Document ID: SEC-2019-0091-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-02-07T05:00Z

[Federal Register Volume 84, Number 26 (Thursday, February 7, 2019)]
[Notices]
[Pages 2630-2632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01386]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85031; File No. SR-CboeBZX-2018-096]

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

February 1, 2019.
    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 December 26, 2018, 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

    The Exchange proposes to amend its fee schedule for its equity 
options platform (``BZX Options'') to (i) reduce the standard rebates 
for Market Maker orders that add liquidity in Penny Pilot (``Penny'') 
and Non-Penny Pilot (``Non-Penny'') Securities; (ii) exclude Firm, 
Broker Dealer (``BD'') and Joint Back Office (``JBO'') orders that add 
liquidity from the NBBO Setter Tiers, (iii) amend the criteria for NBBO 
Setter Tier 3, (iv) reduce the rebates for Tier 1 of both the Market 
Maker Penny Pilot and Non-Penny Pilot Add Volume Tiers; and (v) add a 
new Away Market Maker Penny Pilot Add Volume Tier, effective January 2, 
2019.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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'') to (i) reduce the standard rebates 
for Market Maker orders that add liquidity in Penny Pilot (``Penny'') 
and Non-Penny Pilot (``Non-Penny'') Securities; (ii) exclude Firm, 
Broker Dealer (``BD'') and Joint Back Office (``JBO'') orders that add 
liquidity from the NBBO Setter Tiers, (iii) amend the criteria for NBBO 
Setter Tier 3, (iv) reduce the rebates for Tier 1 of both the Market 
Maker Penny Pilot and Non-Penny Pilot Add Volume Tiers; and (v) add a 
new Away Market Maker Penny Pilot Add Volume Tier, effective January 2, 
2019.
Market Maker Add Rebates, Penny and Non-Penny
    Currently, the Exchange applies fee code PM to Market Maker orders 
that add liquidity in Penny Securities and provides such orders a 
standard rebate of $0.31 per contract. The Exchange also currently 
applies fee code NM to Market Maker orders that add liquidity in Non-
Penny Securities and provides such orders a rebate of $0.42 per 
contract. The Exchange proposes to reduce the standard rebates for 
these orders. Particularly, the Exchange proposes to reduce the rebate 
for Market Maker orders that add liquidity in Penny Securities from 
$0.31 per contract to $0.29 per contract. The Exchange proposes to 
reduce the rebate for Market Maker orders that add liquidity in Non-
Penny Securities from $0.42 per contract to $0.40 per contract. The 
Exchange notes the reduced rebates are in line with the rebates offered 
at other Exchanges for similar transactions.\3\
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    \3\ See e.g., Nasdaq Gemini Pricing Schedule, Section 3, Regular 
Order Fees and Rebates, which provides a standard Maker rebate for 
Market Makers of $0.28 per contract for Penny Symbols and $0.40 per 
contract for Non-Penny Symbols.

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[[Page 2631]]

