alternative is already being used by non-Members and further constrains the price that the Exchange is able to charge for connectivity to its Exchange.19 The 15 See https://www.nyse.com/markets/americanoptions/membership#directory. 16 See https://www.nyse.com/markets/arcaoptions/membership#directory. 17 See https://www.miaxglobal.com/sites/default/ files/page-files/MIAX_Options_Exchange_ Members_April_2023_04282023.pdf. 18 See https://www.miaxglobal.com/sites/default/ files/page-files/MIAX_Pearl_Exchange_Members_ 01172023_0.pdf. 19 Third-party resellers of connectivity play an important role in the capital markets infrastructure ecosystem. For example, third-party resellers can help unify access for customers who want exposure to multiple financial markets that are geographically dispersed by establishing connectivity to all of the different exchanges, so the customers themselves do not have to. Many of the third-party connectivity resellers also act as E:\FR\FM\28DEN1.SGM Continued 28DEN1 89736 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. Unlike other exchanges, the Exchange also chooses not to adopt fees that would be assessed to thirdparty resellers on a per customer basis (i.e., fee based on number of Members that connect to the Exchange indirectly via the third-party).20 Particularly, these third-party resellers may purchase the Exchange’s physical ports and resell access to such ports either alone or as part of a package of services. The Exchange notes that multiple Members are able to share a single physical port (and corresponding bandwidth) with other non-affiliated Members if purchased through a third-party reseller.21 This allows resellers to mutualize the costs of the ports for market participants and provide such ports at a price that may be lower than the Exchange charges due to this mutualized connectivity. These thirdparty sellers may also provide an additional value to market participants in addition to the physical port itself as they may also manage and monitor these connections, and clients of these third-parties may also be able to connect from the same colocation facility either from their own racks or using the thirdparty’s managed racks and infrastructure which may provide further cost-savings. The Exchange believes such third-party resellers may also use the Exchange’s connectivity as an incentive for market participants to purchase further services such as hosting services. That is, even firms that wish to utilize a single, dedicated 10 Gb port (i.e., use one single 10 Gb port themselves instead of sharing a port with other firms), may still realize cost savings via a third-party reseller as it relates to a physical port because such reseller may be providing a discount on distribution agents for all of the market data generated by the exchanges as they can use their established connectivity to subscribe to, and redistribute, data over their networks. This may remove barriers that infrastructure requirements may otherwise pose for customers looking to access multiple markets and real-time data feeds. This facilitation of overall access to the marketplace is ultimately beneficial for the entire capital markets ecosystem, including the Exchange, on which such firms transact business. 20 See, e.g., Nasdaq Price List—U.S. Direct Connection and Extranet Fees, available at, US Direct-Extranet Connection (nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 (January 16, 2022), 80 FR 3683 (January 23, 2022) (SR–NASDAQ–2015–002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) (SR– NASDAQ–2017–114). 21 For example, a third-party reseller may purchase one 10 Gb physical port from the Exchange and resell that connectivity to three different market participants who may only need 3 Gb each and leverage the same single port. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 the physical port to incentivize the purchase of additional services and infrastructure support alongside the physical port offering (e.g., providing space, hosting, power, and other longhaul connectivity options). This is similar to cell phone carriers offering a new iPhone at a discount (or even at no cost) if purchased in connection with a new monthly phone plan. These services may reevaluate reselling or offering Cboe’s direct connectivity if they deem the fees to be excessive. Further, as noted above, the Exchange does not receive any connectivity revenue when connectivity is resold by a third-party, which often is resold to multiple customers, some of whom are agency broker-dealers that have numerous customers of their own. Therefore, given the availability of third-party providers that also offer connectivity solutions, the Exchange believes participation on the Exchange remains affordable (notwithstanding the proposed fee change) for all market participants, including trading firms that may be able to take advantage of lower costs that result from mutualized connectivity and/or from other services provided alongside the physical port offerings. Because third-party resellers also act as a viable alternative to direct connectivity to the Exchange, the price that the Exchange is able to charge for direct connectivity to its Exchange is constrained. Moreover, if the Exchange were to assess supracompetitve rates, members and non-members (such as third-party resellers) alike, may decide not to purchase, or to reduce its use of, the Exchange’s direct connectivity. Disincentivizing market participants from purchasing Exchange connectivity would only serve to discourage participation on the Exchange which ultimately does not benefit the Exchange. Further, the Exchange believes its offerings are more affordable as compared to similar offerings at competitor exchanges.22 Accordingly, the vigorous competition among national securities exchanges provides many alternatives for firms to voluntarily decide whether direct connectivity to the Exchange is appropriate and worthwhile, and as 22 See e.g., See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10Gbps Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10Gbps physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gbps LX LCN Circuits (which are analogous to the Exchange’s 10 Gbps physical port) are assessed $22,000 per month, per port. