FR 2025-04976

Summary of the Document

The document pertains to a proposal made by the Cboe BZX Exchange, Inc. regarding changes in its fee structure for a service involving "Dedicated Cores." These Dedicated Cores are designed to allow firms to utilize the full processing power of a CPU core, which can lead to benefits such as reduced latency and improved trading performance. The proposal outlines a tiered pricing structure where firms can use up to two Dedicated Cores at no additional cost. For those requiring additional Dedicated Cores, ascending fees are set, with the cost per core increasing as the number of cores used rises. This structure aims to allocate resources equitably by charging more to those that demand more resources.

Significant Issues and Concerns

The document raises several issues and concerns, primarily due to its complex language and intricate financial terms, which may be difficult for laypersons to understand. The tiered pricing structure, while designed to be equitable, is complicated and could lead to confusion, particularly due to the progressive fee model that imposes different costs per core based on quantity. Moreover, the rationale provided for this pricing does not offer clear insight into how these figures were reached.

There is also a lack of explanation concerning how the exchange monitors demand and fairly allocates its limited number of Dedicated Cores. This could lead to concerns regarding the equitable distribution of available resources. Another point of contention is the differing maximum limits set for Members and Sponsored Participants, which may be seen as discriminatory if not justifiably explained.

Furthermore, while the document notes overwhelming support for the initiative, there is minimal detail provided about the feedback from firms already using the service, leaving a gap in understanding the actual market perception. Additional complexity arises from the legal and regulatory references scattered throughout the document, which require specialized knowledge to comprehend fully.

Broad Public Impact

The document's provisions have the potential to affect various market participants. Broadly, the proposal could impact the efficiency with which trades are executed on the Exchange, directly affecting anyone involved in stock market trading. Improved trading efficiency due to Dedicated Cores may lead to an overall enhancement in market operations for all participants. However, the complexity of the rules and the potential barrier posed by the cost structure could limit accessibility or inclination for firms to adopt this service, particularly those less financially robust or smaller firms.

Impact on Specific Stakeholders

For specific stakeholders, such as proprietary trading firms that often seek reduced latency in trading operations, the benefits are more pronounced. These firms are likely to face improved performance metrics, potentially resulting in better trading outcomes. On the other hand, smaller trading entities, or those with limited financial resources, may find the costs associated with scaling beyond two Dedicated Cores prohibitive, potentially widening the competitiveness gap. Moreover, the differing maximum limits for Members and Sponsored Participants could create an uneven playing field unless adequately justified by operational needs or regulatory requirements.

Overall, while the proposal aims to address and improve specific operational challenges within the exchange framework, it also presents complexities and potential inequalities that will need to be carefully managed to prevent unintended biases or barriers in the trading ecosystem.

The proposed rule change by Cboe BZX Exchange, Inc., as filed with the Securities and Exchange Commission, centers on amending the fee schedule for the use of Dedicated Cores. These cores are essentially central processing units (CPUs) that users can reserve exclusively, potentially enhancing their trading performance by reducing latency, improving throughput, and offering better overall performance compared to shared resources.

Financial Allocations and Pricing Structure

Initial Free Allocation: The Exchange provides up to two Dedicated Cores at no additional cost to all users who wish to use them. This aligns with its strategy to incentivize adoption without immediate financial burden.

Progressive Fee Structure: Should users need more than the two free cores, a tiered pricing system comes into effect:

• $650 per Dedicated Core for users who require between 3 to 15 cores.
• $850 per Dedicated Core for usage of 16 to 30 cores.
• $1,050 per Dedicated Core for those requiring 31 or more cores.

This tiered pricing culminates in an example where a user purchasing 16 Dedicated Cores would be charged a total of $9,300 per month. The fees are calculated as follows: the first two cores are free, thirteen cores are billed at $650, and the last core (the 16th) at $850.

Relation to Identified Issues

The complexity of the tiered pricing structure for Dedicated Cores, with different rates depending on the quantity used, illustrates the setup’s sophisticated nature. This complexity is a concern, as the structure might be bewildering to potential users who do not have the technical or financial background required to fully comprehend these calculations. Additionally, this structure might lead to confusion over why there is such substantial variation in cost per core as more resources are utilized.

Moreover, the document mentions the fee structure as being progressive. Nevertheless, a clearer explanation of the reasons behind the specific pricing at each tier, particularly how they relate to resource usage and potential benefits, would benefit understanding and transparency. The justification for a progressive fee should clearly relate to how resources get allocated and at what point they present increasing value or processing capability to the users.

Allocations and Equity

The allocation of financial resources and monitoring of core usage by Cboe BZX also interacts with the perceived fairness and equity concerns. The document indicates that certain users are given different maximums for the number of Dedicated Cores they can acquire in a month, depending on whether they are Members or Sponsored Participants. It suggests that the exchange monitors demand and adjusts availability but does not clearly explain how this process ensures fairness in core allocation among different types of users.

A crucial consideration mentioned is the disparity between Members and Sponsored Participants in terms of the limits on Dedicated Core purchases. Members can access up to 120 Dedicated Cores, while Sponsoring Members are limited to a maximum number of 35 per Sponsored Access relationship. The pricing strategy should explicitly account for this distinction, ensuring equitable treatment unless clearly justified by operational or regulatory obligations that provide an understanding of any perceived discrimination.

Summary

In summary, the financial references in the document, specifically regarding the pricing and allocation of Dedicated Cores, highlight considerable complexity. The Exchange offers a progressive tiered pricing model that scales with the number of cores utilized, impacting how the costs increase for higher usage. While it provides introductory use without charge, the financial structure's justification and application require greater clarity to assure all participants of fairness and understandability. Transparency in monitoring demand and allocation processes would enhance confidence and equity in accessing these financial resources.