Document ID: SEC-2018-0261-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-02-13T05:00Z

[Federal Register Volume 83, Number 30 (Tuesday, February 13, 2018)]
[Notices]
[Pages 6288-6290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02862]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82652; File No. SR-CboeBZX-2018-009]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use on the Exchange's Equity Options Platform

February 7, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 1, 2018, 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 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-Members of the Exchange pursuant to BZX Rules 
15.1(a) and (c).
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts 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'') to make certain changes to the 
following tiers: (i) Customer Penny Pilot Add Tiers under footnote 1; 
(ii) Quoting Incentive Program (``QIP'') Tiers under footnote 5; (iii) 
Market Maker Non-Penny Pilot Add Volume Tiers under footnote 7; and 
(iv) Away Market Maker Non-Penny Pilot Add Volume Tiers under 11.
Customer Penny Pilot Add Tiers
    The Exchange currently offers eight Customer \6\ Penny Pilot Add 
Tiers under footnote 1, which provide an enhanced rebate ranging from 
$0.40 to $0.53 per contract for qualifying Customer orders that add 
liquidity in Penny Pilot Securities \7\ and yield fee code PY. The 
Exchange now proposes to modify Tier 1's required criteria and rebate. 
Currently under Tier 1, a Member may receive a rebate of $0.40 per 
contract where they have an ADV \8\ greater than or equal to 0.05% of 
average OCV.\9\ As amended, a Member may receive a rebate of $0.35 per 
contract where they

[[Page 6289]]

have an ADAV \10\ in Customer orders greater than or equal to 0.05% of 
average OCV. The Exchange also proposes to update the Standard Rates 
table accordingly to reflect the tier's revised rebate.
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    \6\ ``Customer'' applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1. http://markets.cboe.com/us/options/membership/fee_schedule/bzx/.
    \7\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01. Id.
    \8\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day. Id.
    \9\ ``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. Id.
    \10\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added and ``ADV'' means average daily volume 
calculated as the number of contracts added or removed, combined, 
per day. Id.
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QIP Tiers
    The Exchange currently offers three QIP Tiers under footnote 5, 
which provide an additional rebate ranging from $0.02 to $0.04 per 
contract for qualifying Market Maker \11\ orders that add liquidity in: 
(i) Penny Pilot Securities that yield fee code PM; and (ii) Non-Penny 
Pilot Securities that yield fee code NM. The additional rebate per 
contract is for an order that adds liquidity to BZX Options in options 
classes in which a Member is a Market Maker registered pursuant to 
Exchange Rule 22.2. A Market Maker must be registered with BZX Options 
in an average of 20% or more of the associated options series in a 
class in order to qualify for QIP rebates for that class. The Exchange 
now proposes to amend the required criteria for Tiers 1 and 2 and 
delete the Tier 3. The Exchange does not propose to amend the amount of 
the additional rebate for Tiers 1 and 2.
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    \11\ ``Market Maker'' applies to any transaction identified by a 
Member for clearing in the Market Maker range at the OCC, where such 
Member is registered with the Exchange as a Market Maker as defined 
in Rule 16.1(a)(37). Id.
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     Under current Tier 1, a Member may receive an additional 
rebate of $0.02 per contract where they have an ADV greater than or 
equal to 0.40% of average OCV. The Exchange proposes to amend the 
required criteria for Tier 1 to now require that the Member have an 
ADAV in Market Maker orders greater than or equal to 0.15% of average 
OCV.
     Under current Tier 2, a Member may receive an additional 
rebate of $0.04 per contract where they have an ADV greater than or 
equal to 3.25% of average OCV. Similar to as proposed above for Tier 1, 
the Exchange proposes to amend the required criteria for Tier 2 to now 
require that the Member have an ADAV in Market Maker orders greater 
than or equal to 0.35% of average OCV.
     Under Tier 3, a Member may receive an additional rebate of 
$0.03 per contract where they have an ADAV in Market Maker orders 
greater than or equal to 0.50% of average OCV. The Exchange proposes to 
delete Tier 3.
Market Maker Non-Penny Pilot Add Volume Tiers
    The Exchange currently offers three Market Maker Non-Penny Pilot 
Add Volume Tiers under footnote 7, which provide an enhanced rebate 
ranging from $0.45 to $0.65 per contract for qualifying Market Maker 
orders that add liquidity in Non-Penny Pilot Securities and yield fee 
code NM. The Exchange now proposes to amend the required criteria for 
Tiers 1 and 2 and delete the Tier 3.
     Under current Tier 1, a Member may receive an enhanced 
rebate of $0.45 per contract where they have an ADV greater than or 
equal to 0.40% of average OCV. The Exchange proposes to amend the 
required criteria for Tier 1 to now require that the Member have an 
ADAV in Market Maker orders greater than or equal to 0.10% of average 
OCV.
     Under current Tier 2, a Member may receive an enhanced 
rebate of $0.52 per contract where they have an ADV greater than or 
equal to 1.30% of average OCV. Similar to as proposed above for Tier 1, 
the Exchange proposes to amend the required criteria for Tier 2 to now 
require that the Member have an ADAV in Market Maker orders greater 
than or equal to 0.35% of average OCV.
     Under Tier 3, a Member may receive an enhanced rebate of 
$0.65 per contract where they have an ADAV in Market Maker orders in 
Non-Penny Pilot Securities greater than or equal to 0.10% of average 
OCV and an ADAV in Non-Customer \12\ orders greater than or equal to 
3.00% of average OCV. The Exchange proposes to delete Tier 3 and update 
the Standard Rates table accordingly.
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    \12\ ``Non-Customer'' applies to any transaction that is not a 
Customer order. Id.
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Away Market Maker Non-Penny Pilot Add Volume Tiers
    The Exchange currently offers two Away Market Maker \13\ Non-Penny 
Pilot Add Volume Tiers under footnote 11, which provide an enhanced 
rebate ranging from $0.40 to $0.52 per contract for qualifying Away 
Market Maker orders that add liquidity in Non-Penny Pilot Securities 
and yield fee code NN. The Exchange now proposes to amend the required 
criteria for Tiers 1 and 2. The Exchange does not propose to amend the 
amount of the enhanced rebate for Tiers 1 and 2.
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    \13\ ``Away Market Marker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is not registered with the Exchange as a 
Market Maker, but is registered as a market maker on another options 
exchange. Id.
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     Under current Tier 1, a Member may receive an enhanced 
rebate of $0.40 per contract where they have an ADV greater than or 
equal to 0.40% of average OCV. The Exchange proposes to amend the 
required criteria for Tier 1 to now require that the Member have an 
ADAV in Non-Customer orders greater than or equal to 0.10% of average 
OCV.
     Under current Tier 2, a Member may receive an enhanced 
rebate of $0.52 per contract where they have an ADV greater than or 
equal to 1.30% of average OCV. Similar to as proposed above for Tier 1, 
the Exchange proposes to amend the required criteria for Tier 2 to now 
require that the Member have an ADAV in Non-Customer orders greater 
than or equal to 0.35% of average OCV.
Implementation Date
    The Exchange proposes to implement the above changes to its fee 
schedule on February 1, 2018.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\14\ in general, and 
furthers the objectives of Section 6(b)(4),\15\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities. The Exchange also notes that 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. The proposed 
rule changes reflect a competitive pricing structure designed to 
incentivize market participants to direct their order flow to the 
Exchange. The Exchange believes it is reasonable to offer and 
incrementally modify incentives intended to help to contribute to the 
growth of the Exchange.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed modifications to the tiered 
pricing structure are reasonable, fair and equitable, and non-
discriminatory. Volume-based pricing such as that proposed herein have 
been widely adopted by exchanges, including the Exchange, and are 
equitable 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; (ii) associated 
higher levels of market activity, such as higher levels of liquidity 
provisions and/or growth patterns; and (iii) introduction of

