Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Regarding Dedicated Cores, 99930-99934 [2024-29043]

Download as PDF 99930 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices reasonable and consistent with the Exchange Act. In summary, (i) the proposed fees for Top of PHLX Options are comparable to those of MIAX, MIAX Emerald and Cboe; (ii) the proposed fees for PHLX Orders are comparable to those of MIAX, MIAX Emerald, and ISE; and (iii) the proposed PHLX TOPO Plus Orders fees offer a discount from the amount the customer would pay for TOPO and Orders separately, and, because these separate fees are comparable to those charged by other exchanges, the proposed discount for TOPO Plus Orders is reasonable. No Unfair Discrimination Between Customers, Issuers, Brokers, or Dealers The proposal is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers because: (i) external distributors receive additional value not available to internal distributors; and (ii) these market data feeds will be available on a non-discriminatory basis. External Distributors receive additional value not available to Internal Distributors by disseminating information externally and typically charging for the service. This additional value supports higher fees for external distribution for TOPO, PHLX Orders, and TOPO Plus Orders. Higher fees for external distribution of data are common throughout the industry, and nearly universal among exchanges. The difference in value between internal and external distribution is also reflected in the current fee schedule, which has previously been shown to be consistent with the Exchange Act. The three market data feeds at issue here—TOPO, PHLX Orders, and TOPO Plus Orders—are used by a variety of market participants for a variety of purposes. Users include regulators, market makers, competing exchanges, media, retail, academics, portfolio managers. Market data feeds will be available to members of all of these groups on a non-discriminatory basis. lotter on DSK11XQN23PROD with NOTICES1 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 not necessary or appropriate in furtherance of the purposes of the Act. Nothing in the Proposal burdens inter-market competition (the competition among self-regulatory organizations) because approval of the Proposal does not impose any burden on the ability of other options exchanges to compete. PHLX fees are comparable VerDate Sep<11>2014 18:17 Dec 10, 2024 Jkt 265001 to, and in some cases less than, those of other exchanges, as discussed above. Nothing in the Proposal burdens intra-market competition (the competition among consumers of exchange data) because PHLX market data is available to any customer under the same fee schedule as any other customer, and any market participant that wishes to purchase PHLX market data can do so on a non-discriminatory basis. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) by order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. 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–Phlx–2024–67 and should be submitted on or before December 31, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Sherry R. Haywood, Assistant Secretary. 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: [FR Doc. 2024–29040 Filed 12–10–24; 8:45 am] 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– Phlx–2024–67 on the subject line. Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Regarding Dedicated Cores 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–Phlx–2024–67. 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 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 November 26, 2024, 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 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101825; File No. SR– CboeBZX–2024–122] December 5, 2024 45 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\11DEN1.SGM 11DEN1 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX Equities’’) proposes to amend its Fee Schedule. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/BZX/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change lotter on DSK11XQN23PROD with NOTICES1 1. Purpose The Exchange proposes to amend its fee schedule to adopt fees for Dedicated Cores.3 By way of background, the Exchange recently began to allow Users 4 to assign a Single Binary Order Entry (‘‘BOE’’) logical order entry port 5 to a single 3 The Exchange initially introduced pricing for Dedicated Cores on June 10, 2024 (SR–CboeBZX– 2024–054). On August 1, 2024, the Exchange withdrew that filing and submitted SR–CboeBZX– 2024–075. On business date September 30, 2024, the Exchange withdrew that filing and submitted SR–CboeBZX–2024–094. On November 26, 2024, the Exchange withdrew that filing and submitted this filing. 4 A User may be either a Member or Sponsored Participant. The term ‘‘Member’’ shall mean any registered broker or dealer that has been admitted to membership in the Exchange, limited liability company or other organization which is a registered broker or dealer pursuant to Section 15 of the Act, and which has been approved by the Exchange. A Sponsored Participant may be a Member or nonMember of the Exchange whose direct electronic access to the Exchange is authorized by a Sponsoring Member subject to certain conditions. See Exchange Rule 11.3. 5 Users may currently connect to the Exchange using a logical port available through an application programming interface (‘‘API’’), such as the Binary VerDate Sep<11>2014 18:17 Dec 10, 2024 Jkt 265001 dedicated Central Processing Unit (CPU Core) (‘‘Dedicated Core’’). Historically, CPU Cores had been shared by logical order entry ports (i.e., multiple logical ports from multiple firms may connect to a single CPU Core). Use of Dedicated Cores however, can provide reduced latency, enhanced throughput, and improved performance since a firm using a Dedicated Core is utilizing the full processing power of a CPU Core instead of sharing that power with other firms. This offering is completely voluntary and is available to all Users that wish to purchase Dedicated Cores. Users may utilize BOE logical order entry ports on shared CPU Cores, either in lieu of, or in addition to, their use of Dedicated Core(s). As such, Users are able to operate across a mix of shared and dedicated CPU Cores which the Exchange believes provides additional risk and capacity management. Further, Dedicated Cores are not required nor necessary to participate on the Exchange and as such Users may opt not to use Dedicated Cores at all. The Exchange proposes to assess the following monthly fees for Users that wish to use Dedicated Cores and adopt a maximum limit. First, the Exchange proposes to provide up to two Dedicated Cores to all Users who wish to use Dedicated Cores, at no additional cost. For the use of more than two Dedicated Cores, the Exchange proposes to assess the following fees: $650 per Dedicated Core for 3–15 Dedicated Cores; $850 per Dedicated Core for 16–30 Dedicated Cores; and $1,050 per Dedicated Core for 31 or more Dedicated Cores. The proposed fees are progressive and the Exchange proposes to include the following example in the Fees Schedule to provide clarity as to how the fees will be applied. Particularly, the Exchange will provide the following example: if a User were to purchase 16 Dedicated Cores, it will be charged a total of $9,300 per month ($0 * 2 + $650 * 13 + $850 * 1). The Exchange also proposes to make clear in the Fees Schedule that the monthly fees are assessed and applied in their entirety and are not prorated. The Exchange notes the current standard fees assessed for BOE Logical Ports, whether used with Dedicated or shared CPU cores, will remain applicable and unchanged.6 Since the Exchange currently has a finite amount of physical space in its data centers in which its servers (and Order Entry (‘‘BOE’’) protocol. A BOE logical order entry port is used for order entry. 