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Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
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1. Purpose The Exchange proposes to amend its fee schedule to eliminate the standard rebate for liquidity adding orders in securities priced below $1.00.3
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 Exchange Act, to which market participants may direct their order flow. Based on publicly available information,4 no single registered equities exchange has more than 15% 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 Exchanges fee schedule sets forth the standard rebates and rates applied per share for orders that provide and remove liquidity, respectively.
For liquidity adding orders i.e., yielding fee code B,5 V,6 and Y 7, the Exchange provides a standard rebate of $0.0018 per share for orders in securities priced at or above $1.00, and a standard rebate of $0.0009 per share for orders in securities priced below $1.00. For liquidity removing orders i.e., yielding fee code N,8 W,9 and BB 10, the Exchange assesses a fee of $0.0030 per share for orders in 3 The Exchange initially filed the proposed fee changes May 3, 2021 SRCboeBZX2021037. On May 12, 2021, the Exchange withdrew that filing and submitted this proposal.
4 See Cboe Global Markets, U.S. Equities Market Volume Summary, Month-to-Date April 26, 2021, available at https markets.cboe.com/us/equities/
market_statistics/.
5 Fee code B is appended to displayed orders adding liquidity to BZX Tape B.
6 Fee code V is appended to displayed orders adding liquidity to BZX Tape A.
7 Fee code Y is appended to displayed orders adding liquidity to BZX Tape C.
8 Fee code N is appended to orders removing liquidity from BZX Tape C.
9 Fee code W is appended to orders removing liquidity from BZX Tape A.
10 Fee code BB is appended to orders removing liquidity from BZX Tape B.

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securities at or above $1.00, and assesses a fee of 0.30% of the total dollar value for orders in securities priced below $1.00. The Exchange now proposes to eliminate the standard rebate applied to orders in securities priced below $1.00 and provide that such executions shall be free as the Exchange no longer wishes to, nor is it required to, provide such a rebate.
2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,11
in general, and furthers the objectives of Section 6b4 and 6b5,12 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.
In particular, the Exchange believes that the proposed eliminating the rebate and providing free executions for liquidity adding orders in securities priced below $1.00 is reasonable because the Exchange no longer wishes to, nor is it required to, provide such a rebate. The Exchange believes the proposal is equitable and not unfairly discriminatory because Members still are not paying any fees for such executions. Further, the Exchange believes the proposal is equitable and not unfairly discriminatory because it applies equally to all Members. With the proposed amendments, the Exchanges make-take fee structure would continue to incentivize liquidity providers to continue to provide liquidity since such orders remain eligible for better pricing than orders that remove liquidity and are charged a fee. Further, the Exchange believes liquidity in securities priced less than $1.00 is sufficient without a rebate.
B. Self-Regulatory Organizations Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on intramarket or 11 15
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intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposal would apply uniformly to all Members, and Members may opt to disfavor the Exchanges pricing if they believe that alternatives offer them better value. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of Members or competing venues to maintain their competitive standing in the financial markets. Excessive fees would serve to impair an exchanges ability to compete for order flow and Members rather than burdening competition. Moreover, Members still would not be assessed fees for liquidity adding orders, which is designed to incentivize liquidity, which the Exchange believes will benefit all market participants by encouraging a transparent and competitive market.
The Exchange believes liquidity in securities priced less than $1.00 is sufficient without a rebate.
As previously discussed, the Exchange operates in a highly competitive market. In such an environment, the Exchange must continually review, and consider adjusting, its fees and rebates to remain competitive with other exchanges.
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 15% of the market share.13
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 offexchange 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 13 Supra
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