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 noted above, no broker-dealer is required to become a Member of the Exchange, let alone connect directly to it. In the event that a market participant views the Exchange’s proposed fee change as more or less attractive than the competition, that market participant can choose to connect to the Exchange indirectly or may choose not to connect to that exchange and connect instead to one or more of the other 13 non-Cboe affiliated options markets. Indeed, market participants are free to choose which exchange or reseller to use to satisfy their business needs. Moreover, if the Exchange charges excessive fees, it may stand to lose not only connectivity revenues but also revenues associated with the execution of orders routed to it, and, to the extent applicable, market data revenues. The Exchange believes that this competitive dynamic imposes powerful restraints on the ability of any exchange to charge unreasonable fees for connectivity. Notwithstanding the foregoing, the Exchange still believes that the proposed fee increase is reasonable, equitably allocated and not unfairly discriminatory, even for market participants that determine to connect directly to the Exchange for business purposes, as those business reasons should presumably result in revenue capable of covering the proposed fee. The Exchange lastly notes that it is not required by the Exchange Act, nor any other rule or regulation, to undertake a cost-of-service or ratemaking approach with respect to fee proposals. Moreover, Congress’s intent in enacting the 1975 Amendments to the Act was to enable competition—rather than government order—to determine prices. The principal purpose of the amendments was to facilitate the creation of a national market system for the trading of securities. Congress intended that this ‘‘national market system evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed.’’ 23 Other provisions of the Act confirm that intent. For example, the Act provides that an exchange must design its rules ‘‘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.’’ 24 Likewise, the Act grants the Commission authority to amend or repeal ‘‘[t]he rules of [an] exchange [that] impose any burden on competition not necessary or appropriate in furtherance of the 23 See H.R. Rep. No. 94–229, at 92 (1975) (Conf. Rep.) (emphasis added). 24 15 U.S.C. 78f(b)(5). E:\FR\FM\28DEN1.SGM 28DEN1 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices purposes of this chapter.’’ 25 In short, the promotion of free and open competition was a core congressional objective in creating the national market system.26 Indeed, the Commission has historically interpreted that mandate to promote competitive forces to determine prices whenever compatible with a national market system. Accordingly, the Exchange believes it has met its burden to demonstrate that its proposed fee change is reasonable and consistent with the immediate filing process chosen by Congress, which created a system whereby market forces determine access fees in the vast majority of cases, subject to oversight only in particular cases of abuse or market failure. Lastly, and importantly, the Exchange believes that, even if it were possible as a matter of economic theory, cost-based pricing for the proposed fee would be so complicated that it could not be done practically. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed fee change will not impact intramarket competition because it will apply to all similarly situated Members equally (i.e., all market participants that choose to purchase the 10 Gb physical port). Additionally, the Exchange does not believe its proposed pricing will impose a barrier to entry to smaller participants and notes that its proposed connectivity pricing is associated with relative usage of the various market participants. For example, market participants with modest capacity needs can continue to buy the less expensive 1 Gb physical port (which cost is not changing) or may choose to obtain access via a third-party re-seller. While pricing may be increased for the larger capacity physical ports, such options provide far more capacity and are purchased by those that consume more resources from the network. Accordingly, the proposed connectivity fees do not favor certain categories of market participants in a manner that would impose a burden on competition; 25 15 U.S.C. 78f(8). also 15 U.S.C. 78k–l(a)(1)(C)(ii) (purposes of Exchange Act include to promote ‘‘fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets’’); Order, 73 FR at 74781 (‘‘The Exchange Act and its legislative history strongly support the Commission’s reliance on competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.’’). khammond on DSKJM1Z7X2PROD with NOTICES 26 See VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 rather, the allocation reflects the network resources consumed by the various size of market participants— lowest bandwidth consuming members pay the least, and highest bandwidth consuming members pays the most. The Exchange’s proposed fee is also still lower than some fees for similar connectivity on other exchanges and therefore may stimulate intermarket competition by attracting additional firms to connect to the Exchange or at least should not deter interested participants from connecting directly to the Exchange. Further, if the changes proposed herein are unattractive to market participants, the Exchange can, and likely will, see a decline in connectivity via 10 Gb physical ports as a result. The Exchange operates in a highly competitive market in which market participants can determine whether or not to connect directly to the Exchange based on the value received compared to the cost of doing so. Indeed, market participants have numerous alternative venues that they may participate on and direct their order flow, including 13 non-Cboe affiliated options markets, as well as offexchange venues, where competitive products are available for trading. Moreover, the Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. Specifically, in Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 27 The fact that this market is competitive has also long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker 27 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 89737 dealers’. . . .’’