[Federal Register Volume 86, Number 12 (Thursday, January 21, 2021)]
[Notices]
[Pages 6385-6389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01131]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90910; File No. SR-CboeBZX-2021-005]


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

January 13, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 6386]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 4, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend 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 (http://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'') in connection with its Market Maker 
Penny Add Volume Tiers, effective January 4, 2021.
    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 17% of the market share and 
currently the Exchange represents only approximately 8% of the market 
share.\3\ Thus, in such a low-concentrated and highly competitive 
market, no single options exchange, including the Exchange, possesses 
significant pricing power in the execution of option order flow. The 
Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow or discontinue to reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain the Exchange's transaction fees, and market participants can 
readily trade on competing venues if they deem pricing levels at those 
other venues to be more favorable. The Exchange's fee schedule sets 
forth standard rebates and rates applied per contract, which varies 
depending on the Member's Capacity (Customer, Firm, Market Maker, 
etc.), whether the order adds or removes liquidity, and whether the 
order is in Penny or Non-Penny Pilot Securities. Additionally, in 
response to the competitive environment, the Exchange also offers 
tiered pricing which provides Members opportunities to qualify for 
higher rebates or reduced fees where certain volume criteria and 
thresholds are met. Tiered pricing provides an incremental incentive 
for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \3\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (December 31, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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    For example, the Exchange currently offers 12 Market Maker Penny 
Add Volume Tiers under footnote 6 of the Fee Schedule which provide 
additional rebates between $0.33 and $0.46 per contract for qualifying 
Market Maker orders (i.e., that yield fee code PM or XM) \4\ where a 
Member meets certain liquidity thresholds. For example, current Tier 12 
offers an enhanced rebate of $0.46 per contract for qualifying orders 
where a Member has an ADAV \5\ in Market Maker orders greater or equal 
to 0.75% of OCV.\6\ The Exchange now proposes to amend the Market Maker 
Penny Add Volume Tiers by adding a new Tier 12 (and subsequently 
updating current Tier 12 to Tier 13). As proposed, new Tier 12 will 
provide an opportunity for a Member to receive an enhanced rebate of 
$0.44 per contract for qualifying orders where the Member (1) has a 
Step-Up ADAV in Market Maker orders from December 2020 >= 0.05% of 
overage [sic] OCV; and (2) is a Lead Market Maker (``LMM'') in at least 
85 LMM Securities on BZX Equities.\7\ The Exchange believes the 
proposed tier, along with the existing tiers, will continue to provide 
an incremental incentive for Members to strive for the highest tier 
levels, which provide increasingly higher rebates for such 
transactions. Additionally, the Exchange notes that the two prongs of 
the proposed criteria are similar to the criteria set forth in other 
Market Maker Penny Add Volume tiers. Many of the existing tiers provide 
criteria in which a Member must ``step up'' a percentage of ADAV or ADV 
\8\ from a certain point in time over OCV or TCV,\9\ and criteria which 
measures a Member's participation on the Exchange's equities platform 
(``BZX Equities''). Overall, the proposed enhanced rebate and 
corresponding criteria is designed to encourage Market Makers 
(including LMMs) to increase their order flow on BZX Options and 
Equities, which facilitates tighter spreads, signaling increased 
activity from other market participants, and thus ultimately 
contributes to deeper and more liquid markets and provides greater 
execution opportunities on the Exchange to the benefit of all market 
participants. The proposed change encourages Members to enroll as LMMs

[[Page 6387]]

