FR 2021-01583

Cboe BYX Exchange, Inc. has proposed a rule change to introduce a monthly fee for its members who use multiple Market Participant Identifiers (MPIDs). Each additional MPID after the first, which remains free, will incur a charge of $150 per month. The aim of this fee is to promote efficiency in how participants use these identifiers. This move is seen as an effort to align with similar fees imposed by larger exchanges, such as the Nasdaq, which charges $550 per MPID.

Overview and Intent

The document details how the fee is set up and highlights the intentions behind it. The exchange notes that many broker-dealers opt not to become members, and those who do have options other than the Cboe BYX Exchange. This context sets the stage for explaining why the exchange believes a reasonable fee can enhance efficiency in MPID usage. The document also outlines procedural steps, including how comments on the proposed rule can be submitted to the Securities and Exchange Commission (SEC).

Potential Issues

One major concern is how the fee might impact smaller versus larger members differently. The document does not address whether smaller entities, potentially with fewer resources, might be disproportionately affected compared to larger firms that can easily manage or absorb additional fees.

Additionally, while the proposal argues for increased efficiency, the evidence supporting this claim is largely anecdotal. The document references another market's experience where an MPID fee led to a 17% reduction in MPID use, but it fails to provide a rigorous analysis or data to predict similar outcomes for the Cboe BYX Exchange.

The document also uses specialized terminology like "MPID," "Sponsored Participant," and "Sponsoring Member" without accessible explanations, which may confuse readers not familiar with market terminology. This choice of language assumes the reader's understanding of sophisticated market operations, potentially alienating laypeople from fully grasping the proposal's implications.

Impact on the Public

For the broader public, this rule change may seem like a small technical adjustment, but it holds significant ramifications for market participants. The fee structure's intent is to encourage better management of market data and improve trading efficiencies, which could contribute to a more streamlined market environment.

Impact on Stakeholders

For Large Firms: This modification might be seen as a minor cost of doing business, given their higher resources. However, it could also induce these firms to reassess their use of MPIDs, leading to operational adjustments but minimal financial strain.

For Smaller Firms: There is the potential for a greater financial and administrative impact. Smaller firms already operate with constrained resources, and the new fee might necessitate reevaluation of their trading operations, possibly hindering their ability to leverage multiple MPIDs as part of their trading strategies.

Conclusion

Overall, while the intent behind the MPID fee seems anchored in promoting efficiency and aligning with industry practices, its introduction raises questions about fairness and its potential unequal impact on different market players. The lack of detailed support for claims about efficiency gains, coupled with complex language, complicates understanding for those unversed in trading regulations. Public and stakeholder feedback gathered through the SEC will be crucial in addressing these concerns and assessing the proposal's broader market implications.

The document outlines a proposed financial change by the Cboe BYX Exchange to introduce a monthly fee related to Market Participant Identifiers (MPIDs) used by its members. The financial aspect of this proposal involves charging a monthly fee of $150 for each additional MPID a member uses, although the first MPID for each member is provided at no cost. This fee structure is designed to cover administrative costs associated with managing multiple MPIDs.

The fee is notably discussed in the context of its competitiveness. The document mentions that the proposed MPID fee is lower than Nasdaq's fee of $550 per MPID, which applies to all MPIDs, including the first one. This comparison aims to justify the fee structure by positioning it as reasonable relative to fees on other exchanges.

Financial Justification and Efficiency Argument

The fee aims to encourage efficient use of MPIDs. The Exchange believes that the cost will incentivize members to evaluate the necessity of additional MPIDs and potentially reduce the number of under-used or redundant MPIDs. This is presented as an efficiency measure that aligns the costs incurred by the Exchange in managing MPIDs with the benefits received by members.

However, the document does not offer detailed empirical data to support the argument that the fee will promote efficiency, aside from referencing an example where a similar fee led to a reduction in MPIDs on affiliated exchanges. This raises questions about the reliability and applicability of the efficiency argument across different contexts and whether the financial allocation could disproportionately affect members depending on their size or trading strategy.

Impact on Different Members

One of the issues suggested by the financial references is the potential uneven impact on smaller versus larger members. Smaller members typically may utilize fewer MPIDs and rely more heavily on minimizing additional operational costs, while larger members might manage more complex operations benefiting from multiple MPIDs. The implementation of a $150 monthly fee per additional MPID could thus have varying financial implications among members, potentially impacting competitive balance.

Comparative Market Context

While positioning the fee as reasonable compared to Nasdaq's higher charge, the document does not address how this affects the competitive dynamics within the market fully. Members might choose their trading venue based on operating costs and market fees, potentially leading to shifts in where order flows are directed.

In summary, the proposed imposition of a $150 MPID fee manifests in the Exchange's strategy to balance operational efficiency and competitive positioning. However, its implications on smaller versus larger members and overall market dynamics remain areas that merit further detailed analysis and transparent data presentation.