Document ID: SEC-2023-1315-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-11-17T05:00Z

[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80349-80353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25383]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98913; File No. SR-CboeBZX-2023-091]

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

November 13, 2023.
    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 November 1, 2023, 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.
---------------------------------------------------------------------------

    \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'') 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 (http://markets.cboe.com/us/options/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.

[[Page 80350]]

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, effective November 
1, 2023.
    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 17 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.\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. In response to competitive pricing, the Exchange, 
like other options exchanges, offers rebates and assesses fees for 
certain order types executed on or routed through the Exchange.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Monthly Market Volume 
Summary (October 30, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's fee schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides a rebate of 
$0.29 per contract for Market Maker orders that add liquidity in Penny 
Securities, yielding fee code PM. 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. For 
example, the Exchange currently offers five Market Maker Penny Add 
Volume Tiers (``MM Penny Add Tier'') under footnote 6 of the Fee 
Schedule which provide rebates between $0.31 and $0.43 per contract for 
qualifying Market Maker orders which meet certain add liquidity 
thresholds and yield fee code PM.
    The Exchange proposes to amend the criteria for one of the MM Penny 
Add Tiers, specifically the Market Maker Cross-Asset Add Tier, which 
requires participation on the Exchange's equities platform (``BZX 
Equities''). Under this tier, the Exchange currently provides a rebate 
of $0.38 per contract where a Member (1) has an ADAV \4\ in Market 
Maker orders greater than or equal to 0.05% of average OCV; \5\ (2) has 
on BZX Equities an ADAV greater than or equal to 0.35% of average TCV; 
\6\ and (3) is the Lead Market Maker (``LMM'') \7\ on BZX Equities in 
at least 50 equity symbols. The Exchange proposes to amend the criteria 
for this Market Maker Cross-Asset Add Tier.\8\ Under the proposed 
criteria, the Exchange will provide a rebate of $0.38 per contract 
where a Member (1) has an ADAV in Market Maker orders greater than or 
equal to 0.10% of average OCV; (2) has on BZX Equities an ADAV greater 
than or equal to 0.40% of average TCV; and (3) is the LMM on BZX 
Equities in at least 50 equity symbols.
---------------------------------------------------------------------------

    \4\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added.
    \5\ ``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.
    \6\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
    \7\ ``Lead Market Maker'' 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. See Rule 
11.8(e).
    \8\ As part of this proposed rule change, the Exchange proposes 
to rename this Market Maker Cross-Asset Tier as Market Maker Cross-
Asset Tier 1.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to adopt a new MM Penny Add 
Tier, specifically Market Maker Cross-Asset Add Tier 2, which also 
requires participation on BZX Equities.\9\ Under the proposed tier, the 
Exchange would provide a rebate of $0.39 per contract where a Member 
(1) has an ADAV in Market Maker orders greater than or equal to 0.20% 
of average OCV; (2) has on BZX Equities an ADAV greater than or equal 
to 0.45% of average TCV; and (3) is the LMM on BZX Equities in at least 
50 equity symbols.
---------------------------------------------------------------------------

    \9\ The Exchange proposes to add this Tier as described in the 
table in Footnote 6 and to the amounts of the rebates in the 
Standard Rates table.
---------------------------------------------------------------------------

    The Exchange believes the amended tier criteria for Market Maker 
Cross-Asset Tier 1 and the proposed Market Maker Cross-Asset Tier 2, 
along with the existing MM Penny Add Tiers, continue to provide an 
incremental incentive for Members to strive for the highest tier 
levels, which provide increasingly higher rebates for such 
transactions. The proposed thresholds for Market Maker Cross-Asset 
Tiers 1 and 2 include thresholds relating to ADAV in Market Maker 
orders and cross-asset thresholds, which are designed to incentivize 
Members to achieve certain levels of participation on both the 
Exchange's options and equities platforms. Overall, the MM Penny Add 
Tiers, including the Market Maker Cross-Asset Tiers, are designed to 
encourage Members to increase their order flow, thereby contributing to 
a deeper and more liquid market, which benefits all market participants 
and provides greater execution opportunities on the Exchange.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \11\ 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) \12\ 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) of the Act,\13\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable

[[Page 80351]]

dues, fees, and other charges among its Trading Permit Holders and 
other persons using its facilities.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
    \13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed changes to the MM 
Penny Add Tiers are reasonable because they provide additional 
opportunities for Members to receive a rebate by providing alternative 
criteria for which they can reach. The Exchange notes that volume-based 
incentives and discounts have been widely adopted by exchanges,\14\ 
including the Exchange,\15\ 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. These competing pricing 
schedules, moreover, are presently comparable to those that the 
Exchange provides.
---------------------------------------------------------------------------

    \14\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.02 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
    \15\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 6 and 7, Market Maker Penny and Non-Penny Volume Tiers 
which provide enhanced rebates for Market Maker orders where Members 
meet certain volume thresholds.
---------------------------------------------------------------------------

