Document ID: SEC-2021-0994-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2021-07-20T04:00Z

[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38364-38366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15343]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92408; File No. SR-CboeBZX-2021-050]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Eliminate the Opt-In Functionality Offered Under 
the Lead Market Maker Pricing

July 14, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 12, 2021, Cboe BZX Exchange, Inc. (``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 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'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the 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 the Fee Schedule applicable to its 
equities trading platform (``BZX Equities'') to eliminate the opt-in 
functionality offered under the Lead Market Maker (``LMM'') Pricing 
provided under footnote 14. Specifically, the Exchange is proposing to 
automatically provide an LMM with the greater of the LMM Liquidity 
Provision Rates or the LMM Add Liquidity Rebate instead of requiring an 
LMM to opt-in.\3\
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    \3\ The Exchange initially filed the proposed fee changes July 
1, 2021 (SR-CboeBZX-2021-049). On July 12, 2021, the Exchange 
withdrew that filing and submitted this proposal.
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    The Exchange currently offers a comprehensive liquidity provision 
program to incentivize LMMs to provide enhanced market quality across 
all BZX-listed securities. Specifically, as provided in paragraph (A) 
of footnote 14, the Exchange offers the LMM Liquidity Provision Rates 
which provide LMMs daily incentives that are based on whether the LMM 
meets certain performance based criteria (i.e., the applicable Minimum 
Performance Standard 4).5 The Exchange provides 
each LMM with a daily incentive based on how many Qualified Securities 
or Enhanced Securities \6\ the LMM has and the average aggregate daily 
auction volume in the BZX-listed securities for which it is an LMM 
(``LMM Securities''). The LMM Liquidity Provision Rates were 
implemented to incentivize LMMs to meet the Minimum Performance 
Standards across all of their LMM Securities, especially for newly 
listed and other lower volume securities. The Exchange also currently 
offers, as provided in paragraph (B) of footnote 14, the LMM Add 
Liquidity Rebate which is available to LMMs in BZX-listed securities 
that have a consolidated average daily volume (``CADV'') \7\ equal to 
or greater than 1,000,000 (an ``ALR Security''). The LMM Add Liquidity 
Rebate allows the Exchange to offer LMM pricing comparable to other 
traditional LMM programs available on other listing

[[Page 38365]]