.28 Accordingly, the Exchange does not believe its proposed change imposes any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act 29 and paragraph (f) of Rule 19b–4 30 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–2023–104 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–2023–104. This file number should be included on the subject line if email is used. To help the Commission process and review your 28 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782– 83 (December 9, 2008) (SR–NYSEArca–2006–21)). 29 15 U.S.C. 78s(b)(3)(A). 30 17 CFR 240.19b–4(f). E:\FR\FM\28DEN1.SGM 28DEN1 89738 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeBZX–2023–104 and should be submitted on or before January 18, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Christina Z. Milnor, Assistant Secretary. [FR Doc. 2023–28603 Filed 12–27–23; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–99232; File No. SR– EMERALD–2023–31] Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 517, Quote Types Defined khammond on DSKJM1Z7X2PROD with NOTICES December 22, 2023. Pursuant to the provisions of 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 December 13, 2023, MIAX Emerald, LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in 31 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 20:14 Dec 27, 2023 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend Exchange Rule 517, Quote Types Defined. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/emerald-options/rule-filings, at MIAX Emerald’s principal office, 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 SECURITIES AND EXCHANGE COMMISSION VerDate Sep<11>2014 Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Jkt 262001 The Exchange proposes to amend Rule 517, Quote Types Defined. Specifically, the Exchange proposes to adopt new Interpretations and Policies .02 to Rule 517 to adopt new risk protection behavior for replacement Standard quotes 3 that are rejected. Background Market Makers 4 on the Exchange have heightened obligations separate from other market participants. Transactions of a Market Maker should constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not 3 A Standard quote is a quote submitted by a Market Maker that cancels and replaces the Market Maker’s previous Standard quote, if any. See Exchange Rule 517(a)(1). 4 The term ‘‘Market Makers’’ refers to ‘‘Lead Market Makers’’, ‘‘Primary Lead Market Makers’’ and ‘‘Registered Market Makers’’ collectively. See Exchange Rule 100. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 make bids 5 or offers 6 or enter into transactions that are inconsistent with such a course of dealings.7 A quotation may only be entered by a Market Maker, and only in the options classes to which the Market Maker is appointed under Rule 602.8 A Market Maker’s bid and offer for a series of option contracts shall state a price accompanied by the number of contracts at that price the Market Maker is willing to buy or sell upon receipt of an order or upon interaction with a quotation entered by another Market Maker on the Exchange.9 Additionally, a Market Maker that enters a bid (offer) on the Exchange must enter an offer (bid) within the spread allowable under Rule 603(b)(4).10 The Exchange has three classes of Market Makers; Primary Lead Market Makers, Lead Market Makers, and Registered Market Makers.11 Further, each class of Market Maker has its own separate and distinct quoting obligations. A Primary Lead Market Maker must provide continuous twosided Standard quotes, which for the purpose of paragraph (e)(1)(i) of Rule 604 shall mean 90% of the time, for the options classes to which it is appointed.12 A Primary Lead Market Maker must provide continuous twosided Standard quotes in at least the lesser of 99% of the non-adjusted option series, or 100% of the non-adjusted option series minus one put-call pair, in each class in which the Primary Lead Market Maker is assigned.13 A Lead Market Maker must provide continuous two-sided Standard quotes, which for the purpose of paragraph (e)(2)(i) of Rule 604 shall mean 90% of the time, for the options classes to which it is appointed.14 A Lead Market Maker must provide continuous two-sided Standard quotes in at least 90% of the nonadjusted option series in each of its appointed classes. Such quotations must meet the bid/ask differential requirements of Rule 603(b)(4).15 A Registered Market Maker must provide continuous two-sided Standard quotes throughout the trading day in 60% of the non-adjusted series that have a time 5 The term ‘‘bid’’ means a limit order or quote to buy one or more option contracts. See Exchange Rule 100. 6 The term ‘‘offer’’ means a limit order or quote to sell one or more option contracts. See Exchange Rule 100. 7 See Exchange Rule 603(a). 8 See Exchange Rule 604(a). 9 See Exchange Rule 604(b). 10 See Exchange Rule 604(c). 11 See supra note 4. 12 See Exchange Rule 604(e)(1)(i). 13 See Exchange Rule 604(e)(1)(ii). 14 See Exchange Rule 604(e)(2)(i). 15 See Exchange Rule 604(e)(2)(ii). E:\FR\FM\28DEN1.SGM 28DEN1