6 The Exchange currently assesses $550 per port per month. Port fees will also continue to be assessed on the first two Dedicated Cores that Users receive at no additional cost. See Cboe BZX Equities Fee Schedule. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 99931 therefore corresponding CPU Cores) are located, the Exchange also proposes to prescribe a maximum limit on the number of Dedicated Cores that Users may purchase each month. The purpose of establishing these limits is to manage the allotment of Dedicated Cores in a fair manner and to prevent the Exchange from being required to expend large amounts of resources in order to provide an unlimited number of Dedicated Cores. The Exchange previously established a limit for Members of a maximum number of 60 Dedicated Cores and Sponsoring Members a limit of a maximum number of 25 Dedicated Cores for each of their Sponsored Access relationships.7 The Exchange has since been able to procure additional physical space in its thirdparty data century as well as additional servers with CPU Cores and also has a better understanding of User demand relative to its available space and available Dedicated Cores since the initial launch of Dedicated Cores. After seeing increased User demand, the Exchange proposed to increase the cap and provided that Members will be limited to a maximum number of 80 Dedicated Cores and Sponsoring Members will be limited to a maximum number of 35 Dedicated Cores for each of their Sponsored Access relationships.8 The Exchange noted at that time that it would continue monitoring Dedicated Core interest by all Users and allotment availability with the goal of increasing these limits to meet Users’ needs if and when the demand is there and/or the Exchange is able to accommodate additional Dedicated Cores. Since then, the Exchange has determined that it is able to accommodate an increased cap relative to current demand. As such, the Exchange proposes to increase the cap to 120 Dedicated Cores for Members, effective December 1, 2024.9 Sponsoring Members will continue to be limited to a maximum of 35 Dedicated Cores for each of their Sponsored Access relationships.10 7 See Securities Exchange Act Release No. 100395 (June 21, 2024), 89 FR 53687 (June 27, 2024) (SR– CboeBZX–2024–054). 8 See Securities Exchange Act Release No. 101302 (October 10, 2024), 89 FR 83727 (October 17, 2024) (SR–CboeBZX–2024–094). 9 The prescribed maximum quantity of Dedicated Cores for Members applies regardless of whether that Member purchases the Dedicated Cores directly from the Exchange and/or through a Service Bureau. In a Service Bureau relationship, a customer allows its MPID to be used on the ports of a technology provider, or Service Bureau. One MPID may be allowed on several different Service Bureaus. 10 The fee tier(s) applicable to Sponsoring Members are determined on a per Sponsored E:\FR\FM\11DEN1.SGM Continued 11DEN1 99932 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 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.11 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 12 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) 13 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) 14 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 proposal is reasonable because the Exchange is offering any User who wishes to utilize Dedicated Cores up to two Dedicated Cores at no additional cost. For example, of the Users that currently maintain Dedicated Cores, 26% maintain only 1 or 2 Dedicated Cores Access relationship basis and not on the combined total of Dedicated Cores across Sponsored Users. For example, under the proposed changes, a Sponsoring Member that has three Sponsored Access relationships is entitled to a total of 105 Dedicated Cores for those 3 Sponsored Access relationships but would be assessed fees separately based on the 35 Dedicated Cores for each Sponsored User (instead of combined total of 105 Dedicated Cores). For example, a Sponsoring Member with 3 Sponsored Access relationships would pay $30,450 per month if each Sponsored Access relationship purchased the maximum 35 Dedicated Cores. More specifically, the Sponsoring Member would be provided 2 Dedicated Cores at no additional cost for each Sponsored User under Tier 1 (total of 6 Dedicated Cores at no additional cost) and provided an additional 8 Dedicated Cores at $650 each for each Sponsored User, 5 Dedicated Cores at $850 each for each Sponsored User and 20 Dedicated Cores at $1,050 each for each Sponsored User (combined total of 99 additional Dedicated Cores). 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). 13 Id. 14 15 U.S.C. 78f(b)(4). VerDate Sep<11>2014 18:17 Dec 10, 2024 Jkt 265001 and therefore pay no additional fees. The Exchange believes the proposed fees are reasonable because Dedicated Cores provide a valuable service in that it can provide reduced latency, enhanced throughput, and improved performance compared to use of a shared CPU Core since a firm using a Dedicated Core is utilizing the full processing power of a CPU Core. The Exchange also emphasizes however, that the use of Dedicated Cores is not necessary for trading and as noted above, is entirely optional. Users can also continue to access the Exchange through shared CPU Cores at no additional cost. Indeed, only 16% of the Exchange’s Members currently use Dedicated Cores and as noted above, of that 16%, only 26% take 1 or 2 Dedicated Cores at no additional cost. Depending on a firm’s specific business needs, the proposal enables Users to choose to use Dedicated Cores in lieu of, or in addition to, shared CPU Cores (or as emphasized, not use Dedicated Cores at all). If a User finds little benefit in having Dedicated Cores based on its business model and trading strategies, or determines Dedicated Cores are not cost-efficient for its needs or does not provide sufficient value to the firm, such User may continue its use of the shared CPU Cores, unchanged. The Exchange also has no plans to eliminate shared CPU Cores nor to require Users to purchase Dedicated Cores. The Exchange has seen general interest