Document ID: SEC-2018-1396-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-09-05T04:00Z

[Federal Register Volume 83, Number 172 (Wednesday, September 5, 2018)]
[Notices]
[Pages 45149-45152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19240]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84002; File No. SR-CboeBZX-2018-065]

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

August 30, 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 August 16, 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 to 
institute a new fee for the distribution of data derived from BZX Top 
on third-party websites or other electronic platforms.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to introduce a new 
pricing model to keep pace with an evolving practice. Other exchanges 
have pricing programs in place that allow Distributors make ``Derived 
Data'' available on a website or other electronic platform that is 
branded by a third party, or co-branded by a Distributor and a third 
party.\5\ The

[[Page 45150]]

proposed rule change would implement a new pricing structure for use of 
Derived Data--i.e., the BZX Derived Data White Label Service Program 
(the ``Program'')--that would compete with similar programs currently 
offered on other equities markets.
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    \5\ The Nasdaq Stock Market LLC (``Nasdaq''), for example, 
operates a program whereby it charges Distributors that employ a 
hosted display solution to distribute Derived Data taken from its 
Nasdaq Basic product. See Securities Exchange Act Release No. 79228 
(November 3, 2016), 81 FR 78890 (November 9, 2016) (SR-NASDAQ-2016-
144).
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    ``Derived Data'' is pricing data or other data that (i) is created 
in whole or in part from Exchange Data, (ii) is not an index or 
financial product, and (iii) cannot be readily 
reverse[hyphen]engineered to recreate Exchange Data or used to create 
other data that is a reasonable facsimile or substitute for Exchange 
Data. The type of Derived Data subject to the proposed fee is taken 
from BZX Top, which is a proprietary data product that provides top of 
book quotations and execution information for all equity securities 
traded on the Exchange.\6\
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    \6\ See Rule 11.22(d).
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    The Derived Data subject to the proposed fee is made available to 
subscribers within a White Label Service which is a type of hosted 
display solution in which a Distributor hosts or maintains a website or 
platform on behalf of a third-party entity. The service allows 
Distributors to make Derived Data available on a platform that is 
branded with a third-party brand, or co-branded with a third party and 
a Distributor. The Distributor maintains control of the application's 
data, entitlements and display.
    The White Label Service may be used for a number of different 
purposes, to be determined by the Distributor. Possible uses include 
the display of information or data, or the creation of derivative 
instruments, such as swaps,\7\ swaptions,\8\ or contracts for 
difference.\9\ The specific use of the data will be determined by the 
Distributor, as the proposed fee will not depend on the purpose for 
placing the Derived Data on a White Label Service.
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    \7\ A swap is a derivative contract in which two parties agree 
to exchange financial instruments.
    \8\ A swaption, or swap option, is an option to enter into a 
swap at a specified time.
    \9\ A contract for difference is an agreement to exchange the 
difference between the current value of an asset and its future 
value. If the price increases, the seller pays the buyer the amount 
of the increase. If the price decreases, the buyer pays the seller 
the amount of the decrease.
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    As proposed, a Distributor that provides a White Label Service for 
Derived Data taken from BZX Top is liable for the following fees 
instead of the fees normally applicable for the distribution of BZX 
Top. First, instead of the regular fee for external distribution, 
Distributors would be charged a tiered External Subscriber Fee based on 
the number of White Label Service Platforms (i.e., ``External 
Subscribers'') that receive Derived Data from the Distributor through a 
White Label Service. Specifically, Distributors would be charged a fee 
of: (1) $300 per month for each External Subscriber if the Distributor 