Agencies

[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89734-89738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28603]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99217; File No. SR-CboeBZX-2023-104]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
its Fees Schedule Related to Physical Port Fees

December 21, 2023.
    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 December 12, 2023, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to amend its Fees 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 its fee schedule for its equity 
options platform (``BZX Options'') relating to physical connectivity 
fees.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed fee changes on 
July 3, 2023 (SR-CboeBZX-2023-047). On September 1, 2023, the 
Exchange withdrew that filing and submitted SR-CboeBZX-2023-068. On 
September 29, 2023, the Securities and Exchange Commission issued a 
Suspension of and Order Instituting Proceedings to Determine whether 
to Approve or Disapprove a Proposed Rule Change to Amend its Fees 
Schedule Related to Physical Port Fees (the ``OIP''). On September 
29, 2023, the Exchange filed the proposed fee change (SR-CboeBZX-
2023-79). On October 13, 2023, the Exchange withdrew that filing and 
submitted SR-CboeBZX-2023-083. On December 12, 2023 the Exchange 
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

    By way of background, a physical port is utilized by a Member or 
non-Member to connect to the Exchange at the data centers where the 
Exchange's servers are located. The Exchange currently assesses the 
following physical connectivity fees for Members and non-Members on a 
monthly basis: $2,500 per physical port for a 1 gigabit (``Gb'') 
circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange 
proposes to increase the monthly fee for 10 Gb physical ports from 
$7,500 to $8,500 per port. The Exchange notes the proposed fee change 
better enables it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee amount, 
even as amended, continues to be in line with, or even lower than, 
amounts assessed by other exchanges for similar connections.\4\ The 
physical ports may also be used to access the Systems for the following 
affiliate exchanges and only one monthly fee currently (and will 
continue) to apply per port: the Exchange's equities platform (BZX 
Equities), Cboe EDGX Exchange, Inc. (options and equities platforms), 
Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe C2 
Exchange, Inc. (``Affiliate Exchanges'').\5\
---------------------------------------------------------------------------

    \4\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection 
to the respective exchange, which is analogous to the Exchange's 
10Gb physical port. See also New York Stock Exchange LLC, NYSE 
American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, 
Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN 
Circuits (which are analogous to the Exchange's 10 Gb physical port) 
are assessed $22,000 per month, per port.
    \5\ The Affiliate Exchanges are also submitting contemporaneous 
identical rule filings.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (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\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with section 6(b)(4) \9\ of the Act, which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Members and other 
persons using its facilities.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity fees for 10 Gb 
physical ports. Further, the current 10 Gb