[[Page 6290]]

higher volumes of orders into the price and volume discovery processes. 
In particular, the proposed changes are intended to further incentivize 
Members to send increased order flow to the Exchange in an effort to 
qualify for the enhanced rebates made available by the tiers, in turn 
contributing to the growth of the Exchange. Because ADAV of particular 
category of orders (e.g., Market Maker, Non-Customer, or Customer) 
generally makes up a smaller range than the previously required ADV of 
all orders that add liquidity submitted by the Member, the Exchange 
proposes to amend the percentage of ADAV necessary to achieve the tier 
so that it is substantially identical to the previously required 
percentage of OCV. The Exchange believes that those changes are 
equitable and reasonable because they will keep the difficulty to 
achieve each tier's criteria relatively unchanged from its current 
requirements. Also, limiting the ADAV requirement to a category of 
orders is designed to align the tier with the fee code it is associated 
with so that a rebate provide to a certain type of liquidity adding 
order is based on meeting criteria reasonably related to that type of 
order flow the tier is designed to attract.
    Lastly, the Exchange believes that eliminating tiers are proposed 
herein is reasonable, fair, and equitable because this tier was not 
providing the desired result of incentivizing Members to increase their 
participation on the Exchange. As such, the Exchange also believes that 
the proposed elimination of this tier would be non-discriminatory in 
that it currently applies equally to all Members and, upon elimination, 
would no longer be available to any Members. Further, its elimination 
could allow the Exchange to explore other pricing mechanisms such as 
those described herein, in which it may enhance market quality for all 
Members.

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

    The Exchange believes the proposed amendment to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed changes represent a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Additionally, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives offer 
them better value. Accordingly, the Exchange does not believe that the 
proposed changes will impair the ability of Members or competing venues 
to maintain their competitive standing in the financial markets. The 
Exchange does not believe that the proposed changes burdens 
competition, but instead, enhances competition as it is intended to 
increase the competitiveness of the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-009 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-2018-009. 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 such 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-2018-009, and should be 
submitted on or before March 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02862 Filed 2-12-18; 8:45 am]
 BILLING CODE 8011-01-P