in Dedicated Cores from a variety of market participants, with varying size and business models. Such market participants include proprietary trading firms (who tend to be more latency sensitive), as well as sell-side market participants and buy-side market participants (who tend to be less latency sensitive). For background, proprietary trading firms utilize their own capital to trade without taking outside money from clients. Due to the nature of their respective businesses, the Exchange has classified proprietary trading firms as latency sensitive, and other groups, such as buy-side hedge funds, sell-side banks and sell-side non-banks (such as agency brokers) as non-latency sensitive. Proprietary trading firms’ strategies may range from, marketing making, to relative value trading and arbitrage—these all rely on profiting from general market activity and, generally, requires faster entry and exit into trades and positions making proprietary trading firms more latency sensitive than other market segments. Buy-side hedge funds, banks and agency brokers are not as latency sensitive as strategy for hedge funds is based on PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 overall long-term positioning in the market and banks and agency brokers may profit from commissions of customer order flow; both are generally strategies that are not reliant on speed to the same extent proprietary trading firms are. Further, Members have various reasons for obtaining Dedicated Cores. Some Members for example, may be seeking to further reduce latency, whereas others may use Dedicated Cores as a general risk mitigation by siloing their respective activity. Of further note, only 40% of Members that are propriety trading firms (who again, generally tend to be more latency sensitive) utilize Dedicated Cores, and of that 40%, 36% are only utilizing the 1 to 2 free Dedicated Cores available to all Users. As mentioned above, some non-latency sensitive firms have chosen to also adopt Dedicated Cores. 9% of Members that are not latency sensitive utilize Dedicated Cores, and of that 9%, 13% are only utilizing the 1 to 2 free Dedicated Cores available to all Users. The lack of universal, or even widespread, adoption by all such users therefore demonstrates that purchasing Dedicated Cores is not effectively a requirement to compete for any one type of market participant, including latency sensitive market participants. Instead, Dedicated Cores are an optional and voluntary connectivity offering, which market participants are free to choose whether or not to utilize based on whether they meet their unique business needs. Moreover, the Exchange has received overwhelming positive feedback and support for Dedicated Cores, with some Members even noting that they have moved more of their order flow to the Exchange and its affiliated equities exchanges (the ‘‘Equities Exchanges’’) as they have noticed both better fills and greater consistency of order execution at the Equities Exchanges. This demonstrates that despite any incurred costs for Members that choose to purchase Dedicated Cores, it is ultimately a net win for them as they benefit from better execution. The Exchange believes it also demonstrates that Members find the proposed fees to be both reasonable and have benefited from purchasing or, at alternatively benefiting from the proposed one or two free Dedicated Cores available at no additional cost. The Exchange believes this is shown by both the level of demand for Dedicated Cores and the feedback from market participants, including as described above. The Exchange also believes it’s notable that no negative comment letters in connection with the proposed pricing have been received since the Exchange E:\FR\FM\11DEN1.SGM 11DEN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices first filed proposed fees for Dedicated Cores back on June 10, 2024. Additionally, as noted earlier, Members can (and many have) decide that utilizing even a free Dedicated Core is not needed for their business. Ultimately, this is a business decision that each Member must make and is best suited to determine and will ultimately depend on the priorities and strategies of that Member’s respective business needs. The Exchange also believes that the proposed Dedicated Core fees are equitable and not unfairly discriminatory because they continue to be assessed uniformly to similarly situated users in that all Users who choose to purchase Dedicated Cores will be subject to the same proposed tiered fee schedule. Moreover, all Users are entitled to up to 2 Dedicated Cores at no additional cost and, as previously discussed, 26% of all Users that take Dedicated Cores (including both latency sensitive and non-latency sensitive Users) take only 1 or 2 Dedicated Cores at no additional cost. The Exchange believes the proposed ascending fee structure is also reasonable, equitable and not unfairly discriminatory as it is designed so that firms that use a higher allotment of the Exchange’s finite number of Dedicated Cores pay higher rates, rather than placing that burden on market participants that have more modest needs who will have the flexibility of obtaining Dedicated Cores at lower price points in the lower tiers. As such, the proposed fees do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the ascending fee structure reflects the (finite) resources consumed by the various needs of market participants— that is, the lowest Dedicated Core consuming Users pay the least, and highest Dedicated Core consuming Users pay the most. Other exchanges similarly assess higher fees to those that consume more Exchange resources, including the Exchange on its options platform.15 Moreover, those consuming more Dedicated Cores do so if they find a benefit in having higher quantities of Dedicated Cores based on their respective business needs. The proposed tier structure is also designed to encourage firms to manage their needs in a fair manner and to prevent the Exchange from being required to expend large amounts of resources in order to provide an additional number of Dedicated Cores. Moreover, as 15 See e.g., Cboe U.S. Options Fee Schedule, BZX Options, Options Logical Port Fees, Ports with Bulk Quoting Capabilities. VerDate Sep<11>2014 18:17 Dec 10, 2024 Jkt 265001 discussed above and in more detail below, the Exchange cannot currently offer an unlimited number of Dedicated Cores due in part to physical space constraints in the third-party data center. The Exchange believes the proposed ascending fee structure is therefore another appropriate means, in conjunction with an established cap, to manage this finite resource and ensure the resource is apportioned more fairly. The Exchange believes it is reasonable to limit the number of Dedicated Cores Users can purchase because the Exchange has a finite amount of space in its third-party data centers to accommodate CPU cores, including Dedicated Cores. The Exchange must also take into account timing and cost considerations in