FR 2021-03725

The proposed rule changes by the Cboe BZX Exchange, Inc. aim to update its Fee Schedule as part of the regulatory framework under the Securities Exchange Act of 1934. This notice was filed by the Cboe BZX with the U.S. Securities and Exchange Commission (SEC), effective as of February 2021.

General Summary

The most notable amendment introduced by the Exchange is the LMM Add Liquidity Rebate. This incentive intends to enhance market quality by encouraging Lead Market Makers (LMMs) to provide liquidity for higher volume securities listed on the Exchange. Only LMMs that meet certain performance and volume criteria will qualify for these rebates.

Additionally, the document proposes minor adjustments, such as reordering paragraphs within the Fee Schedule and removing the Market Depth Tier, a designation currently not in active use by members.

Significant Issues and Concerns

The document's heavy reliance on complex financial jargon and specific rule references might hinder comprehension for those without domain expertise. For example, terms like CADV, MPID, NBBO, NBB, and NBO are not explained, which can be perplexing for general readers. Furthermore, the rules mentioned, such as Rule 19b-4 and Rule 11.8(e)(1)(E), are technical in nature and presuppose familiarity with the Securities Exchange Act.

Another concern is the perceived lack of transparency surrounding the criteria and specific conditions for the new rebate program and other changes. Although the rebate program is said to be based on "rigorous Minimum Performance Standards," these standards are not clearly outlined, leaving stakeholders without a detailed understanding of what's required to qualify.

Impact on the Public

The adjustments are likely to impact the public indirectly through changes in how securities trading is facilitated on the Exchange. If the new incentives succeed in improving liquidity, they could enhance the overall market quality and trading environment, potentially benefiting investors by providing better prices and faster transaction times. However, the intricate nature of these changes requires careful communication to avoid misunderstanding or perceived market inequalities.

Impact on Specific Stakeholders

For LMMs and other members of the Exchange, these changes might offer opportunities to gain additional rebates, especially if they can meet the stipulated performance criteria. This could motivate LMMs to actively participate and improve the liquidity for higher volume securities.

On the downside, there might be concerns regarding favoritism or uneven benefits among market participants, given that only specific securities meeting the CADV requirement would be eligible for the new rebate program. Additionally, the removal of the Market Depth Tier appears inconsequential since it is stated to have had no recent users, but the rationale and data supporting this claim are not thoroughly discussed, leaving some ambiguity.

In summary, while the proposed changes aim to create a more competitive and quality-driven market environment on the Exchange, their technical nature requires clear, accessible communication to ensure all stakeholders can fully understand and engage with the new and adjusted provisions.

The document discusses a financial proposal by the Cboe BZX Exchange, Inc., which aims to amend the existing fee schedule. Specifically, it focuses on introducing a new financial incentive called the LMM Add Liquidity Rebate.

Financial Incentives and Rebates

The proposed change introduces an opt-in LMM Add Liquidity Rebate of $0.0039 per share for Lead Market Makers (LMMs). This rebate is designed to incentivize LMMs to provide additional liquidity for certain high-volume securities. Notably, this rebate is contingent on meeting specific criteria known as the Minimum Performance Standards, which is a set of rules that guides market makers' participation and contribution to market quality.

For a Qualified Security, if an LMM meets these standards on any given trading day, they are eligible to receive the $0.0039 per share rebate, as opposed to the standard rebate, which typically ranges from $0.0020 to $0.0033 per share. This opt-in rebate specifically targets LMMs dealing with securities having a consolidated average daily volume (CADV) of at least one million shares, emphasizing its focus on high-volume securities.

Context and Implications

The introduction of this rebate aligns with the document's goal to enhance market quality and liquidity provision. However, several issues arise from these financial references:

• Complexity and Accessibility: The financial jargon and specific performance criteria for receiving these rebates may be difficult for general audiences to grasp. Terms like CADV, MPID, and performance standards are not clearly explained, which can hinder a comprehensive understanding of the financial implications.

• Perceived Fairness: Adjusting rebates and incentives could lead to perceptions of favoritism or inequality among different market participants. Some entities may feel disadvantaged if they are unable to meet the rigorous criteria necessary to opt into the enhanced rebate programs.

• Financial Justification and Data: The rationale for introducing such rebates and removing others, like the Market Depth Tier, is not adequately supported with detailed data or analysis. While the document claims that the removal would have no impact due to lack of recent utilization, this decision lacks transparency and might benefit from more substantiation or historical usage data.

Ultimately, these financial allocations and references reflect strategies to promote competition and improve trading conditions on the exchange. However, clarity and detailed explanation of these financial aspects could improve overall understanding and acceptance among all stakeholders involved.