makes Derived Data available to 1-5 External Subscribers; (2) $250 per 
month for each External Subscriber if the Distributor makes Derived 
Data available to 6-10 External Subscribers; and (3) $200 per month for 
each External Subscriber if the Distributor makes Derived Data 
available to 11 or more External Subscribers. The External Subscriber 
Fee is non-progressive and, as mentioned above, is based on the number 
of External Subscribers that receive Derived Data from the Distributor. 
For example, a Distributor providing Derived Data based on BZX Top to 
six External Subscribers would be charged a monthly fee of $1,500 
(i.e., 6 External Subscribers x $250 each). Second, the Exchange would 
charge a monthly Professional User fee of $4 per month for each 
Professional User, which is equivalent to the current Professional User 
fee for external distribution of BZX Top. There would be no monthly 
Non-Professional User fee for accessing Derived Data through a White 
Label Service.
    The Program is entirely optional, in that it applies only to 
Distributors that opt to use Derived Data from BZX Top to create a 
White Label Service, as described herein. It does not impact or raise 
the cost of any other Exchange product, nor does it affect the cost of 
BZX Top, except in instances where Derived Data is made available on a 
White Label Service. A Distributor that provides a White Label Service 
for BZX Top data that is not Derived Data or distributes Derived Data 
through a platform other than a White Label Service would be liable for 
the fees normally applicable for the distribution of BZX Top.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\10\ in general, and 
furthers the objectives of Section 6(b)(4),\11\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its members and other recipients of 
Exchange data. The Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
recipients of Exchange data. The Exchange believes the proposed fees 
are competitive with those charged by other venues and, therefore, 
reasonable and equitably allocated to recipients.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \12\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\13\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory. In adopting Regulation NMS, the Commission granted 
self-regulatory organizations and broker-dealers increased authority 
and flexibility to offer new and unique market data to the public. It 
was believed that this authority would expand the amount of data 
available to consumers, and also spur innovation and competition for 
the provision of market data.
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    \12\ 15 U.S.C. 78k-1.
    \13\ See 17 CFR 242.603.
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    The Exchange notes that the Commission is not required to undertake 
a cost-of-service or rate-making approach. The Exchange believes that, 
even if it were possible as a matter of economic theory, cost-based 
pricing for non-core market data would be so complicated that it could 
not be done practically.\14\
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    \14\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, it is 
impossible to regulate market data prices in isolation from prices 
charged by markets for other services that are joint products. Cost-
based rate regulation would also lead to litigation and may distort 
incentives, including those to minimize costs and to innovate, 
leading to further waste. Under cost-based pricing, the Commission 
would be burdened with determining a fair rate of return, and the 
industry could experience frequent rate increases based on 
escalating expense levels. Even in industries historically subject 
to utility regulation, cost-based ratemaking has been discredited. 
As such, the Exchange believes that cost-based ratemaking would be 
inappropriate for proprietary market data and inconsistent with 
Congress's direction that the Commission use its authority to foster 
the development of the national market system, and that market 
forces will continue to provide appropriate pricing discipline. See 
Appendix C to NYSE's comments to the Commission's 2000 Concept 
Release on the Regulation of Market Information Fees and Revenues, 
which can be found on the Commission's website at http://www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities 
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200 
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Establish an 
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative 
December 1, 2014).