procuring additional Dedicated Cores and related hardware such as servers, switches, optics and cables, as well as the readiness of the Exchange’s data center to accommodate additional Dedicated Cores in the Exchange’s respective Order Handler Cabinets.16 Moreover, procuring data center space has grown to be more challenging than it was five years ago with the increased demand for data center space. For example, the U.S. colocation data center market has doubled in size in just four years. In addition to the Exchange’s rollout of Dedicated Cores, the Exchange is mindful of its other business areas and the need to continue to be mindful of its existing, external restraints in procuring additional space in this area. The Exchange has, and will continue to, monitor market participant demand and space availability and endeavor to adjust the limit if and when the Exchange is able to acquire additional space and power within the third-party data centers and/or additional CPU Cores to accommodate additional Dedicated Cores.17 The Exchange monitors its capacity and data center space and thus is in the best place to determine these limits and modify them as appropriate in response to changes to this capacity and space, as well as market demand. For example, the Exchange’s affiliate Cboe EDGA Exchange, Inc. has increased the prescribed maximum limit three times since the launch of Dedicated Cores on its exchange on February 26, 2024 as a result of evaluating the demand relative to Dedicated Cores availability.18 The 16 The Exchange notes that it cannot currently convert shared CPU cores into Dedicated Cores. 17 The Exchange notes that approximately 5% of Users that have Dedicated Cores currently are at or near the maximum limits. The average number of Dedicated Cores used for the Exchange is 21. 18 See Securities Exchange Act Release No. 99983 (April 17, 2024), 89 FR 30418 (April 23, 2024) (SR– PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 99933 proposed increased limits continue to apply uniformly to similarly situated market participants (i.e., all Members are subject to the same limit and all Sponsored Participants are subject to the same limit, respectively). The Exchange believes it’s not unfairly discriminatory to provide for different limits for different types of Users. For example, the Exchange believes it’s not unfairly discriminatory to provide for an initial lower limit to be allocated for Sponsored Participants because unlike Members, Sponsored Participants are able to access the Exchange without paying a Membership Fee. Members also have more regulatory obligations and risk that Sponsored Participants do not. For example, while Sponsored Participants must agree to comply with the Rules of the Exchange, it is the Sponsoring Member of that Sponsored Participant that remains ultimately responsible for all orders entered on or through the Exchange by that Sponsored Participant. The industry also has a history of applying fees differently to Members as compared to Sponsored Participants.19 Lastly, the Exchange believes its proposed maximum limits, and distinction between Members and Sponsored Users, is another appropriate means to help the Exchange manage its allotment of Dedicated Cores and better ensure this finite resource is apportioned fairly. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary in furtherance of the purposes of the Act because the proposed tiered fee structure will apply equally to all similarly situated Users that choose to use Dedicated Cores. As discussed above, Dedicated Cores are optional and Users may choose to utilize Dedicated Cores, or not, based on their views of the additional benefits and added value provided by utilizing a Dedicated Core. The Exchange believes the proposed fees will be assessed proportionately to the potential value or benefit received by Users with a greater number of Dedicated Cores and notes that Users may determine at any time to cease using Dedicated Cores. As CboeEDGA–2024–014) Securities Exchange Act Release No. 100300 (June 10, 2024), 89 FR 50653 (June 14, 2024) (SR–CboeEDGA–2024–020); and Securities Exchange Act Release No. 100736 (August 21, 2024), 89 FR 67696 (August 15, 2024) (SR–CboeEDGA–2024–032). 19 See e.g., Securities Exchange Act Release No. 68342 (December 3, 2012), 77 FR 73096 (December 7, 2012) (SR–CBOE–2012–114) and Securities Exchange Act Release No. 66082 (January 3, 2012), 77 FR 1101 (January 9, 2012) (SR–C2–2011–041). E:\FR\FM\11DEN1.SGM 11DEN1 lotter on DSK11XQN23PROD with NOTICES1 99934 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices discussed, Users can also continue to access the Exchange through shared CPU Cores at no additional cost. Finally, all Users will be entitled to two Dedicated Cores at no additional cost. Next, the Exchange believes the proposed rule change does not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. As previously discussed, the Exchange operates in a highly competitive market, including competition for exchange memberships. Market Participants have numerous alternative venues that they may participate on, including 15 other equities exchanges, as well as offexchange venues, where competitive products are available for trading. Indeed, participants can readily choose to submit their order flow to other exchange and off-exchange venues if they deem fee levels at those other venues to be more favorable. Moreover, the Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. Specifically, in Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 20 The fact that this market is competitive has also long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’.21 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. 20 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 21 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)). VerDate Sep<11>2014 18:17 Dec 10, 2024 Jkt 265001 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 22 and paragraph (f) of Rule 19b–4 23 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–2024–122 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–2024–122. 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 22 15 23 17 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). Frm 00108 Fmt 4703 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–2024–122 and should be submitted on or before January 2, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–29043 Filed 12–10–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–660, OMB Control No. 3235–0722] Submission for OMB Review; Comment Request; Extension: Form 1–U Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Form 1–U (17 CFR 239.93) is used to file current event reports by Tier 2 issuers under Regulation A, an exemption from registration under the Securities Act of 1933 (15 U.S.C 77a et seq.). Form 1–U provides information to the public within four business days of fundamental changes in the nature of the issuer’s business and other 24 17 Sfmt 4703 E:\FR\FM\11DEN1.SGM CFR 200.30–3(a)(12). 11DEN1

