Document ID: SEC-2022-0257-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2022-02-22T05:00Z

[Federal Register Volume 87, Number 35 (Tuesday, February 22, 2022)]
[Notices]
[Pages 9780-9783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03649]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94252; File No. SR-CboeBZX-2022-008]

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

February 15, 2022.
    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 7, 2022, 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'' or ``BZX 
Equities'') proposes to amend its Fee Schedule. The text of the 
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (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.

[[Page 9781]]

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

1. Purpose
    The Exchange proposes to amend its fee schedule to decrease the 
standard liquidity adding rebate for orders in securities at or above 
$1.00 and to eliminate Tier 3 of the Single MPID Investor Tiers. The 
Exchange proposes to implement the proposed change to its fee schedule 
on February 1, 2022.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
February 1, 2022 (SR-BZX-2022-007). On February 7, 2022, the 
Exchange withdrew that filing and submitted this proposal.
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    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 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Securities Exchange Act of 1934 (the ``Act''), to which market 
participants may direct their order flow. Based on publicly available 
information,\4\ no single registered equities exchange has more than 
18% of the market share. Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow. The Exchange in 
particular operates a ``Maker-Taker'' model whereby it pays credits to 
Members that add liquidity and assesses fees to those that remove 
liquidity. The Exchange's fee schedule sets forth the standard rebates 
and rates applied per share for orders that provide and remove 
liquidity, respectively. Particularly, for securities at or above 
$1.00, the Exchange provides a standard rebate of $0.0018 per share for 
orders that add liquidity and assesses a fee of $0.0030 per share for 
orders that remove liquidity. 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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    \4\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (January 23, 2022), available at https://markets.cboe.com/us/equities/market_statistics/.
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Standard Liquidity Rebate
    As stated above, the Exchange currently provides a standard rebate 
of $0.0018 per share for liquidity adding orders (i.e., those yielding 
fee codes B,\5\ V,\6\ and Y \7\) in securities priced at or above 
$1.00. Orders in securities priced below $1.00 that add liquidity are 
free. The Exchange now proposes to decrease the current standard rebate 
of $0.0018 per share to $0.0016 per share for orders that add liquidity 
for securities priced at or above $1.00. Orders that add liquidity in 
securities priced below $1.00 would continue to be free. Although this 
proposed standard rebate for liquidity adding orders is lower than the 
current base rate for such orders, the proposed rebate is in line with 
similar rebates for liquidity adding orders in place on other 
exchanges.\8\
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    \5\ Orders yielding Fee Code ``B'' are displayed orders adding 
liquidity to BZX (Tape B).
    \6\ Orders yielding Fee Code ``V'' are displayed orders adding 
liquidity to BZX (Tape A).
    \7\ Orders yielding Fee Code ``Y'' are displayed orders adding 
liquidity to BZX (Tape C).
    \8\ E.g., the Nasdaq base rebate ranges from $0.0015 to $0.00305 
for liquidity adding orders in securities priced at or above $1.00. 
See http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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Single MPID Investor Tiers
    The Exchange also proposes to eliminate the Single MPID Investor 
Tier 3, which is currently described under footnote 4 of the fee 
schedule. Particularly, this tier applies to orders yielding fee code 
B, V, or Y and provides a $0.0034 per share rebate to MPIDs that have a 
Step-Up ADAV \9\ as a percentage of TCV \10\ greater than or equal to 
0.20% from September 2021 or MPIDs that have a Step-Up ADAV from 
September 2021 greater than or equal to 20 million shares. No Member 
has reached this tier in several months and the Exchange therefore no 
longer wishes to, nor is it required to, maintain such a tier.
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    \9\ ``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV.
    \10\ ``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.
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Fee Schedule Clean Up
    The Exchange proposes to update Footnote 19 of the Fee Schedule, 
which is appended to fee codes B, V, and Y, to reflect that orders that 
add liquidity to BZX for securities priced below $1.00 are free instead 
of a rebate of $0.00009 per share. The Exchange notes that it amended 
this rebate in May 2021 and that the ``Free'' rate is accurately 
reflected in the Standard Rates table.\11\ However, the Exchange 
inadvertently at that time omitted updating corresponding Footnote 19 
of the Fees Schedule and seeks to do so now.
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    \11\ See Securities Exchange Release No. 92013 (May 25, 2021) 86 
FR 29312 (June 1, 2021) (SR-CboeBZX-2021-040).
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    Additionally, the Exchange notes that it removed the Total Volume 
tier from its Fee Code Schedule in December 2021,\12\ but did not 
eliminate references to footnote 3 from fee codes B, V, and Y in Fee 
Code table. Accordingly, the Exchange now proposes to remove references 
to Footnote 3 from fee codes B, V, and Y, of the Fee Schedule.
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    \12\ See Securities Exchange Release No. 34-93829 (December 20, 
2021) 86 FR 73402 (December 20, 2021) [sic] (SRCboeBZX-2021-084).
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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,\13\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\14\ in 
particular, as it is designed to provide for the equitable allocation 
of reasonable dues, fees and other charges among its Members, issuers 
and other persons using its facilities. 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 changes reflect 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, and thus is in the public interest.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    In particular, the Exchange believes that the proposed amendment to 
reduce the standard liquidity adding rebate is reasonable because the 
proposed change represents a modest rebate decrease and Members will 
continue to receive a rebate on liquidity adding orders, albeit at a 
lower amount. The Exchange believes the proposed amendment is also 
equitable and not unfairly discriminatory because the proposed change 
is equally applicable to all Members of the Exchange. Additionally, the 
proposed rebate for liquidity adding orders is in-line with rebates 
offered at other exchanges for similar transactions.\15\
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    \15\ Supra note 7 [sic].
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    The Exchange believes the proposed amendment to remove Single MPID

