FR 2024-31773

The recent filing by Cboe BZX Exchange, Inc. (Cboe BZX) with the Securities and Exchange Commission (SEC) concerns a proposed change to the fee schedule related to the Consolidated Audit Trail (CAT) Funding Fees for the year 2025. This notice, published in the Federal Register, indicates that Cboe BZX plans to introduce a new fee rate of $0.000022 per executed equivalent share. The proposal was made effective immediately, and public comments on it are being solicited until January 27, 2025.

General Summary

The document is a formal notification about a change to the fee structure imposed by Cboe BZX on industry members. The Exchange intends to adjust its fees purportedly to align with "reasonably budgeted CAT costs." However, the notice does not elaborate on what these costs entail or how they were calculated. The filing aligns with regulatory procedures under the Securities Exchange Act of 1934.

Significant Issues or Concerns

Several concerns are evident upon examination. Firstly, the documentation lacks transparency regarding what "reasonably budgeted CAT costs" encompass. There isn't an explanation of how these fees were determined or whether there is a historical context that supports this specific rate. Without this context or justification, it is challenging to assess the appropriateness of the fee rate set by Cboe BZX.

Additionally, the document does not address potential impacts on different-sized industry players. For instance, it may be more burdensome for smaller firms, which might not absorb additional costs as easily as larger corporations can. This absence of analysis raises questions about the fee's proportionality and fairness.

Furthermore, the technical jargon used in the notice could hinder public understanding and participation. For non-experts in securities law, this language acts as a barrier to engaging with the proposal meaningfully.

Impact on the Public and Stakeholders

For the general public, this fee increase could indirectly affect the market dynamics, possibly impacting transaction costs. Although such fees are absorbed by industry members and not individual investors directly, any increased operational costs could eventually trickle down, influencing the cost and efficiency of trading services.

From an industry perspective, the fee change is likely to have a mixed impact. Larger firms might absorb or pass on the costs with relative ease. However, smaller firms might experience tighter financial conditions or altered business strategies due to increased expenses. They may need to find ways to optimize operations to accommodate these new fees without drastically affecting service delivery or pricing.

Positive and Negative Impacts

Potential positive aspects include the funding of the Consolidated Audit Trail, aiming for more comprehensive market surveillance and increased transparency, which benefits the overall market ecosystem. However, the lack of detailed information on CAT costs might obscure understanding these potential benefits for stakeholders, leading to skepticism or resistance.

Conversely, negative impacts might arise if the fee increase discourages smaller participants from active engagement in the market due to increased financial burdens. Over time, this could reduce market competition and innovation.

Conclusion

The proposed fee change by Cboe BZX introduces a layer of complexity that raises questions about transparency, fairness, and potential impact. Engaging the public and stakeholders in meaningful dialogue will require addressing these issues head-on, providing clear justifications and considering equitable strategies that recognize the diverse nature of market participants.

The document elucidates a proposal by Cboe BZX Exchange, Inc. concerning a change to its fee structure, specifically linked to the funding of the Consolidated Audit Trail (CAT). The Exchange has proposed establishing a CAT Fee 2025-1 fee rate of $0.000022 per executed equivalent share. This financial reference is crucial because it directly pertains to how the Exchange plans to levy charges on industry members to cover CAT-related costs for the year 2025.

Context and Appropriateness of the Fee Rate

A key issue identified in the document is the lack of detailed explanation regarding the nature of the 'reasonably budgeted CAT costs' that justify the proposed fee rate. While the document introduces a specific fee—$0.000022 per share—it does not provide comparative data or historical context to help evaluate whether this new rate is an increase, decrease, or stable compared to prior years. Understanding whether this fee rate is aligned with previous financial plans or entails significant adjustments is vital for stakeholders who must assess its fairness and reasonableness.

Impact on Industry Members

The document introduces financial implications through the specified fee, but it does not discuss how these costs might differentially impact smaller versus larger industry members. This lack of differentiation is a concern especially since smaller members may be disproportionately affected by even minor increments in fees. Without details on how these funds are budgeted equitably across members, there could be skepticism about whether the fees are applied in a manner that ensures all members contribute fairly according to their size and market engagement.

Transparency and Budget Explanation

The absence of detailed information about what specifically constitutes 'reasonably budgeted CAT costs' raises questions around transparency. The proposed fee is designed to cover expenses associated with CAT, a regulatory mechanism intended to track market transactions for enhanced oversight. However, without a financial breakdown or allocation explanation, stakeholders cannot easily verify if the amount is proportionate to the actual costs or if there are efficiencies or excesses in spending.

Public Participation and Understanding

While the document holds significant financial information concerning a fee adjustment, the technical nature of the language and lack of financial context could limit public understanding and engagement. Potential for increased fees, such as the CAT Fee 2025-1, implies direct financial consequences, suggesting the importance of clearer communication to ensure that all industry participants, including smaller firms and public stakeholders, can contribute meaningful feedback during the comment period.

In summary, while the proposed fee rate has been clearly stated as $0.000022 per executed equivalent share, the document highlights a need for more detailed justification of this rate. Understanding its impact across different industry members and increasing transparency regarding CAT cost budgeting would benefit those assessing and potentially responding to this proposed financial change.