Agencies

[Federal Register Volume 89, Number 238 (Wednesday, December 11, 2024)]
[Notices]
[Pages 99930-99934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29043]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101825; File No. SR-CboeBZX-2024-122]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule Regarding Dedicated Cores

December 5, 2024
    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 November 26, 2024, 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

[[Page 99931]]

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 Equities'') 
proposes to amend its Fee Schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/BZX/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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 to adopt fees for 
Dedicated Cores.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially introduced pricing for Dedicated 
Cores on June 10, 2024 (SR-CboeBZX-2024-054). On August 1, 2024, the 
Exchange withdrew that filing and submitted SR-CboeBZX-2024-075. On 
business date September 30, 2024, the Exchange withdrew that filing 
and submitted SR-CboeBZX-2024-094. On November 26, 2024, the 
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

    By way of background, the Exchange recently began to allow Users 
\4\ to assign a Single Binary Order Entry (``BOE'') logical order entry 
port \5\ to a single dedicated Central Processing Unit (CPU Core) 
(``Dedicated Core''). Historically, CPU Cores had been shared by 
logical order entry ports (i.e., multiple logical ports from multiple 
firms may connect to a single CPU Core). Use of Dedicated Cores 
however, can provide reduced latency, enhanced throughput, and improved 
performance since a firm using a Dedicated Core is utilizing the full 
processing power of a CPU Core instead of sharing that power with other 
firms. This offering is completely voluntary and is available to all 
Users that wish to purchase Dedicated Cores. Users may utilize BOE 
logical order entry ports on shared CPU Cores, either in lieu of, or in 
addition to, their use of Dedicated Core(s). As such, Users are able to 
operate across a mix of shared and dedicated CPU Cores which the 
Exchange believes provides additional risk and capacity management. 
Further, Dedicated Cores are not required nor necessary to participate 
on the Exchange and as such Users may opt not to use Dedicated Cores at 
all.
---------------------------------------------------------------------------

    \4\ A User may be either a Member or Sponsored Participant. The 
term ``Member'' shall mean any registered broker or dealer that has 
been admitted to membership in the Exchange, limited liability 
company or other organization which is a registered broker or dealer 
pursuant to Section 15 of the Act, and which has been approved by 
the Exchange. A Sponsored Participant may be a Member or non-Member 
of the Exchange whose direct electronic access to the Exchange is 
authorized by a Sponsoring Member subject to certain conditions. See 
Exchange Rule 11.3.
    \5\ Users may currently connect to the Exchange using a logical 
port available through an application programming interface 
(``API''), such as the Binary Order Entry (``BOE'') protocol. A BOE 
logical order entry port is used for order entry.
---------------------------------------------------------------------------

    The Exchange proposes to assess the following monthly fees for 
Users that wish to use Dedicated Cores and adopt a maximum limit. 
First, the Exchange proposes to provide up to two Dedicated Cores to 
all Users who wish to use Dedicated Cores, at no additional cost. For 
the use of more than two Dedicated Cores, the Exchange proposes to 
assess the following fees: $650 per Dedicated Core for 3-15 Dedicated 
Cores; $850 per Dedicated Core for 16-30 Dedicated Cores; and $1,050 
per Dedicated Core for 31 or more Dedicated Cores. The proposed fees 
are progressive and the Exchange proposes to include the following 
example in the Fees Schedule to provide clarity as to how the fees will 
be applied. Particularly, the Exchange will provide the following 
example: if a User were to purchase 16 Dedicated Cores, it will be 
charged a total of $9,300 per month ($0 * 2 + $650 * 13 + $850 * 1). 
The Exchange also proposes to make clear in the Fees Schedule that the 
monthly fees are assessed and applied in their entirety and are not 
prorated. The Exchange notes the current standard fees assessed for BOE 
Logical Ports, whether used with Dedicated or shared CPU cores, will 
remain applicable and unchanged.\6\
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    \6\ The Exchange currently assesses $550 per port per month. 
Port fees will also continue to be assessed on the first two 
Dedicated Cores that Users receive at no additional cost. See Cboe 
BZX Equities Fee Schedule.
---------------------------------------------------------------------------