venues. Specifically, the LMM Add Liquidity Rebate encourages LMMs to 
meet the Minimum Performance Standards for Qualified Securities, but 
also provides the potential for additional incentives for higher volume 
securities.
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    \4\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum 
Performance Standards'' means a set of standards applicable to an 
LMM that may be determined from time to time by the Exchange. Such 
standards will vary between LMM Securities depending on the price, 
liquidity, and volatility of the LMM Security in which the LMM is 
registered. The performance measurements will include: (A) Percent 
of time at the NBBO; (B) percent of executions better than the NBBO; 
(C) average displayed size; and (D) average quoted spread..[sic].
    \5\ The current Minimum Performance Standards include: (i) 
Registration as a market maker in good standing with the Exchange; 
(ii) time at the inside requirements (generally between 3% and 15% 
of Regular Trading Hours for Qualified Securities and between 5% to 
50% for Enhanced Securities, depending on the average daily volume 
of the applicable LMM Security); (iii) auction participation 
requirements (generally requiring that the auction price is between 
3% and 5% of the last Reference Price, as defined in Rule 
11.23(a)(19), for a Qualified Security and 1%-3% for an Enhanced 
Security (the ``Enhanced Auction Range''); (iv) market-wide NBB and 
NBO spread and size requirements (generally requiring between 200 
and 750 shares at both the NBB and NBO for both Qualified Securities 
and Enhanced Securities with an NBBO spread between 1% and 10% for a 
Qualified Security and .25% to 4% for Enhanced Securities, depending 
on price of the security and underlying asset class); and (v) depth 
of book requirements (generally requiring between $25,000 and 
$250,000 of displayed posted liquidity for both Qualified Securities 
and Enhanced Securities within 1% to 10% of both the NBB and NBO for 
Qualified Securities and 0.25% and 5% for Enhanced Securities, 
depending on price of the security and underlying asset class). See 
Securities Exchange Act No. 86213 (June 27, 2019) 84 FR 31951 (July 
3, 2019) (SR-CboeBZX-2019-058) (the ``Original Filing''). The 
Exchange notes that as of February 1, 2021, the Enhanced Auction 
Range will be .50%-3%. The Original Filing provides that ``[b]efore 
diverging significantly from the ranges described above, the 
Exchange will submit a rule filing to the Commission describing such 
proposed changes.'' The Exchange does not believe that this change 
represents a ``significant divergence'' but is instead noting the 
change in order to provide transparency regarding the current state 
of the Minimum Performance Standards.
    \6\ An ``Enhanced Security'' refers to a BZX-listed security 
which meets certain enhanced qualifying market quality standards.
    \7\ ``CADV'' means consolidated average daily volume calculated 
as the average daily volume reported for a security by all exchanges 
and trade reporting facilities to a consolidated transaction 
reporting plan for the three calendar months preceding the month for 
which the fees apply and excludes volume on days when the market 
closes early and on the Russell Reconstitution Day.
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    As currently constructed, an LMM in an ALR Security that wants to 
participate must proactively opt-in to the program using the Exchange's 
ETP Portal. Further, an LMM that opts in to the LMM Add Liquidity 
Rebate program will receive the LMM Add Liquidity Rebate regardless of 
whether they would have been better off receiving the LMM Liquidity 
Provision Rates.
    Now, the Exchange proposes to eliminate the opt-in requirement, and 
instead proposes to automatically apply either the LMM Add Liquidity 
Rebate or LMM Liquidity Provision Rates for each ALR Security based on 
whichever would result in a greater total rebate in a particular 
calendar month. In determining the applicable rebate on a monthly basis 
for each ALR Security, the Exchange will choose the greater of: (i) The 
monthly total LMM Liquidity Provision Rates + (the applicable per share 
rebate that the LMM would receive for adding liquidity in the ALR 
Security x the number of shares for which the LMM added liquidity in 
the ALR Security); and (ii) $0.0039 x the number of shares for which 
the LMM added liquidity in the ALR Security. If an LMM Security does 
not meet the CADV requirement to be an ALR Security and become eligible 
to receive the LMM Add Liquidity Rebate, the LMM will continue to be 
subject to the LMM Liquidity Provision Rates by default.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\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. The Exchange also notes that its listing 
business operates in a highly competitive market in which market 
participants, which includes both issuers and LMMs, can readily 
transfer their listings or opt not to participate, respectively, if 
they deem fee levels, liquidity provision incentive programs, or any 
other factor at a particular venue to be insufficient or excessive. The 
LMM pricing as a whole reflects a competitive pricing structure 
designed to incentivize issuers to list new products and transfer 
existing products to the Exchange and market participants to enroll and 
participate as LMMs on the Exchange, which the Exchange believes will 
enhance market quality in all securities listed on the Exchange. The 
proposed amendment to the program is designed to provide an automated 
value-add service to LMMs without changing the pricing structure of the 
program.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposal is reasonable because it 
provides a value-added service to LMMs without changing the fees and 
rebates applicable to LMMs under footnote 14 of the fee schedule. 
Specifically, the proposal will streamline the LMM pricing process by 
eliminating the requirement that an LMM opt-in to the LMM Add Liquidity 
Rebate. As described above, under the proposal an LMM would also no 
longer have to consider whether it would receive higher incentives 
under the LMM Liquidity Provision Rates or the LMM Add Liquidity Rebate 
on a per security and per month basis. Instead, the Exchange will 
automatically apply whichever rate is greater in that ALR Security for 
the month. Further, as noted above, the marketplace for listings is 
extremely competitive and there are several other national securities 
exchanges that offer listings. Transfers between listing venues occur 
frequently for numerous reasons, including market quality. The proposal 
is designed to enhance the existing LMM program and is intended to help 
the Exchange compete as a listing venue by streamlining the process for 
LMMs to maximize their incentives. Further, the proposal does not 
change any of the existing LMM fees or incentives provided under 
footnote 14.
    The Exchange believes the LMM Add Liquidity Rates coupled with the 
LMM Liquidity Provision Rates will continue to create a comprehensive 
incentive structure that encourages participation and, further, 
competition among LMMs. The proposal is intended to enhance the 
existing incentive structure, and encourage participation among LMMs. 
The Exchange believes that increased participation among LMMs will 
result in better market quality across all of its listings, resulting 
in greater market quality to the benefit of investors and other market 
participants.
    The Exchange believes that the proposal represents an equitable 
allocation of payments and is not unfairly discriminatory because, 
while the LMM pricing is currently and will continue to apply only to 
LMMs, such LMMs must meet rigorous Minimum Performance Standards \10\ 
in order to receive the rebates provided under footnote 14. Where an 
LMM does not meet the Minimum Performance Standards for the applicable 
LMM Security, they will not be eligible for those rebates. Further, 
registration as an LMM is available equally to all Members and 
allocation of listed securities between LMMs is governed by Exchange 
Rule 11.8(e)(2). If an LMM does not meet the Minimum Performance 
Standards for three out of the past four months, the LMM is subject to 
forfeiture of LMM status for that LMM Security, at the Exchange's 
discretion. As discussed above, the proposed changed merely eliminates 
the requirement that an LMM opt-in to the LMM Add Liquidity Rebate and 
instead will automatically provide an LMM with the greater of the LMM 
Liquidity Provision Rates or the LMM Add Liquidity Rebate.
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    \10\ As defined in Rule 11.8(e)(1)(E), the term ``Minimum 
Performance Standards'' means a set of standards applicable to an 
LMM that may be determined from time to time by the Exchange. Such 
standards will vary between LMM Securities depending on the price, 
liquidity, and volatility of the LMM Security in which the LMM is 
registered. The performance measurements will include: (A) Percent 
of time at the NBBO; (B) percent of executions better than the NBBO; 
(C) average displayed size; and (D) average quoted spread..[sic]
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed change burdens competition, but rather, enhances 
competition as it is intended to increase the competitiveness of BZX 
both among Members by incentivizing Members to become LMMs in BZX-
listed securities and as a listing venue by enhancing market quality in 
BZX-listed securities. The marketplace for listings is extremely 
competitive and there are several other national securities exchanges 
that offer listings. Transfers between listing venues occur frequently 
for numerous reasons, including market quality. This proposal is 
intended to help the Exchange compete as a listing venue. Accordingly, 
the Exchange does not believe that the proposed change will impair the 
ability of issuers, LMMs, or competing listing venues to maintain their 
competitive standing. The Exchange does not believe the proposed 
amendment would burden intra-market competition as it would be 
available to all Members uniformly. Registration as an LMM is available

[[Page 38366]]

equally to all Members and allocation of listed securities between LMMs 
is governed by Exchange Rule 11.8(e)(2). Further, if an LMM does not 
meet the Minimum Performance Standards for three out of the past four 
months, the LMM is subject to forfeiture of LMM status for that LMM 
Security, at the Exchange's discretion.

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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2021-050 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-2021-050. 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-2021-050 and should be submitted 
on or before August 10, 2021.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15343 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P