Document ID: SEC-2023-0445-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-04-24T04:00Z

[Federal Register Volume 88, Number 78 (Monday, April 24, 2023)]
[Notices]
[Pages 24839-24842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08523]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97319; File No. SR-CboeBZX-2023-023]

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

April 18, 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 April 3, 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.
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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 Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
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/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, effective April 3, 
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 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 5% 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.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (March 28, 2023), available at https://www.cboe.com/us/options/market_statistics/.
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    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. The Fee Codes and

[[Page 24840]]

Associated Fees section of the Fees Schedule also provide for certain 
fee codes associated with certain order types and market participants 
that provide for various other fees or rebates. Additionally, the Fee 
Schedule offers tiered pricing which provides Members \4\ opportunities 
to qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. In response to the competitive 
environment, the Exchange also offers tiered pricing, which provides 
Members with 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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    \4\ See Exchange Rule 1.5(n).
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    The Exchange proposes to update the Market Maker Penny Add Volume 
Tiers (i.e., applicable to orders yielding fee code PM) set forth in 
footnote 6 of the Fee Schedule. The Exchange currently provides 
opportunities for rebates per contract to add liquidity in Penny 
Securities as follows:
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    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added.
    \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.

------------------------------------------------------------------------
                              Rebate per
          Tier             contract to add        Required criteria
------------------------------------------------------------------------
Tier 1..................            ($0.31)  Member has an ADAV \5\ in
                                              Market Maker orders
                                              >=0.15% of average OCV.\6\
Tier 2..................             (0.38)  Member has an ADAV in
                                              Market Maker orders
                                              >=0.25% of average OCV.
Tier 3..................             (0.39)  Member has an ADAV in
                                              Market Maker orders
                                              >=0.40% of average OCV.
Tier 4..................             (0.40)  (1) Member has an ADAV in
                                              Market Maker orders
                                              >=0.45% of average OCV;
                                              and
                                             (2) Member has a Step-Up
                                              ADRV in Customer orders
                                              >=0.05% of OCV from
                                              December 2022.
Tier 5..................             (0.43)  Member has an ADAV in
                                              Market Maker orders
                                              >=0.60% of average OCV.
Tier 6..................             (0.44)  (1) Member has an ADAV in
                                              Market Maker orders
                                              >=0.75% of average OCV;
                                              and
                                             (2) Member has an ADRV in
                                              Customer orders >=0.50% of
                                              average OCV.
------------------------------------------------------------------------

    The Exchange proposes to amend these tiers to add new Tier 5 to 
provide a rebate of $0.41 per contract to add liquidity if a Member has 
(1) an ADAV in Market Maker orders greater than or equal to 0.50% of 
average OCV; and (2) a Step-Up ADAV in Market Maker orders in SPY 
greater than or equal to 0.05% of average OCV from December 2022.\7\ 
The Exchange also proposes a corresponding non-substantive amendment to 
update current Tiers 5 and 6 to Tiers 6 and 7, respectively.
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    \7\ The Exchange proposes to add this tier as described in the 
table in Footnote 6 and amend the amounts of the rebates in the 
Standard Rates table.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ 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,\11\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(4).
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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. Additionally, competing exchanges offer similar tiered pricing 
structures, including schedules of rebates and fees that apply based 
upon similarly situated members achieving certain volume and/or growth 
thresholds, as well as assess similar fees or rebates for similar types 
of orders, to that of the Exchange.
    The Exchange believes adding new Tier 5 to the Market Maker Penny 
Add Volume Tiers is reasonable as it is designed to encourage Market 
Makers to increase their order flow to the Exchange to achieve the 
proposed tier. More specifically, the Exchange believes that adopting a 
new tier may encourage Members to increase their ADAV in Market Makers 
orders, including in SPY, over a modestly higher percentage of average 
OCV, and that reducing the difficulty of achieving an existing tier 
offers alternative criteria to the Market Maker Penny Add Volume Tiers, 
as restructured, for Members to strive to achieve by submitting the 
requisite add volume order flow. An increase in Market Maker add 
volume, 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 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 the proposed criteria and rebate in 
new Tier 5 reasonably reflect the incremental difficulty in achieving 
the remaining

[[Page 24841]]

Market Maker Penny Add Volume Tiers, and are in line with the criteria 
and enhanced rebates offered under the remaining Market Maker Penny Add 
Volume Tiers.
    The Exchange believes the proposed change is also equitable and not 
unfairly discriminatory because it applies uniformly to all Members, 
who will have the opportunity to meet the new tier's criteria and 
receive the corresponding rebate for the tier if such criteria is met. 
Without having a view of activity on other markets and off-exchange 
venues, the Exchange has no way of knowing whether these proposed 
changes would definitely result in any Members qualifying for the 
proposed rebates. While the Exchange has no way of predicting with 
certainty how the proposed changes will impact Member activity, based 
on trading activity from the prior months, the Exchange anticipates 
that up to two Members will achieve new Tier 5. Additionally, all 
Members are able to increase their Market Maker order flow to attempt 
to achieve the new tier. Should a Member not meet the proposed new 
criteria, the Member will merely not receive that corresponding 
enhanced rebate.

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 believes the 
proposal to amend the Market Maker Penny Add Volume Tiers does not 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as they will 
apply to all Members and all Members will continue to have an 
opportunity to receive rebates through the program. All Market Maker 
Volume Add Tiers are generally designed to increase the competitiveness 
of BZX and incentivize participants to increase their order flow on the 
Exchange, providing for additional execution opportunities for market 
participants and improved price transparency. An overall increase in 
add activity may provide for deeper, more liquid markets and execution 
opportunities at improved prices. Furthermore, greater overall order 
flow, trading opportunities, and pricing transparency benefit all 
market participants on the Exchange by enhancing market quality and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem.
    The Exchange also 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 they may participate on and 
direct their order flow, including 15 other options exchanges. 
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. Therefore, no exchange 
possesses significant pricing power in the execution of order flow. 
Indeed, participants can readily choose to send their orders to other 
exchanges 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.'' 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'. . . .''. 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.

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)(ii) of the Act \12\ and Rule 19b-4(f)(2) \13\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
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    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 shall 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2023-023 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2023-023. 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

[[Page 24842]]

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-2023-023 and should 
be submitted on or before May 15, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08523 Filed 4-21-23; 8:45 am]
BILLING CODE 8011-01-P