    Since the Exchange currently has a finite amount of physical space 
in its data centers in which its servers (and therefore corresponding 
CPU Cores) are located, the Exchange also proposes to prescribe a 
maximum limit on the number of Dedicated Cores that Users may purchase 
each month. The purpose of establishing these limits is to manage the 
allotment of Dedicated Cores in a fair manner and to prevent the 
Exchange from being required to expend large amounts of resources in 
order to provide an unlimited number of Dedicated Cores. The Exchange 
previously established a limit for Members of a maximum number of 60 
Dedicated Cores and Sponsoring Members a limit of a maximum number of 
25 Dedicated Cores for each of their Sponsored Access relationships.\7\ 
The Exchange has since been able to procure additional physical space 
in its third-party data century as well as additional servers with CPU 
Cores and also has a better understanding of User demand relative to 
its available space and available Dedicated Cores since the initial 
launch of Dedicated Cores. After seeing increased User demand, the 
Exchange proposed to increase the cap and provided that Members will be 
limited to a maximum number of 80 Dedicated Cores and Sponsoring 
Members will be limited to a maximum number of 35 Dedicated Cores for 
each of their Sponsored Access relationships.\8\ The Exchange noted at 
that time that it would continue monitoring Dedicated Core interest by 
all Users and allotment availability with the goal of increasing these 
limits to meet Users' needs if and when the demand is there and/or the 
Exchange is able to accommodate additional Dedicated Cores. Since then, 
the Exchange has determined that it is able to accommodate an increased 
cap relative to current demand. As such, the Exchange proposes to 
increase the cap to 120 Dedicated Cores for Members, effective December 
1, 2024.\9\ Sponsoring Members will continue to be limited to a maximum 
of 35 Dedicated Cores for each of their Sponsored Access 
relationships.\10\
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    \7\ See Securities Exchange Act Release No. 100395 (June 21, 
2024), 89 FR 53687 (June 27, 2024) (SR-CboeBZX-2024-054).
    \8\ See Securities Exchange Act Release No. 101302 (October 10, 
2024), 89 FR 83727 (October 17, 2024) (SR-CboeBZX-2024-094).
    \9\ The prescribed maximum quantity of Dedicated Cores for 
Members applies regardless of whether that Member purchases the 
Dedicated Cores directly from the Exchange and/or through a Service 
Bureau. In a Service Bureau relationship, a customer allows its MPID 
to be used on the ports of a technology provider, or Service Bureau. 
One MPID may be allowed on several different Service Bureaus.
    \10\ The fee tier(s) applicable to Sponsoring Members are 
determined on a per Sponsored Access relationship basis and not on 
the combined total of Dedicated Cores across Sponsored Users. For 
example, under the proposed changes, a Sponsoring Member that has 
three Sponsored Access relationships is entitled to a total of 105 
Dedicated Cores for those 3 Sponsored Access relationships but would 
be assessed fees separately based on the 35 Dedicated Cores for each 
Sponsored User (instead of combined total of 105 Dedicated Cores). 
For example, a Sponsoring Member with 3 Sponsored Access 
relationships would pay $30,450 per month if each Sponsored Access 
relationship purchased the maximum 35 Dedicated Cores. More 
specifically, the Sponsoring Member would be provided 2 Dedicated 
Cores at no additional cost for each Sponsored User under Tier 1 
(total of 6 Dedicated Cores at no additional cost) and provided an 
additional 8 Dedicated Cores at $650 each for each Sponsored User, 5 
Dedicated Cores at $850 each for each Sponsored User and 20 
Dedicated Cores at $1,050 each for each Sponsored User (combined 
total of 99 additional Dedicated Cores).

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[[Page 99932]]