NBBO Setter Tiers
Firm, BD and JBO Orders
    The Exchange currently offers five NBBO Setter Tiers under footnote 
4, which provide an additional rebate per contract ranging from $0.01 
to $0.05 for qualifying Non-Customer \4\ orders that add liquidity and 
establish a new National Best Bid or Offer (``NBBO'') and yield fee 
code PF, PM or PN. The Exchange proposes to limit the applicability of 
the NBBO Setter Tiers to fee codes PM and PN and exclude orders that 
yield fee code PF (i.e., Firm/BD/JBO orders that add liquidity in Penny 
Securities). The Exchange no longer wishes to extend this additional 
incentive to such orders. The Exchange notes that orders that yield fee 
code PF already have the opportunity to receive enhanced rebates under 
the Firm, Broker Dealer and Joint Back Office Penny Pilot Add Volume 
Tiers.\5\
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    \4\ ``Non-Customer'' applies to any transaction identified by a 
Member for clearing which is not in the Customer range at the OCC, 
excluding any transaction for Broker Dealer or a ``Professional'' as 
defined in Exchange Rule 16.1.
    \5\ See Cboe BZX Options Fee Schedule, Footnote 2.
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NBBO Setter Tier 3
    The Exchange next proposes to modify the required criteria under 
NBBO Setter Tier 3. Currently under Tier 3, a Member may receive an 
additional rebate of $0.03 per share where they have an: (i) ADAV \6\ 
in Non-Customer orders greater than or equal to 0.50% of average OCV; 
\7\ and (ii) an ADAV in Firm, Market Maker and Away Market Maker orders 
that establish a new NBBO greater than or equal to 0.05% of average 
OCV.
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    \6\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added per day. See Cboe BZX Options Fee 
Schedule.
    \7\ 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. See Cboe BZX Options Fee Schedule.
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    The Exchange proposes to amend the ADAV threshold in the first 
prong. Specifically, the first prong of Tier 3 would be amended to 
require an increased ADAV in Non-Customer orders greater than or equal 
to 0.80% of average OCV (instead of 0.50%).
Market Maker Volume Tiers
    The Exchange currently offers three Market Maker Penny Pilot Add 
Volume Tiers under Footnote 6, and two Market Maker Non-Penny Pilot Add 
Volume Tiers under footnote 7, of the Fee Schedule which provide 
enhanced rebates per contract to a Member's order that yields fee code 
PM and NM, respectively, upon satisfying monthly volume criteria. The 
Exchange wishes to reduce the rebates under Tier 1 of both the Market 
Maker Penny and Non-Penny Add Volume Tier programs. Currently, a member 
may receive an enhanced rebate of $0.35 per contract under Tier 1 of 
the Market Maker Penny Add Volume Tier program where the Member has an 
ADAV in Market Maker orders greater than or equal to 0.05% of average 
OCV. The Exchange proposes to reduce the rebate under Tier 1 from $0.35 
per contract to $0.33 per contract. Under Tier 1 of the Market Maker 
Non-Penny Add Volume Tier Program, a Member may receive an enhanced 
rebate of $0.45 per contract where the Member has an ADAV in Market 
Maker orders greater than or equal to 0.10% of average OCV. The 
Exchange proposes to reduce this rebate from $0.45 per contract to 
$0.43 per contract.
Away Market Maker Volume Tier
    Currently, Away Market Maker orders that add liquidity in Penny 
Securities (i.e., yield fee code PN), receive a standard rebate of 
$0.26 per contract. The Exchange currently offers an enhanced rebate of 
$0.45 per contract for orders yielding fee code PN under the Away 
Market Maker Penny Pilot Add Volume Tier program under Footnote 10 of 
the Fee Schedule, where a Member satisfies specific monthly volume 
criteria. The Exchange proposes to add a new volume tier under Footnote 
10. Particularly, the Exchange proposes to provide that orders yielding 
fee code PN may qualify for an enhanced rebate of $0.38 per contract 
where a Member has an ADAV in Non-Customer, Non-Market Maker orders 
greater than or equal to 0.50% of average OCV. In connection with the 
proposed new tier, the Exchange proposes to renumber current Tier 1 
under this program to Tier 2.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Section 6 of the Act,\8\ in general, and Section 6(b)(4),\9\ 
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.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes reducing the standard rebates for 
Market Maker orders that add liquidity in Penny and Non-Penny 
Securities is reasonable because Market Maker orders that add liquidity 
still receive a rebate for doing so (albeit a lesser rebate than 
before) and because the Exchange believes the proposed changes will 
still continue to encourage such transactions. Additionally, the 
Exchange notes that the proposed standard rebates are still in line 
with, and similar to, rebates offered by other exchanges for similar 
transactions.\10\ The Exchange believes the proposed changes are 
equitable and not unfairly discriminatory because they apply uniformly 
to all Market Makers that add liquidity.
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    \10\ See e.g., Nasdaq Gemini Pricing Schedule, Section 3, 
Regular Order Fees and Rebates, which provides a standard Maker 
rebate for Market Makers of $0.28 per contract for Penny Symbols and 
$0.40 per contract for Non-Penny Symbols.
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    Next, the Exchange believes that its proposal to remove fee coded 
PF from footnote 4, NBBO Setter Tiers, is reasonable, equitable and 
non-discriminatory because orders that yield fee code PF will merely no 
longer receive an additional incentive rebate. Additionally, although 
these orders will no longer be able to qualify for NBBO Setter Tiers, 
there are additional ways for orders yielding fee code PF to receive 
enhanced rebates, such as via the Firm, Broker Dealer and Joint Back 
Office Penny Pilot Add Volume Tiers.\11\ The Exchange believes the 
proposed change is equitable and not unfairly discriminatory because it 
applies uniformly to all orders that yield fee code PF.
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    \11\ See Cboe BZX Options Fee Schedule, Footnote 2.
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    The Exchange next notes that volume-based discounts such as those 
currently maintained on the Exchange have been widely adopted by 
options exchanges 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 of an exchange's market 
quality; (ii) associated with higher levels of market activity, such as 
higher levels of liquidity provision and/or growth patterns; and (iii) 
introduction of higher volumes of orders into the price and volume 
discovery processes. While the proposed modification to the existing 
NBBO Setter Tier 3 makes such tier more difficult to attain, the 
Exchange believes it continues to incentivize Members to send Non-
Customer orders to the Exchange in an effort to qualify or continue to 
qualify for the additional rebate made available by the tier. The 
Exchange also believes the proposed change is reasonable as the rebate 
corresponding to NBBO Setter Tier 3 is not changing. The Exchange 
further