[[Page 89735]]

physical port fee has remained unchanged since June 2018.\10\ Since its 
last increase 5 years ago however, there has been notable inflation. 
Particularly, the dollar has had an average inflation rate of 3.9% per 
year between 2018 and today, producing a cumulative price increase of 
approximately 21.1% inflation since the fee for the 10 Gb physical port 
was last modified.\11\ Moreover, the Exchange historically does not 
increase fees every year, notwithstanding inflation. Accordingly, the 
Exchange believes the proposed fee is reasonable as it represents only 
an approximate 13% increase from the rates adopted five years ago, 
notwithstanding the cumulative rate of 21.1%. The Exchange is also 
unaware of any standard that suggests any fee proposal that exceeds a 
certain yearly or cumulative inflation rate is unreasonable.
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Release No. 83429 (June 14, 
2018), 83 FR 28685 (June 20, 2018) (SR-CboeBZX-2018-038).
    \11\ See https://www.officialdata.org/us/inflation/2010?amount=1.
---------------------------------------------------------------------------

    The Exchange also believes the proposed fee is reasonable as it is 
still in line with, or even lower than, amounts assessed by other 
exchanges for similar connections.\12\ Indeed, the Exchange believes 
assessing fees that are a lower rate than fees assessed by other 
exchanges for analogous connectivity (which were similarly adopted via 
the rule filing process and filed with the Commission) is reasonable. 
As noted above, the proposed fee is also the same as is concurrently 
being proposed for its Affiliate Exchanges. Further, Members are able 
to utilize a single port to connect to any of the Affiliate Exchanges 
with no additional fee assessed for that same physical port. 
Particularly, the Exchange believes the proposed monthly per port fee 
is reasonable, equitable and not unfairly discriminatory as it is 
assessed only once, even if it connects with another affiliate exchange 
since only one port is being used and the Exchange does not wish to 
charge multiple fees for the same port. Indeed, the Exchange notes that 
several ports are in fact purchased and utilized across one or more of 
the Exchange's affiliated Exchanges (and charged only once).
---------------------------------------------------------------------------

    \12\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gb Ultra fiber connection 
to the respective exchange, which is analogous to the Exchange's 
10Gb physical port. See also New York Stock Exchange LLC, NYSE 
American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, 
Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN 
Circuits (which are analogous to the Exchange's 10 Gb physical port) 
are assessed $22,000 per month, per port.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed fee change is not 
unfairly discriminatory because it would be assessed uniformly across 
all market participants that purchase the physical ports. The Exchange 
believes increasing the fee for 10 Gb physical ports and charging a 
higher fee as compared to the 1 Gb physical port is equitable as the 1 
Gb physical port is 1/10th the size of the 10 Gb physical port and 
therefore does not offer access to many of the products and services 
offered by the Exchange (e.g., ability to receive certain market data 
products). Thus, the value of the 1 Gb alternative is lower than the 
value of the 10 Gb alternative, when measured based on the type of 
Exchange access it offers. Moreover, market participants that purchase 
10 Gb physical ports utilize the most bandwidth and therefore consume 
the most resources from the network. As such, the Exchange believes the 
proposed fee change for 10 Gb physical ports is reasonably and 
appropriately allocated.
    The Exchange also notes Members and non-Members will continue to 
choose the method of connectivity based on their specific needs and no 
broker-dealer is required to become a Member of, let alone connect 
directly to, the Exchange. There is also no regulatory requirement that 
any market participant connect to any one particular exchange. 
Moreover, direct connectivity is not a requirement to participate on 
the Exchange. The Exchange also believes substitutable products and 
services are available to market participants, including, among other 
things, other options exchanges that a market participant may connect 
to in lieu of the Exchange, indirect connectivity to the Exchange via a 
third-party reseller of connectivity, and/or trading of any options 
product, such as within the Over-the-Counter (OTC) markets which do not 
require connectivity to the Exchange. Indeed, there are currently 17 
registered options exchanges that trade options (13 of which are not 
affiliated with Cboe), some of which have similar or lower connectivity 
fees.\13\ Based on publicly available information, no single options 
exchange has more than approximately 20% of the market share.\14\ 
Further, low barriers to entry mean that new exchanges may rapidly 
enter the market and offer additional substitute platforms to further 
compete with the Exchange and the products it offers. For example, 
there are 3 exchanges that have been added in the U.S. options markets 
in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, MIAX 
Emerald LLC, and most recently, MEMX LLC).
---------------------------------------------------------------------------