    Moreover, the Exchange believes the proposed MM Penny Add Tier, 
namely Market Maker Cross-Asset Tier 2, is a reasonable means to 
encourage Members to increase their liquidity on the Exchange and also 
their participation on BZX Equities. The Exchange believes that 
adopting tiers with alternative criteria to the existing MM Penny Add 
Tiers may encourage those Members who could not previously achieve the 
criteria under existing MM Penny Add Tiers to increase their order flow 
on BZX Options and Equities.
    For example, the proposed Cross-Asset Tier 2 would provide an 
opportunity for Members who have an ADAV in Market Maker orders of at 
least 0.20% of average OCV, but less than the more stringent 0.45% of 
average OCV (the requirement under current Tier 3), to receive a higher 
rebate than they may currently receive but equal or slightly lower than 
the rebate they would receive for reaching the more stringent criteria 
under current Tiers 3 through 4, if they also meet the threshold 
requirements based on BZX Equities participation. Similarly, for Market 
Makers that participate on both BZX Options and Equities, and do not 
currently meet the 0.35% ADAV threshold under current Tier 2, but can 
or do meet the proposed equities thresholds, the proposed tier may 
incentivize those participants to grow their options volume in order to 
receive enhanced rebates. Increased liquidity benefits all investors by 
deepening the Exchange's liquidity pool, 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 reasonable based on the difficulty of satisfying the tier's 
criteria and ensures the proposed rebate and thresholds appropriately 
reflect the incremental difficulty to achieve the existing MM Penny Add 
Tiers.
    The proposed enhanced rebate amounts also do not represent a 
significant departure from the enhanced rebates currently offered under 
the Exchange's existing MM Penny Add Tiers. Indeed, the proposed 
enhanced rebate amount under the proposed Cross-Asset Add Tier 2 
($0.39) is incrementally higher than current Tiers 1 and 2 ($0.31 and 
$0.38, respectively), which the Exchange believes offer slightly less 
stringent criteria than the proposed Cross-Asset Add Tier 2, but is 
incrementally lower than the rebate offered under existing Tier 4 
($0.43), which the Exchange believes is more stringent than the 
proposed criteria under the proposed Cross-Asset Tier 2. Similarly, the 
proposed enhanced rebate amount under the proposed Cross-Asset Tier 2 
($0.39) is the same as current Tier 3 ($0.39), which the Exchange 
believes reflects a similar level of difficulty but using alternative 
types of criteria. Finally, the proposed enhanced rebate amount under 
the proposed Cross-Asset Tier 2 ($0.39) is incrementally higher than 
the rebate offered under existing Cross-Asset Add Tier 1, which the 
Exchange believes is less stringent than the proposed criteria than the 
proposed Cross-Asset Add Tier 2. The Exchange also notes that the 
proposed rebates remain within the range of the enhanced rebates 
offered under the current MM Penny Add Tiers (i.e., $0.31-$0.43).
    Further, the Exchange believes that the amended criteria for Market 
Maker Cross-Asset Tier 1 is a reasonable, as such changes are designed 
to encourage Members to increase their liquidity on the Exchange and 
also their participation on BZX Equities to continue to achieve the 
rebate offered under Market Maker Cross-Asset Tier 1. 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 believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Market Makers. Additionally, a number of 
Market Makers have a reasonable opportunity to satisfy the criteria of 
the proposed Cross-Asset Add Tier 2, which the Exchange believes is 
less stringent than the existing MM Penny Add Tiers 3 and 4, and the 
criteria of Cross-Asset Add Tier 1, as amended, which the Exchange 
believes is less stringent than MM Penny Add Tier 1. 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 anticipates that approximately one Market 
Maker will be able to compete for and achieve the proposed criteria of 
Cross-Asset Add Tier 1 and approximately one Market Maker will be able 
to compete for and achieve the proposed criteria of the proposed Cross-
Asset Add Tier 2; however, the proposed tiers are open to any Market 
Maker that satisfies the applicable tiers' criteria. The Exchange 
believes the proposed tiers could provide an incentive for other 
Members to submit additional liquidity on BZX Options and Equities to 
qualify for the proposed enhanced rebates. To the extent a Member 
participates on the Exchange but not on BZX Equities, the Exchange does 
believe that the proposal

[[Page 80352]]

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 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 also 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 four alternative choices to aim to achieve under the MM Penny Add 
Tiers. Furthermore, the proposed enhanced rebate would apply to all 
Members that meet the required criteria under 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 competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed changes to the MM Penny Add Tiers will impose any 
burden on intramarket competition. Particularly, the proposed change 
applies uniformly to all Market Makers. As discussed above, to the 
extent a Member participates on the Exchange but not on BZX Equities, 
the Exchange notes that the proposed changes 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. Additionally, the proposed change is designed to attract 
additional order flow to the Exchange and BZX Equities. Greater 
liquidity benefits all market participants on the Exchange by providing 
more trading opportunities and encourages Members to send orders, 
thereby contributing to robust levels of liquidity, which benefits all 
market participant. 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.'' \16\
---------------------------------------------------------------------------

    \16\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed rule changes will 
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 direct their order flow, including 17 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.\17\ 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.'' \18\ 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' . . . .''.\19\ 
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.
---------------------------------------------------------------------------

    \17\ See supra note 3.
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\ 
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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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-2023-091 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 80353]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeBZX-2023-091. 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-2023-091 and should 
be submitted on or before December 8, 2023.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25383 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P