in LMM Securities on the Exchange's equities platform, which enhances 
market quality in securities listed on the Exchange's equity platform. 
The Exchange notes that LMMs serve a crucial role in providing quotes 
and trading opportunities for all market participants, which can lead 
to increased volume, enhanced price discovery and transparency, and 
more robust markets overall. As such, the proposed tier is designed to 
benefits all Members by contributing towards a robust and well-balanced 
market ecosystem across the Exchange's options and equities platforms, 
offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
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    \4\ Orders yielding fee code PM are Market Maker orders that add 
liquidity in Penny Program Securities and are offered a rebate of 
$0.29, and orders yielding fee code XM are Market Maker orders in 
XSP options that add liquidity and are offered a rebate of $0.29.
    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added, per day.
    \6\ ``OCC Customer Volume'' or ``OCV'' means the total equity 
and ETF options volume that clears in the Customer range at the 
Options Clearing Corporation (``OCC'') for the month for which the 
fees apply, excluding volume on any day that the Exchange 
experiences an Exchange System Disruption and on any day with a 
scheduled early market close.
    \7\ Pursuant to BZX Equities Rules, the term ``LMM'' means a 
Market Maker registered with the Exchange for a particular LMM 
Security that has committed to maintain Minimum Performance 
Standards in the LMM Security, and the term ``LMM Security'' means a 
Listed Security that has an LMM. See Cboe BZX Exchange, Inc. Rule 
11.8(e)(1)(B) [sic] and (C) [sic].
    \8\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \9\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\10\ in general, and 
furthers the objectives of Section 6(b)(4),\11\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and issuers and other persons 
using its facilities. The Exchange also believes that the proposed rule 
change is consistent with the objectives of 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, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f.(b)(5).
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    As described above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. The proposed rule change 
reflects a competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange believes would enhance market quality to the benefit of all 
Members.
    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive an enhanced rebate on qualifying orders in a manner that 
incentivizes increased Market Maker order flow to the Exchange and LMM 
participation on the Exchange's equities platform. The Exchange notes 
that volume-based incentives and discounts have been widely adopted by 
exchanges,\13\ including the Exchange,\14\ and are reasonable, 
equitable and non-discriminatory because they are open to all Members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in a highly competitive market. The 
Exchange is only one of several options venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. Competing options exchanges offer 
similar tiered pricing structures to that of the Exchange, including 
schedules of rebates and fees that apply based upon Members achieving 
certain volume and/or growth thresholds.
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    \13\ See e.g., NYSE Arca Options Fee Schedule, Market Maker 
Penny and SPY Posting Credit Tiers. NYSE Arca also provides various 
discounts for its LMMs throughout its fee schedule.
    \14\ See e.g., BZX Options Fee Schedule, Footnote 6, Market 
Maker Penny Add Volume Tiers, and Footnote 7, Market Maker Non-Penny 
Add Volume Tiers.
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    Moreover, the Exchange believes the proposed additional Market 
Maker Penny Add Volume Tier is a reasonable means to encourage Market 
Makers to increase their order flow on the Exchange, as well as their 
participation in securities on the Exchange's equities platform. More 
specifically, the Exchange believes that adopting a tier with 
alternative criteria to the existing Market Maker Penny Add Volume 
Tiers may encourage those Members who could not previously achieve the 
criteria under existing Market Maker Volume Tiers 10 and 11 (which 
offer the same enhanced rebate as proposed for new Tier 12) or 12 
(proposed to be renumbered to Tier 13) to increase their order flow on 
BZX Options and Equities. For example, the proposed tier would provide 
an additional rebate opportunity for Market Makers who increase their 
ADAV in Market Makers orders over OCV by at least 0.05% from December 
2020 and participate as an LMM in at least 85 LMM Securities on BZX 
Equities, but do not meet the more stringent criteria under Tier 13 
(i.e., current Tier 12) of having an ADAV in Market Maker orders that 
is greater than or equal to 0.75% of average OCV (and thus, do not 
receive the slightly higher enhanced rebate of $0.46 per contract), or 
do not meet all three of the different, yet comparable, prongs of 
criteria under Tier 10 or Tier 11 (which provide the same enhanced 
rebate of $0.44 per contract). Overall, the proposed tier provides an 
alternative opportunity for Members to receive an enhanced rebate, as 
is thereby reasonably designed to incentivize Market Makers to grow 
their options volume and increase their participation on BZX Equities. 
The Exchange notes that increased Market Maker activity (including 
LMMs), particularly, facilitates tighter spreads and an increase in 
overall liquidity provider activity, both of which signal additional 
corresponding increase in order flow from other market participants, 
contributing towards a robust, well-balanced market ecosystem. Indeed, 
increased overall order flow benefits investors across both the 
Exchange's options and equities platforms by continuing to deepen the 
Exchange's liquidity pool, potentially providing even greater execution 
incentives and opportunities, offering additional flexibility for all 
investors to enjoy cost savings, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection.
    The Exchange also believes that proposed enhanced rebate is 
reasonably based on the difficulty of satisfying the proposed tier's 
criteria and ensures the proposed rebate and thresholds appropriately 
reflect the incremental difficulty in achieving the existing Market 
Maker Penny Add Volume Tiers. As indicated above, the Exchange does not 
believe that the proposed enhanced rebate amount represents a 
significant departure from the enhanced rebates currently offered under 
the Exchange's existing Market Maker Penny Add Volume Tiers. Indeed, 
the proposed enhanced rebate amount under new Tier 12 ($0.44) is 
incrementally lower than Tier 13 (current Tier 12) ($0.46), which, as 
described above, offers slightly more stringent criteria than proposed 
Tier 12, but is the same amount as the enhanced rebate offered under 
existing Tier 11 (i.e., new Tier 11) ($0.44), the criteria for which 
the Exchange believes is comparable to the proposed criteria under 
proposed Tier 12.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly

[[Page 6388]]

discriminatory because it applies uniformly to all Market Makers, in 
that all Market Makers have the opportunity to compete for and achieve 
the proposed tier and the proposed enhanced rebate will apply 
automatically and uniformly to all Market Makers that achieve the 
proposed tier's criteria. While the Exchange has no way of knowing 
whether this proposed rule change would definitively result in any 
particular Market Maker qualifying for the proposed tiers, the Exchange 
believes that at least two Market Makers will reasonably be able to 
compete for and achieve the proposed criteria in proposed Tier 12; 
however, the proposed tiers are open to any Market-Maker that satisfies 
the tier's criteria. The Exchange believes the proposed tier could 
provide an incentive for other Members to submit additional liquidity 
on BZX Options and Equities to qualify for the proposed additional 
enhanced rebate. To the extent a Member participates on the Exchange 
but not on BZX Equities, the Exchange believes that the proposal is 
still reasonable, equitably allocated and non-discriminatory with 
respect to such Member based on the overall benefit to the Exchange 
resulting from the success of BZX Equities. Particularly, the Exchange 
believes such success allows the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on BZX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in BZX Equities and enrollment as an LMM 
is available to all market participants, which would provide them with 
access to the benefits on BZX Equities provided by the proposed change, 
even where a member of BZX Equities is not necessarily eligible for the 
proposed enhanced rebates on the Exchange.
    The Exchange lastly notes that it does not believe the proposed 
tier will adversely impact any Member's pricing or ability to qualify 
for other tiers. Rather, should a Member not meet the proposed 
criteria, the Member will merely not receive the proposed enhanced 
rebate, and has 11 alternative choices (including only one with 
criteria the Exchange believes is more stringent) to aim to achieve 
under the Market Maker Penny Add Volume Tiers. Furthermore, the 
proposed enhanced rebate would apply to all Members that meet the 
required criteria under the proposed tier.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities for all 
Members. As a result, the Exchange believes that the proposed change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \15\
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    \15\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange believes the proposed rule change does not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies uniformly to all Market Makers (including LMMs on BZX 
Equities). As described above, the Exchange believes that Market Makers 
(including LMMs) provide key liquidity to the Exchange's options and 
equities platforms, facilitating tighter spreads, signaling additional 
corresponding increase in order flow from other market participants, 
and ultimately contributing towards a robust, well-balanced market 
ecosystem. To the extent a Member participates on the Exchange but not 
on BZX Equities, the Exchange notes that the proposed change can 
provide an overall benefit to the Exchange resulting from the success 
of BZX Equities. Such success enables the Exchange to continue to 
provide and potentially expand its existing incentive programs to the 
benefit of all participants on the Exchange, whether they participate 
on BZX Equities or not. The proposed pricing program is also fair and 
equitable in that membership in BZX Equities is available to all market 
participants and registration as an LMM is available equally to all BZX 
Equities members.
    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. 
Members have numerous alternative venues that they may participate on 
and director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 17% of the market 
share.\16\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \17\ 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'. . . .''.\18\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \16\ See supra note 4.
    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \18\ 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)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

[[Page 6389]]

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 \19\ and paragraph (f) of Rule 19b-4 \20\ 
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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1"><span class="__cf_email__" data-cfemail="7f0d0a131a521c1012121a110b0c3f0c1a1c51181009">[email protected]</span></a>. Please include 
File Number SR-CboeBZX-2021-005 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2021-005. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2021-005 and should be submitted 
on or before February 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01131 Filed 1-19-21; 8:45 am]
BILLING CODE 8011-01-P


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