Cboe BZX Exchange has filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) to amend its fee schedule, including adjustments to its Add Volume Tiers and changes to fee codes. These updates, filed on November 20, 2024, aim to enhance the liquidity environment on the exchange and further incentivize market participants to increase order flow.

Key Amendments:

1. Adjustments to Add Volume Tiers:
   Cboe BZX is revising the criteria for its Add Volume Tier 3 and Add Volume Tier 5. These changes are intended to make it easier for market participants to qualify for enhanced rebates by reducing the thresholds required for increased liquidity:
   • Add Volume Tier 3:
     The criteria for Tier 3 will now require members to achieve an Average Daily Added Volume (ADAV) of 30 million shares (down from 35 million) or have their ADAV as a percentage of Total Consolidated Volume (TCV) reach 0.30% (unchanged). This tier offers a rebate of $0.0027 per share for securities priced at or above $1.00.
   • Add Volume Tier 5:
     Similarly, the criteria for Tier 5 will be lowered to an ADAV of 35 million shares (down from 40 million), or an ADAV percentage of 0.35%. Tier 5 offers a higher rebate of $0.0029 per share for securities priced at or above $1.00.

   These adjustments aim to stimulate additional liquidity by making it easier for members to meet the volume thresholds and earn enhanced rebates. By incentivizing more order flow, the changes are expected to improve price discovery and market depth, benefiting all market participants.

2. Fee Code Modifications:
   • Fee Code AA:
     The Exchange is also making changes to the rebate for fee code AA, which applies to orders routed to the EDGA exchange using the ALLB routing strategy. For securities priced above $1.00, the rebate will be removed, and a fee of $0.0030 per share will be assessed instead. This new fee structure is part of the Exchange’s ongoing efforts to fine-tune its pricing model to reflect market conditions.
3. Fee Code BJ Removal:
   The Exchange also proposes removing fee code BJ from the schedule, though details of this change were not specified in the filing.

Rationale for Changes:

Cboe BZX operates in a highly competitive market with numerous registered equities exchanges, and the proposed changes are designed to maintain the Exchange’s competitive edge. The revisions to the Add Volume Tiers and fee codes reflect the need for the Exchange to adapt its pricing strategies in order to attract more liquidity, which is essential for a healthy and active trading environment.

The Exchange noted that these changes come in response to the competitive landscape, where market participants have many options to route their orders. By offering more favorable conditions for liquidity providers, Cboe BZX aims to enhance its market share while ensuring continued growth in trading activity.

Next Steps:

The proposed rule change will be open for public comment before the SEC reviews and either approves or disapproves the filing. The full text of the proposed rule change is available on the Cboe BZX website, and market participants are encouraged to provide feedback.

This document discusses proposed changes to the fee structure on the Cboe BZX Exchange. Here’s a summary of the key points:

1. Proposed Removal of Fee Code BJ:
   • Current Situation: Fee code BJ applies to securities priced above $1.00 and is used for orders routed to EDGA using the TRIM or SLIM routing strategies. Orders with this fee code currently receive a rebate of $0.0016.
   • Proposed Change: EDGA will transition from an inverted fee model (providing rebates to liquidity removers) to a maker-taker fee model (where liquidity removers pay a fee). As a result, the fee code BJ, which is tied to receiving a rebate, will no longer apply, as it would conflict with the new fee structure.
   • Rationale: Members generally use TRIM and SLIM with fee code BJ for low-cost executions, and under the new maker-taker model, it would not make sense to maintain fee code BJ, as Members would expect to pay a fee for removing liquidity.
2. Statutory Basis:
   • The Exchange believes this change is consistent with Section 6(b) of the Securities Exchange Act, which requires exchanges to establish rules that promote fair practices, protect investors, and ensure a free and open market.
3. Impact on Competition:
   • The Exchange asserts that these changes do not impose any undue burden on competition. They are designed to attract order flow, encourage market depth, and promote liquidity on the Exchange. Adjustments to volume tiers are intended to encourage further liquidity provision without disadvantaging any market participants.
4. Proposed Changes to Volume Tiers:
   • The Exchange plans to modify the criteria for Add Volume Tiers 3 and 5 to incentivize greater participation in the market. The new criteria are expected to increase liquidity provision and improve market quality.
5. Impact of EDGA’s Transition:
   • EDGA’s transition to a maker-taker fee model will require changes to existing fee codes (such as fee code AA). Orders that remove liquidity will now incur a $0.0030 removal fee instead of receiving a rebate. The removal of the rebate associated with fee code AA is aligned with the new fee structure.
6. Solicitation of Comments:
   • Interested parties are invited to submit comments on the proposed rule change. The SEC will review and may suspend the rule change if necessary.

The document concludes with details on how to submit comments and the deadline for doing so.