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.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ 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) \13\ 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) \14\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposal is reasonable because the 
Exchange is offering any User who wishes to utilize Dedicated Cores up 
to two Dedicated Cores at no additional cost. For example, of the Users 
that currently maintain Dedicated Cores, 26% maintain only 1 or 2 
Dedicated Cores and therefore pay no additional fees. The Exchange 
believes the proposed fees are reasonable because Dedicated Cores 
provide a valuable service in that it can provide reduced latency, 
enhanced throughput, and improved performance compared to use of a 
shared CPU Core since a firm using a Dedicated Core is utilizing the 
full processing power of a CPU Core. The Exchange also emphasizes 
however, that the use of Dedicated Cores is not necessary for trading 
and as noted above, is entirely optional. Users can also continue to 
access the Exchange through shared CPU Cores at no additional cost. 
Indeed, only 16% of the Exchange's Members currently use Dedicated 
Cores and as noted above, of that 16%, only 26% take 1 or 2 Dedicated 
Cores at no additional cost. Depending on a firm's specific business 
needs, the proposal enables Users to choose to use Dedicated Cores in 
lieu of, or in addition to, shared CPU Cores (or as emphasized, not use 
Dedicated Cores at all). If a User finds little benefit in having 
Dedicated Cores based on its business model and trading strategies, or 
determines Dedicated Cores are not cost-efficient for its needs or does 
not provide sufficient value to the firm, such User may continue its 
use of the shared CPU Cores, unchanged. The Exchange also has no plans 
to eliminate shared CPU Cores nor to require Users to purchase 
Dedicated Cores.
    The Exchange has seen general interest in Dedicated Cores from a 
variety of market participants, with varying size and business models. 
Such market participants include proprietary trading firms (who tend to 
be more latency sensitive), as well as sell-side market participants 
and buy-side market participants (who tend to be less latency 
sensitive). For background, proprietary trading firms utilize their own 
capital to trade without taking outside money from clients. Due to the 
nature of their respective businesses, the Exchange has classified 
proprietary trading firms as latency sensitive, and other groups, such 
as buy-side hedge funds, sell-side banks and sell-side non-banks (such 
as agency brokers) as non-latency sensitive. Proprietary trading firms' 
strategies may range from, marketing making, to relative value trading 
and arbitrage--these all rely on profiting from general market activity 
and, generally, requires faster entry and exit into trades and 
positions making proprietary trading firms more latency sensitive than 
other market segments. Buy-side hedge funds, banks and agency brokers 
are not as latency sensitive as strategy for hedge funds is based on 
overall long-term positioning in the market and banks and agency 
brokers may profit from commissions of customer order flow; both are 
generally strategies that are not reliant on speed to the same extent 
proprietary trading firms are. Further, Members have various reasons 
for obtaining Dedicated Cores. Some Members for example, may be seeking 
to further reduce latency, whereas others may use Dedicated Cores as a 
general risk mitigation by siloing their respective activity. Of 
further note, only 40% of Members that are propriety trading firms (who 
again, generally tend to be more latency sensitive) utilize Dedicated 
Cores, and of that 40%, 36% are only utilizing the 1 to 2 free 
Dedicated Cores available to all Users. As mentioned above, some non-
latency sensitive firms have chosen to also adopt Dedicated Cores. 9% 
of Members that are not latency sensitive utilize Dedicated Cores, and 
of that 9%, 13% are only utilizing the 1 to 2 free Dedicated Cores 
available to all Users.
    The lack of universal, or even widespread, adoption by all such 
users therefore demonstrates that purchasing Dedicated Cores is not 
effectively a requirement to compete for any one type of market 
participant, including latency sensitive market participants. Instead, 
Dedicated Cores are an optional and voluntary connectivity offering, 
which market participants are free to choose whether or not to utilize 
based on whether they meet their unique business needs. Moreover, the 
Exchange has received overwhelming positive feedback and support for 
Dedicated Cores, with some Members even noting that they have moved 
more of their order flow to the Exchange and its affiliated equities 
exchanges (the ``Equities Exchanges'') as they have noticed both better 
fills and greater consistency of order execution at the Equities 
Exchanges. This demonstrates that despite any incurred costs for 
Members that choose to purchase Dedicated Cores, it is ultimately a net 
win for them as they benefit from better execution. The Exchange 
believes it also demonstrates that Members find the proposed fees to be 
both reasonable and have benefited from purchasing or, at alternatively 
benefiting from the proposed one or two free Dedicated Cores available 
at no additional cost. The Exchange believes this is shown by both the 
level of demand for Dedicated Cores and the feedback from market 
participants, including as described above. The Exchange also believes 
it's notable that no negative comment letters in connection with the 
proposed pricing have been received since the Exchange

[[Page 99933]]

first filed proposed fees for Dedicated Cores back on June 10, 2024. 
Additionally, as noted earlier, Members can (and many have) decide that 
utilizing even a free Dedicated Core is not needed for their business. 
Ultimately, this is a business decision that each Member must make and 
is best suited to determine and will ultimately depend on the 
priorities and strategies of that Member's respective business needs.
    The Exchange also believes that the proposed Dedicated Core fees 
are equitable and not unfairly discriminatory because they continue to 
be assessed uniformly to similarly situated users in that all Users who 
choose to purchase Dedicated Cores will be subject to the same proposed 
tiered fee schedule. Moreover, all Users are entitled to up to 2 
Dedicated Cores at no additional cost and, as previously discussed, 26% 
of all Users that take Dedicated Cores (including both latency 
sensitive and non-latency sensitive Users) take only 1 or 2 Dedicated 
Cores at no additional cost. The Exchange believes the proposed 
ascending fee structure is also reasonable, equitable and not unfairly 
discriminatory as it is designed so that firms that use a higher 
allotment of the Exchange's finite number of Dedicated Cores pay higher 
rates, rather than placing that burden on market participants that have 
more modest needs who will have the flexibility of obtaining Dedicated 
Cores at lower price points in the lower tiers. As such, the proposed 
fees do not favor certain categories of market participants in a manner 
that would impose a burden on competition; rather, the ascending fee 
structure reflects the (finite) resources consumed by the various needs 
of market participants--that is, the lowest Dedicated Core consuming 
Users pay the least, and highest Dedicated Core consuming Users pay the 
most. Other exchanges similarly assess higher fees to those that 
consume more Exchange resources, including the Exchange on its options 
platform.\15\ Moreover, those consuming more Dedicated Cores do so if 
they find a benefit in having higher quantities of Dedicated Cores 
based on their respective business needs. The proposed tier structure 
is also designed to encourage firms to manage their needs in a fair 
manner and to prevent the Exchange from being required to expend large 
amounts of resources in order to provide an additional number of 
Dedicated Cores. Moreover, as discussed above and in more detail below, 
the Exchange cannot currently offer an unlimited number of Dedicated 
Cores due in part to physical space constraints in the third-party data 
center. The Exchange believes the proposed ascending fee structure is 
therefore another appropriate means, in conjunction with an established 
cap, to manage this finite resource and ensure the resource is 
apportioned more fairly.
---------------------------------------------------------------------------

