On February 10, 2026, the Securities and Exchange Commission published a notice of a proposed rule change filed by Cboe BYX Exchange, Inc. on January 29, 2026. The filing, effective immediately under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, seeks to amend the exchange's fee schedule by clarifying that logical port fees are charged only for port types available in the live production environment. This development addresses the need for market participants to test new or updated connectivity options without incurring costs during preparatory phases, potentially enhancing system reliability and reducing disruptions in equities trading. The notice, appearing in the Federal Register on February 13, 2026, invites public comments until March 6, 2026, highlighting the SEC's role in overseeing exchange rules to ensure they align with statutory requirements.
Background on Logical Ports and Testing Environments
Logical ports serve as connections that enable market participants, including members and non-members of the exchange, to perform specific functions such as order entry, data receipt, and access to market information. Cboe BYX offers various types, including FIX and BOE ports for order entry, drop ports for receiving order copies, purge ports for canceling orders across symbols, and multicast ports for data retransmission. Each type follows a defined protocol for message formatting and processing.
To support system testing, the exchange provides a certification environment where users can simulate interactions without affecting live markets. Additionally, Cboe BYX conducts weekend testing in the production environment, allowing participants to validate software changes, connectivity, and infrastructure in a near-real setting over non-trading periods. This practice is particularly relevant for upcoming migrations, such as the shift from Binary Order Entry Version 2 (BOEv2) to Version 3 (BOEv3), which introduces changes like removed optional fields, altered message sizing, and stricter sequencing. The exchange's filing notes that BOEv3 is scheduled for a future launch in the live environment, with weekend testing offered in advance to mitigate risks.
Historically, exchanges like Cboe BYX have implemented similar testing frameworks to comply with regulatory expectations under the Securities Exchange Act, which emphasizes the prevention of fraudulent practices and the protection of investors through robust market mechanisms. For instance, other venues, such as Nasdaq and MIAX Options, provide discounted or free testing on designated weekends, as referenced in the filing, underscoring a industry-wide approach to operational readiness.
Purpose of the Proposed Rule Change
The core objective of the amendment is to explicitly state in the fee schedule's notes section that logical port fees—currently applied monthly for ports used in the live environment—do not apply to port types unavailable in live production. This means participants can access these ports at no cost during weekend testing sessions until the ports become operational for actual trading.
According to the exchange's statement, this clarification encourages users to engage in testing, manage operational risks, and ensure compliance with exchange requirements. By waiving fees for pre-launch testing, Cboe BYX aims to minimize the chances of system failures that could disrupt trading for all participants. The filing emphasizes that participation in weekend testing remains voluntary, based on individual business needs, and complements the free certification environment.
A key example provided involves the BOEv3 migration: ports supporting this updated protocol would be fee-free during preparatory weekend tests but subject to standard charges once live. This approach, the exchange argues, fosters a smoother transition by allowing participants to acclimate to changes without financial barriers.
Statutory Basis and Regulatory Alignment
In justifying the proposal, Cboe BYX asserts consistency with Section 6(b) of the Securities Exchange Act, particularly subsections requiring rules that promote just and equitable trade principles, remove market impediments, and protect investors. The exchange highlights how fee-free testing reduces the risk of disruptive failures, aligning with the Act's goals of facilitating secure transactions.
Furthermore, the filing addresses Section 6(b)(4), which mandates equitable allocation of fees. By applying the change uniformly to all participants and clarifying fee applicability, the proposal avoids discrimination and provides transparency. The exchange notes that similar policies at other exchanges support this as a reasonable practice, without imposing undue burdens.
No specific legal precedents are cited in the filing, but the structure reflects established SEC processes for self-regulatory organizations. Past approvals of comparable fee adjustments, such as those for testing ports on other Cboe-affiliated exchanges, suggest a regulatory pattern favoring innovations that enhance market stability.
Perspectives on Competition and Market Impact
From the exchange's viewpoint, the rule change imposes no unnecessary burden on competition. It applies equally to all users, and by offering free access to testing ports, it may encourage broader participation, potentially leveling the playing field for smaller firms that might otherwise face higher preparation costs.
Market participants, including brokers and traders, could view this positively as it lowers barriers to adopting new technologies, reducing potential downtime or errors post-launch. However, some might argue that the clarification merely formalizes existing practices, with limited novel impact. Critics could question whether fee waivers sufficiently incentivize testing, especially if certification environments already provide adequate simulation.
On intermarket competition, the filing contends that the change affects only Cboe's internal testing, not broader trading dynamics. With 17 other equities exchanges and numerous off-exchange venues available, participants retain choices, aligning with the SEC's preference for competitive markets over intervention.
Short-term implications include smoother rollouts of updates like BOEv3, potentially decreasing volatility from technical issues. Long-term, this could set a precedent for how exchanges handle fee structures amid technological evolutions, influencing industry standards for connectivity and testing.
Key Takeaways and Future Considerations
In summary, Cboe BYX's proposed amendment clarifies fee applications to promote risk-free testing, supporting market integrity. The immediate effectiveness allows prompt implementation, while the comment period enables stakeholder input.
Potential next steps involve the SEC reviewing submissions and possibly suspending the rule if public interest demands. Ongoing debates may center on balancing innovation with fee equity, especially as exchanges evolve protocols. Challenges include ensuring all participants, regardless of size, can leverage testing opportunities, and monitoring whether such policies effectively prevent systemic risks in an increasingly digital trading landscape.
