FR 2021-02116

Summary of the Proposal

The document outlines a proposed rule change by the Cboe BZX Exchange, Inc. related to adjustments in its fee schedule. The Exchange is seeking to eliminate two specific routing fee codes, known as codes 8 and MX. These codes are associated with particular strategies used for routing orders to the NYSE American exchange. Due to minimal usage, Cboe BZX plans to remove these codes and apply a different fee code, labeled as fee code X, to the affected transactions. The main goal behind this proposal is to enhance operational efficiency by removing seldom-used fee codes and ensuring competitive pricing in a market where participants have multiple options.

Issues and Concerns

The document is written in a highly technical manner, which might pose a challenge for those who lack specialized knowledge in securities trading and market exchanges. Terms like "routing strategies" and "fee codes" could be confusing without additional explanation. Moreover, while the proposal is justified by the low usage of fee codes 8 and MX, the document does not provide detailed data or analysis to substantiate this claim.

Another concern is the lack of discussion regarding the potential effects on smaller market participants. While it is stated that no single equities exchange holds significant pricing power, the elimination of specific fee codes could still disproportionately affect smaller trading entities that may find it more difficult to adapt to these changes. The document fails to address how these entities will cope with such changes or highlight any potential impacts on them.

Additionally, the text extensively refers to other rules and filings, such as Rule 11.13(b)(3)(G) and various legislative sections, without clarifying these references. This could make it difficult for readers without direct access to these documents to fully understand the context and implications of the proposed changes.

Impact on the Public

The proposed rule change could have varying implications for the general public. For most everyday investors or those not directly involved in trading, these changes may be of little immediate impact. However, the broader public interest lies in understanding how such changes ensure a fair and competitive marketplace. The ability for market participants to choose between venues based on fee structures highlights the competitive nature of the market, potentially benefiting consumers through better pricing and service options.

Impact on Specific Stakeholders

For stakeholders directly involved in trading, particularly market makers and broker-dealers, this proposal could streamline processes. By removing infrequently used fee codes, the Cboe BZX Exchange aims to reduce unnecessary complexity, which could ultimately lower operational costs. However, this might come with a downside for those who previously utilized the now-eliminated codes if they find the new fee structure less favorable.

Finally, the document emphasizes that routing through the Exchange is optional and participants can pursue alternative venues. This reinforces the competitive marketplace that exists and the need for exchanges to carefully calibrate their offerings to remain attractive to participants. Overall, while the change is technical, it underscores the dynamic nature of the trading environment, where continuous adjustments are made to reflect participant behavior and market conditions.

The document issued by the Securities and Exchange Commission discusses upcoming changes related to fees charged by the Cboe BZX Exchange, Inc. for certain types of financial transactions.

Elimination of Specific Fee Codes

The document highlights that the Exchange plans to eliminate certain routing fee codes due to minimal usage. The specific fee codes being eliminated are Fee code 8 and Fee code MX, both of which currently impose a charge of $0.00020 per contract. These fees are applied to members’ orders routed to the NYSE American exchange and those using specific routing strategies known as TRIM or SLIM.

The Exchange has observed that these codes constitute a very small volume of its transactions — 0.02% for Fee code 8 and 0.11% for Fee code MX. Hence, the document suggests that maintaining these codes is not justified by the volume of transactions they support.

Implications on Costs

With the removal of these specific codes, the document indicates that similar orders that would have been routed with these codes will now be subject to a different fee under Fee code X, which assesses a charge of $0.0030 per contract. This indicates a notable increase from the previous rate, which could imply marginally higher costs for members whose orders align with the previous specifications of Fee codes 8 and MX.

Relation to Documented Issues

The relocation of orders from the eliminated codes to Fee code X reflects an attempt to streamline the fee schedule and enhance efficiency. However, it raises some concerns:

• The document does not provide detailed data backing the claim of minimal usage, which might have helped justify the changes more transparently.
• The potential financial impact on smaller trading entities isn't specified, although the document mentions that all routed orders will generally be subject to the same fee. This homogenization could disproportionately affect smaller members who might be more sensitive to fee changes.
• The overall market competitiveness is referenced, but the document lacks a clear analysis on how these financial adjustments align with broader market objectives or consumer benefits.

This restructuring of fee charges is framed as part of enhancing competitive engagement in the market, addressing the need to adapt to changing volumes and the associated costs of maintaining multiple fee codes. However, the immediate financial implication for members is an increase in the cost associated with some types of orders.