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[[Page 45151]]

    The Exchange believes that the introduction of a fee for the use of 
Derived Data on White Label Services is reasonable because: (i) All 
proprietary data fees are constrained by the Exchange's need to compete 
for order flow; and (ii) proprietary data fees are subject to market 
competition from substitute products. The proposed rule change would 
provide an alternate fee structure for providing BZX Top market data to 
Distributors that make Derived Data available to External Subscribers 
on White Label Services. The Exchange believes that this will encourage 
additional Distributors to subscribe to BZX Top market data due to the 
lower cost associated with Derived Data provided under the Program. 
Nasdaq already has a similar pricing structure in place for providing 
Derived Data through a hosted display solution.\15\ The Exchange 
believes that Distributors of BZX Top market data would benefit from a 
similar solution. Furthermore, the proposed fees are lower than those 
currently in place on Nasdaq, which charges a fee of $400 per month for 
each hosted display solution under their program,\16\ and may be 
further lowered for Distributors of BZX Top Derived Data based on the 
number of External Subscribers.
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    \15\ See supra note 5.
    \16\ Id.
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    As proposed, if a Distributor uses a White Label Service to display 
Derived Data, the Distributor will be charged a fee that is tiered 
based on the number of External Subscribers that are provided access to 
that data instead of the higher fee normally charged for external 
distribution. The Exchange believes that this fee is equitable and not 
unfairly discriminatory because the Exchange will apply the same fees 
to all similarly situated Distributors based on the number of External 
Subscribers provided access to Derived Data through a White Label 
Service. Furthermore, the proposed fees will only apply to Distributors 
that elect to participate in the Program by distributing Derived Data 
through a White Label Service. BZX Top market data is distributed and 
purchased on a voluntary basis, in that neither the Exchange nor market 
data distributors are required by any rule or regulation to make this 
data available. Distributors of BZX Top are not required to participate 
in the proposed Program, which is merely an alternative option being 
proposed by the Exchange to potentially lower costs for market data 
that is Derived Data. Accordingly, Distributors can discontinue use at 
any time and for any reason, including due to an assessment of the 
reasonableness of fees charged. Firms have a wide variety of 
alternative market data products from which to choose, such as similar 
proprietary data products offered by other exchanges and consolidated 
data. Moreover, the Exchange is not required to make any proprietary 
data products available or to offer any specific pricing alternatives 
to any customers.
    In addition to the tiered distribution fee described above, the 
Exchange will continue to charge a small fee for Professional Users but 
would eliminate Non-Professional User fees for data provided under the 
Program. The Exchange believes that it is equitable and not unfairly 
discriminatory to charge a fee for Professional Users but no fee for 
Non-Professional Users. Non-Professional Users are already subject to a 
heavily discounted fee for BZX Top market data relative to Professional 
Users. Differential fees for Professional and Non-Professional Users 
are widely used by the Exchange and other exchanges for their 
proprietary market data as this reduces costs for retail investors and 
makes market data more broadly available.
    In addition, the fees that are the subject of this rule filing are 
constrained by competition. As explained below in the Exchange's 
Statement on Burden on Competition, the existence of alternatives to 
the proposed program further ensures that the Exchange cannot set 
unreasonable fees, or fees that are unreasonably discriminatory, when 
subscribers can elect such alternatives. That is, the Exchange competes 
with other exchanges and their affiliates that provide similar market 
data products. If another exchange or its affiliate were to charge less 
for a similar product than the Exchange charges under the proposed fee 
structure, prospective subscribers likely would not subscribe to, or 
would cease subscribing to, the Program.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange's ability to price this data product is constrained by: (i) 
Competition among exchanges, other trading platforms, and Trade 
Reporting Facilities (``TRF'') that compete with each other in a 
variety of dimensions; (ii) the existence of inexpensive real-time 
consolidated data and market-specific data and free delayed data; and 
(iii) the inherent contestability of the market for proprietary data.
    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    The proposed fees apply to data derived from BZX Top, which is 
subject to competition from the Nasdaq, NYSE, and other exchanges that 
offer similar products, including exchanges that provide similar 
pricing options for Derived Data made available on a White Label 
Service. In sum, the availability of a variety of alternative sources 
of information imposes significant competitive pressures on Exchange 
data products and the Exchange's compelling need to attract order flow 
imposes significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, the Exchange 
considered the competitiveness of the market for proprietary data and 
all of the implications of that competition. The Exchange believes that 
it has considered all relevant factors and has not considered 
irrelevant factors in order to establish fair, reasonable, and not 
unreasonably discriminatory fees and an equitable allocation of fees 
among all subscribers. The existence of alternatives to BZX Top, 
including existing similar feeds by other exchanges, consolidated data, 
and proprietary data from other sources, ensures that the Exchange 
cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when subscribers can elect these alternatives or choose 
not to purchase a specific proprietary data product if its cost to

[[Page 45152]]

purchase is not justified by the returns any particular vendor or 
subscriber would achieve through the purchase.

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

    No written comments were either solicited or received.

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 \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-2018-065 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-2018-065. 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 this filing will also 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-2018-065 and should be submitted 
on or before September 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19240 Filed 9-4-18; 8:45 am]
BILLING CODE 8011-01-P