    \13\ Id.
    \14\ See Cboe Global Markets U.S. Options Market Volume Summary 
(October 13, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    As noted above, there is no regulatory requirement that any market 
participant connect to any one options exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on the Exchange, or trade any particular product 
offered on an exchange. Moreover, membership is not a requirement to 
participate on the Exchange. Indeed, the Exchange is unaware of any one 
options exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 61 members that trade 
options, Cboe EDGX has 51 members that trade options, and Cboe C2 has 
52 Trading Permit Holders (``TPHs'') (i.e., members). There is also no 
firm that is a Member of BZX Options only. Further, based on publicly 
available information regarding a sample of the Exchange's competitors, 
NYSE American Options has 71 members,\15\ and NYSE Arca Options has 69 
members,\16\ MIAX Options has 46 members \17\ and MIAX Pearl Options 
has 40 members.\18\
---------------------------------------------------------------------------

    \15\ See https://www.nyse.com/markets/american-options/membership#directory.
    \16\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
    \18\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
---------------------------------------------------------------------------

    A market participant may submit orders to the Exchange via a Member 
broker or a third-party reseller of connectivity. The Exchange notes 
that third-party non-Members also resell exchange connectivity. This 
indirect connectivity is another viable alternative for market 
participants to trade on the Exchange without connecting directly to 
the Exchange (and thus not pay the Exchange connectivity fees), which 
alternative is already being used by non-Members and further constrains 
the price that the Exchange is able to charge for connectivity to its 
Exchange.\19\ The

[[Page 89736]]

Exchange notes that it could, but chooses not to, preclude market 
participants from reselling its connectivity. Unlike other exchanges, 
the Exchange also chooses not to adopt fees that would be assessed to 
third-party resellers on a per customer basis (i.e., fee based on 
number of Members that connect to the Exchange indirectly via the 
third-party).\20\ Particularly, these third-party resellers may 
purchase the Exchange's physical ports and resell access to such ports 
either alone or as part of a package of services. The Exchange notes 
that multiple Members are able to share a single physical port (and 
corresponding bandwidth) with other non-affiliated Members if purchased 
through a third-party re-seller.\21\ This allows resellers to mutualize 
the costs of the ports for market participants and provide such ports 
at a price that may be lower than the Exchange charges due to this 
mutualized connectivity. These third-party sellers may also provide an 
additional value to market participants in addition to the physical 
port itself as they may also manage and monitor these connections, and 
clients of these third-parties may also be able to connect from the 
same colocation facility either from their own racks or using the 
third-party's managed racks and infrastructure which may provide 
further cost-savings. The Exchange believes such third-party resellers 
may also use the Exchange's connectivity as an incentive for market 
participants to purchase further services such as hosting services. 
That is, even firms that wish to utilize a single, dedicated 10 Gb port 
(i.e., use one single 10 Gb port themselves instead of sharing a port 
with other firms), may still realize cost savings via a third-party 
reseller as it relates to a physical port because such reseller may be 
providing a discount on the physical port to incentivize the purchase 
of additional services and infrastructure support alongside the 
physical port offering (e.g., providing space, hosting, power, and 
other long-haul connectivity options). This is similar to cell phone 
carriers offering a new iPhone at a discount (or even at no cost) if 
purchased in connection with a new monthly phone plan. These services 
may reevaluate reselling or offering Cboe's direct connectivity if they 
deem the fees to be excessive. Further, as noted above, the Exchange 
does not receive any connectivity revenue when connectivity is resold 
by a third-party, which often is resold to multiple customers, some of 
whom are agency broker-dealers that have numerous customers of their 
own. Therefore, given the availability of third-party providers that 
also offer connectivity solutions, the Exchange believes participation 
on the Exchange remains affordable (notwithstanding the proposed fee 
change) for all market participants, including trading firms that may 
be able to take advantage of lower costs that result from mutualized 
connectivity and/or from other services provided alongside the physical 
port offerings. Because third-party resellers also act as a viable 
alternative to direct connectivity to the Exchange, the price that the 
Exchange is able to charge for direct connectivity to its Exchange is 
constrained. Moreover, if the Exchange were to assess supracompetitve 
rates, members and non-members (such as third-party resellers) alike, 
may decide not to purchase, or to reduce its use of, the Exchange's 
direct connectivity. Disincentivizing market participants from 
purchasing Exchange connectivity would only serve to discourage 
participation on the Exchange which ultimately does not benefit the 
Exchange. Further, the Exchange believes its offerings are more 
affordable as compared to similar offerings at competitor 
exchanges.\22\
---------------------------------------------------------------------------