[[Page 9782]]

Investor Tier 3 is reasonable because no Member has achieved this tier 
in several months. Moreover, the Exchange is not required to maintain 
this tier and Members still have a number of other opportunities and a 
variety of ways to receive enhanced rebates for displayed liquidity, 
including the enhanced rebates under the Single MPID Investor Tiers 1 
and 2. The Exchange believes the proposal to eliminate this tier is 
also equitable and not unfairly discriminatory because it applies to 
all Members.
    Lastly, the Exchange believes that the proposed change to update 
Footnote 19 is reasonable, equitable and not unfairly discriminatory as 
it does not change the fees or rebates assessed by the Exchange, but 
rather updates the rate applicable to liquidity adding orders in 
securities priced below $1.00 to accurately reflect the rate it adopted 
in the rule filing submitted in May 2021. As such, the proposed rule 
change is merely a clarification in the Fees Schedule which increases 
transparency in the Fees Schedule and reduces potential confusion 
regarding the appropriate rates for such orders. Similarly, the 
proposal to remove references to footnote three from fee codes B, V, 
and Y is reasonable, equitable and not unfairly discriminatory as it 
merely eliminates a reference to a reserved footnote.

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. 
Particularly, the proposed changes apply to all liquidity adding orders 
equally, and thus applies to all Members equally. Additionally, 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 purpose 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 other 
equities exchanges, off-exchange venues, and alternative trading 
systems. Additionally, the Exchange represents a small percentage of 
the overall market. Based on publicly available information, no single 
equities exchange has more than 18% of the market share.\16\ Therefore, 
no exchange possesses significant pricing power in the execution of 
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 changes imposes any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \16\ Supra note 3 [sic].
    \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.

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

     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-2022-008 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-2022-008. 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

[[Page 9783]]

comment submissions. You should submit only information that you wish 
to make available publicly. All submissions should refer to File Number 
SR-CboeBZX-2022-008 and should be submitted on or before March 15, 
2022.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03649 Filed 2-18-22; 8:45 am]
BILLING CODE 8011-01-P