[[Page 2632]]

notes that the Exchange believes the tier criteria, as amended, is more 
commensurate with the corresponding rebate offered. The Exchange 
believes the proposed change is equitable and nondiscriminatory because 
the proposed change applies uniformly to all Market Makers and Away 
Market Makers.
    The Exchange believes reducing the rebates under Tier 1 of both the 
Market Maker Penny and Non-Penny Add Volume Tiers is reasonable because 
Market Maker orders that add liquidity and meet the corresponding 
required volume criteria still receive an enhanced rebate for doing so 
(albeit a lesser rebate than before) and because the Exchange believes 
the proposed changes will continue to encourage such transactions. The 
Exchange also believes the enhanced rebates, even as amended, will 
continue to provide an incremental incentive for Members to strive for 
higher tier level, which provides increasingly higher rebates. 
Additionally, the Exchange notes that the proposed standard rebates are 
still in line with, and similar to, rebates offered by other exchanges 
for similar transactions.\12\ The Exchange believes the proposed 
changes are equitable and not unfairly discriminatory because they 
apply uniformly to all Market Makers that add liquidity.
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    \12\ See e.g., Nasdaq Gemini Pricing Schedule, Section 3, 
Regular Order Fees and Rebates, which provides enhanced Maker 
rebates for Market Makers between $0.30-$0.45 per contract for Penny 
Symbols and between $0.42-$0.75 per contract for Non-Penny Symbols.
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    The Exchange believes the proposal to add a new Away Market Maker 
Add Volume Tier under footnote 10 is reasonable because it provides 
Members an additional opportunity to receive an enhanced rate for 
orders that add liquidity and is a reasonable means to encourage 
Members to increase their liquidity on the Exchange. Increased 
liquidity would benefit all investors. The Exchange further believes 
the proposed threshold is commensurate with the proposed enhanced 
rebate. The proposed fee change is equitable and non-discriminatory 
because it applies uniformly to all Members.

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

    The Exchange believes the proposed amendments 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 rule change will impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed changes for 
each separate type of market participant will be assessed equally to 
all such market participants. While different fees are assessed to 
different market participants in some circumstances, these different 
market participants have different obligations and different 
circumstances as discussed above. For example, Market Makers have 
quoting obligations that other market participants do not have. 
Further, 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. 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 change will impair the ability of Members 
or competing venues to maintain their competitive standing in the 
financial markets.

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 \13\ and paragraph (f) of Rule 19b-4 \14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2018-096 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-2018-096. 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-2018-096 and should be submitted 
on or before February 22, 2019.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-01386 Filed 2-6-19; 8:45 am]
 BILLING CODE 8011-01-P