    \19\ Third-party resellers of connectivity play an important 
role in the capital markets infrastructure ecosystem. For example, 
third-party resellers can help unify access for customers who want 
exposure to multiple financial markets that are geographically 
dispersed by establishing connectivity to all of the different 
exchanges, so the customers themselves do not have to. Many of the 
third-party connectivity resellers also act as distribution agents 
for all of the market data generated by the exchanges as they can 
use their established connectivity to subscribe to, and 
redistribute, data over their networks. This may remove barriers 
that infrastructure requirements may otherwise pose for customers 
looking to access multiple markets and real-time data feeds. This 
facilitation of overall access to the marketplace is ultimately 
beneficial for the entire capital markets ecosystem, including the 
Exchange, on which such firms transact business.
    \20\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, US Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \21\ For example, a third-party reseller may purchase one 10 Gb 
physical port from the Exchange and resell that connectivity to 
three different market participants who may only need 3 Gb each and 
leverage the same single port.
    \22\ See e.g., See e.g., The Nasdaq Stock Market LLC 
(``Nasdaq''), General 8, Connectivity to the Exchange. Nasdaq and 
its affiliated exchanges charge a monthly fee of $15,000 for each 
10Gbps Ultra fiber connection to the respective exchange, which is 
analogous to the Exchange's 10Gbps physical port. See also New York 
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago 
Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides 
that 10 Gbps LX LCN Circuits (which are analogous to the Exchange's 
10 Gbps physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------

    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether direct connectivity to the Exchange is appropriate and 
worthwhile, and as noted above, no broker-dealer is required to become 
a Member of the Exchange, let alone connect directly to it. In the 
event that a market participant views the Exchange's proposed fee 
change as more or less attractive than the competition, that market 
participant can choose to connect to the Exchange indirectly or may 
choose not to connect to that exchange and connect instead to one or 
more of the other 13 non-Cboe affiliated options markets. Indeed, 
market participants are free to choose which exchange or reseller to 
use to satisfy their business needs. Moreover, if the Exchange charges 
excessive fees, it may stand to lose not only connectivity revenues but 
also revenues associated with the execution of orders routed to it, 
and, to the extent applicable, market data revenues. The Exchange 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for 
connectivity. Notwithstanding the foregoing, the Exchange still 
believes that the proposed fee increase is reasonable, equitably 
allocated and not unfairly discriminatory, even for market participants 
that determine to connect directly to the Exchange for business 
purposes, as those business reasons should presumably result in revenue 
capable of covering the proposed fee.
    The Exchange lastly notes that it is not required by the Exchange 
Act, nor any other rule or regulation, to undertake a cost-of-service 
or rate-making approach with respect to fee proposals. Moreover, 
Congress's intent in enacting the 1975 Amendments to the Act was to 
enable competition--rather than government order--to determine prices. 
The principal purpose of the amendments was to facilitate the creation 
of a national market system for the trading of securities. Congress 
intended that this ``national market system evolve through the 
interplay of competitive forces as unnecessary regulatory restrictions 
are removed.'' \23\ Other provisions of the Act confirm that intent. 
For example, the Act provides that an exchange must design its rules 
``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.'' \24\ Likewise, the Act grants the 
Commission authority to amend or repeal ``[t]he rules of [an] exchange 
[that] impose any burden on competition not necessary or appropriate in 
furtherance of the