    \15\ See e.g., Cboe U.S. Options Fee Schedule, BZX Options, 
Options Logical Port Fees, Ports with Bulk Quoting Capabilities.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to limit the number of 
Dedicated Cores Users can purchase because the Exchange has a finite 
amount of space in its third-party data centers to accommodate CPU 
cores, including Dedicated Cores. The Exchange must also take into 
account timing and cost considerations in procuring additional 
Dedicated Cores and related hardware such as servers, switches, optics 
and cables, as well as the readiness of the Exchange's data center to 
accommodate additional Dedicated Cores in the Exchange's respective 
Order Handler Cabinets.\16\ Moreover, procuring data center space has 
grown to be more challenging than it was five years ago with the 
increased demand for data center space. For example, the U.S. 
colocation data center market has doubled in size in just four years. 
In addition to the Exchange's rollout of Dedicated Cores, the Exchange 
is mindful of its other business areas and the need to continue to be 
mindful of its existing, external restraints in procuring additional 
space in this area. The Exchange has, and will continue to, monitor 
market participant demand and space availability and endeavor to adjust 
the limit if and when the Exchange is able to acquire additional space 
and power within the third-party data centers and/or additional CPU 
Cores to accommodate additional Dedicated Cores.\17\ The Exchange 
monitors its capacity and data center space and thus is in the best 
place to determine these limits and modify them as appropriate in 
response to changes to this capacity and space, as well as market 
demand. For example, the Exchange's affiliate Cboe EDGA Exchange, Inc. 
has increased the prescribed maximum limit three times since the launch 
of Dedicated Cores on its exchange on February 26, 2024 as a result of 
evaluating the demand relative to Dedicated Cores availability.\18\ The 
proposed increased limits continue to apply uniformly to similarly 
situated market participants (i.e., all Members are subject to the same 
limit and all Sponsored Participants are subject to the same limit, 
respectively). The Exchange believes it's not unfairly discriminatory 
to provide for different limits for different types of Users. For 
example, the Exchange believes it's not unfairly discriminatory to 
provide for an initial lower limit to be allocated for Sponsored 
Participants because unlike Members, Sponsored Participants are able to 
access the Exchange without paying a Membership Fee. Members also have 
more regulatory obligations and risk that Sponsored Participants do 
not. For example, while Sponsored Participants must agree to comply 
with the Rules of the Exchange, it is the Sponsoring Member of that 
Sponsored Participant that remains ultimately responsible for all 
orders entered on or through the Exchange by that Sponsored 
Participant. The industry also has a history of applying fees 
differently to Members as compared to Sponsored Participants.\19\ 
Lastly, the Exchange believes its proposed maximum limits, and 
distinction between Members and Sponsored Users, is another appropriate 
means to help the Exchange manage its allotment of Dedicated Cores and 
better ensure this finite resource is apportioned fairly.
---------------------------------------------------------------------------

    \16\ The Exchange notes that it cannot currently convert shared 
CPU cores into Dedicated Cores.
    \17\ The Exchange notes that approximately 5% of Users that have 
Dedicated Cores currently are at or near the maximum limits. The 
average number of Dedicated Cores used for the Exchange is 21.
    \18\ See Securities Exchange Act Release No. 99983 (April 17, 
2024), 89 FR 30418 (April 23, 2024) (SR-CboeEDGA-2024-014) 
Securities Exchange Act Release No. 100300 (June 10, 2024), 89 FR 
50653 (June 14, 2024) (SR-CboeEDGA-2024-020); and Securities 
Exchange Act Release No. 100736 (August 21, 2024), 89 FR 67696 
(August 15, 2024) (SR-CboeEDGA-2024-032).
    \19\ See e.g., Securities Exchange Act Release No. 68342 
(December 3, 2012), 77 FR 73096 (December 7, 2012) (SR-CBOE-2012-
114) and Securities Exchange Act Release No. 66082 (January 3, 
2012), 77 FR 1101 (January 9, 2012) (SR-C2-2011-041).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary in 
furtherance of the purposes of the Act because the proposed tiered fee 
structure will apply equally to all similarly situated Users that 
choose to use Dedicated Cores. As discussed above, Dedicated Cores are 
optional and Users may choose to utilize Dedicated Cores, or not, based 
on their views of the additional benefits and added value provided by 
utilizing a Dedicated Core. The Exchange believes the proposed fees 
will be assessed proportionately to the potential value or benefit 
received by Users with a greater number of Dedicated Cores and notes 
that Users may determine at any time to cease using Dedicated Cores. As

[[Page 99934]]

discussed, Users can also continue to access the Exchange through 
shared CPU Cores at no additional cost. Finally, all Users will be 
entitled to two Dedicated Cores at no additional cost.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market, 
including competition for exchange memberships. Market Participants 
have numerous alternative venues that they may participate on, 
including 15 other equities exchanges, as well as off-exchange venues, 
where competitive products are available for trading. Indeed, 
participants can readily choose to submit their order flow to other 
exchange and off-exchange venues if they deem fee levels at those other 
venues to be more favorable. Moreover, the Commission has repeatedly 
expressed its preference for competition over regulatory intervention 
in determining prices, products, and services in the securities 
markets. Specifically, in Regulation NMS, the Commission highlighted 
the importance of market forces in determining prices and SRO revenues 
and, also, recognized that current regulation of the market system 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \20\ 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'. . . .''.\21\ 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.
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    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2024-122 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-2024-122. 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 
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-2024-122 and should 
be submitted on or before January 2, 2025.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29043 Filed 12-10-24; 8:45 am]
BILLING CODE 8011-01-P
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