FR 2021-01584

Cboe BZX Exchange, Inc. has proposed a fee change which could impact its members who trade in the U.S. equities market. The proposal, as outlined in the document, suggests instituting a monthly fee for members based on the number of Market Participant Identifiers (MPIDs) they use. Each member will receive one MPID for free, but any additional MPIDs will carry a $350 monthly fee. This proposal is filed under the Securities and Exchange Commission's guidelines, and public comments are invited.

Significant Issues and Concerns

One concern with this proposal is the lack of clear justification for the fee structure in terms of balancing costs versus benefits. The document does not adequately detail how the fees reflect the Exchange's actual costs for MPID management, nor does it provide data to substantiate claims that the fee will promote efficiency. Without this information, stakeholders might question whether the fee could lead to unnecessary financial burdens or be perceived as undue charging.

Moreover, the proposal appears to introduce ambiguity regarding how value is measured when deciding if multiple MPIDs justify the fee. For instance, it is unclear how the Exchange will determine whether the additional value perceived by individual members justifies their use of multiple MPIDs. This could potentially lead to inconsistent application of the fees.

Impact on the Public and Stakeholders

Broadly, the proposed rule change could affect the trading community associated with BZX. For members needing multiple MPIDs to support different business units or trading strategies, this fee introduces new costs that may impact their cost-efficiency calculations and influence their decision to maintain or condense their number of MPIDs.

Specifically, for members who benefit strategically from multiple MPIDs, this fee may introduce a financial burden, leading some to reconsider their usage. On the other hand, for smaller entities or those who do not use more than one MPID, the impact will be minimal, especially since the first MPID remains free.

The document also suggests that the competitive landscape could mitigate the impact of the fees. The Exchange claims that the fee is aligned with industry norms, as evidenced by comparisons with Nasdaq's pricing. However, the text seems to rely on assumptions without a detailed market analysis, which may put off stakeholders who prefer evidence-based assessments.

Complexity and Accessibility

Another concern is the complexity of the language used in the document. The financial and legal terminology might pose a challenge for readers without backgrounds in finance or securities law, potentially leaving some members of the public unclear about the implications of the proposal. More accessible language could help ensure all interested parties can fully engage with and understand the proposed changes.

In conclusion, while the fee aims to reflect the value and resources associated with multiple MPIDs, the proposal could benefit from a clearer justification of its necessity and relevance, considering the competitive market context. Public input and further analysis might help balance these considerations, ensuring the fee's alignment with both the Exchange's administrative needs and its members' business strategies.

In the document under review, there is a proposal by the Cboe BZX Exchange, Inc. to introduce a new fee structure related to Market Participant Identifiers (MPIDs). This proposal includes financial allocations and references that are integral to understanding the changes being implemented and their implications.

Summary of Financial References

The core financial aspect of the proposal is the introduction of a monthly fee for using MPIDs. Specifically, the Exchange plans to assess a monthly MPID Fee of $350 per MPID per Member, with the first MPID provided free of charge. This fee is meant to apply to members that choose to utilize more than one MPID, potentially providing a way for the Exchange to manage administrative resources more effectively. By introducing this fee, the Exchange aims to promote efficiency and ensure that multiple MPIDs are used judiciously.

The document also references a comparative fee structure from another market entity, Nasdaq Stock Market LLC. It is noted that Nasdaq charges a higher fee of $550 per MPID, which applies even to the first MPID used by a Nasdaq member. By highlighting this comparison, the Exchange seeks to justify its fee proposal as being more financially favorable to its members than that of a competitor.

Relation to Identified Issues

The financial allocations in the document raise several issues that merit consideration. The first issue is the lack of transparency in justifying the fee structure in terms of costs versus benefits. The document fails to detail the actual administrative costs that the Exchange incurs by processing MPIDs, leaving room for questioning whether the proposed fee accurately reflects those costs. Without a clear outline of these costs, concerns arise regarding potential wasteful spending or undue charging, where members could be paying more than necessary.

Moreover, the document does not specify the criteria used to determine when the use of multiple MPIDs provides sufficient value to a member to warrant the additional fee. This absence of detail could lead to ambiguities in how the proposals are applied, potentially resulting in inconsistent financial outcomes for different members.

Additionally, while the document claims that the fee could promote efficiency, there is no data provided to support this assertion. Without evidence, it is challenging to evaluate whether this financial allocation truly encourages better organization or merely imposes an additional cost burden on members.

The proposal's comparison with Nasdaq's pricing strategy creates another layer of complexity. Although the fee is lower than what Nasdaq charges, the document does not sufficiently explain why adopting this specific fee structure is necessary or beneficial in the broader market context. It appears to rely on an assumption that differences in pricing automatically result in competitive advantages without providing detailed market analysis or evidence to support this claim.

In conclusion, while the document outlines a clear financial proposal for charging fees per MPID, the absence of detailed justification and analysis makes it difficult to assess the fairness and necessity of these charges in the context of the Exchange's operational and administrative goals.