[[Page 89737]]

purposes of this chapter.'' \25\ In short, the promotion of free and 
open competition was a core congressional objective in creating the 
national market system.\26\ Indeed, the Commission has historically 
interpreted that mandate to promote competitive forces to determine 
prices whenever compatible with a national market system. Accordingly, 
the Exchange believes it has met its burden to demonstrate that its 
proposed fee change is reasonable and consistent with the immediate 
filing process chosen by Congress, which created a system whereby 
market forces determine access fees in the vast majority of cases, 
subject to oversight only in particular cases of abuse or market 
failure. Lastly, and importantly, the Exchange believes that, even if 
it were possible as a matter of economic theory, cost-based pricing for 
the proposed fee would be so complicated that it could not be done 
practically.
---------------------------------------------------------------------------

    \23\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.) 
(emphasis added).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78f(8).
    \26\ See also 15 U.S.C. 78k-l(a)(1)(C)(ii) (purposes of Exchange 
Act include to promote ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets''); Order, 73 FR at 74781 (``The 
Exchange Act and its legislative history strongly support the 
Commission's reliance on competition, whenever possible, in meeting 
its regulatory responsibilities for overseeing the SROs and the 
national market system.'').
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed fee change will 
not impact intramarket competition because it will apply to all 
similarly situated Members equally (i.e., all market participants that 
choose to purchase the 10 Gb physical port). Additionally, the Exchange 
does not believe its proposed pricing will impose a barrier to entry to 
smaller participants and notes that its proposed connectivity pricing 
is associated with relative usage of the various market participants. 
For example, market participants with modest capacity needs can 
continue to buy the less expensive 1 Gb physical port (which cost is 
not changing) or may choose to obtain access via a third-party re-
seller. While pricing may be increased for the larger capacity physical 
ports, such options provide far more capacity and are purchased by 
those that consume more resources from the network. Accordingly, the 
proposed connectivity fees do not favor certain categories of market 
participants in a manner that would impose a burden on competition; 
rather, the allocation reflects the network resources consumed by the 
various size of market participants--lowest bandwidth consuming members 
pay the least, and highest bandwidth consuming members pays the most.
    The Exchange's proposed fee is also still lower than some fees for 
similar connectivity on other exchanges and therefore may stimulate 
intermarket competition by attracting additional firms to connect to 
the Exchange or at least should not deter interested participants from 
connecting directly to the Exchange. Further, if the changes proposed 
herein are unattractive to market participants, the Exchange can, and 
likely will, see a decline in connectivity via 10 Gb physical ports as 
a result. The Exchange operates in a highly competitive market in which 
market participants can determine whether or not to connect directly to 
the Exchange based on the value received compared to the cost of doing 
so. Indeed, market participants have numerous alternative venues that 
they may participate on and direct their order flow, including 13 non-
Cboe affiliated options markets, as well as off-exchange venues, where 
competitive products are available for trading. Moreover, the 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. Specifically, in Regulation NMS, the 
Commission highlighted the importance of market forces in determining 
prices and SRO revenues and, also, recognized that current regulation 
of the market system ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \27\ The fact that this market is 
competitive has also long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated as follows: ``[n]o one disputes that competition for order flow 
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .''.\28\ Accordingly, the Exchange 
does not believe its proposed change imposes any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \28\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

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 \29\ and paragraph (f) of Rule 19b-4 \30\ 
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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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 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-2023-104 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-2023-104. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 89738]]

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 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-CboeBZX-2023-104 and should be submitted on or before January 18, 
2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28603 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P
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