The Securities and Exchange Commission published a notice on November 20, 2025, detailing a proposed rule change filed by Cboe BZX Exchange, Inc. on September 30, 2025. 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 for its equities trading platform. Key modifications include the introduction of a new Step-Up Tier offering enhanced rebates for members meeting specific volume growth criteria and the elimination of the ETP and Closed-End Fund Lead Market Maker Add Liquidity Rebate. This development occurs amid ongoing competition among U.S. equities exchanges, where fee structures play a critical role in attracting order flow and enhancing market liquidity. By adjusting incentives, Cboe BZX aims to deepen its liquidity pool and promote price discovery, potentially influencing trading behaviors and market dynamics in a fragmented landscape where no single exchange holds more than 14% market share.
Background on Cboe BZX's Fee Structure
Cboe BZX operates a 'Maker-Taker' pricing model, a common framework in U.S. equities markets where exchanges provide rebates to members adding liquidity (makers) and charge fees to those removing it (takers). Under the current standard rates, for securities priced at or above $1.00, the exchange offers a rebate of $0.00160 per share for adding liquidity and assesses a fee of $0.0030 per share for removing it. For securities below $1.00, no rebate is provided for adds, and a fee of 0.30% of the total dollar value applies to removals.
To encourage higher participation, Cboe BZX employs tiered pricing, allowing members to qualify for better rebates or reduced fees by meeting volume thresholds. These tiers, detailed in footnotes of the fee schedule, include Add Volume Tiers and Step-Up Tiers that reward growth in average daily added volume (ADAV) relative to baselines. The proposed changes build on this structure, responding to a highly competitive environment with 16 registered equities exchanges and numerous off-exchange venues. Public data indicates that market participants readily shift order flow based on fee attractiveness, underscoring the need for exchanges to refine incentives.
Details of the Proposed Step-Up Tier 1
The filing introduces Step-Up Tier 1 under footnote 2 of the fee schedule, applicable to displayed orders adding liquidity in Tape A, B, and C securities (fee codes V, B, and Y). Qualifying members receive an enhanced rebate of $0.0028 per share for securities priced at or above $1.00. To qualify, a member must achieve a Step-Up Displayed Add Total Consolidated Volume (TCV) of at least 0.11% from September 2025 and an Ex-Subdollar Displayed ADAV as a percentage of Ex-Subdollar TCV of at least 0.16%.
Step-Up Add TCV is calculated by subtracting the member's ADAV as a percentage of TCV in the baseline month from the current period's figure, emphasizing growth. Ex-Subdollar metrics exclude executions in securities priced below $1.00 to focus incentives on higher-priced trades. The tier is set to expire no later than March 31, 2024, as noted in the filing, though this date appears anomalous given the 2025 filing timeline and may reflect a clerical error; the exchange plans to indicate the expiration on its fee schedule.
This tier aligns with similar incentives on other exchanges, such as NYSE Arca's Step-Up Tiers and Investors Exchange's Incremental Fee Tiers, which also reward volume growth to enhance liquidity.
Elimination of the ETP and Closed-End Fund LMM Add Liquidity Rebate
The proposal removes the enhanced rebate of $0.0039 per share under footnote 14 for Lead Market Makers (LMMs) in BZX-listed exchange-traded products (ETPs) and closed-end funds with a consolidated average daily volume of at least 1,000,000 shares. Previously, ETP LMMs could opt into this rebate in lieu of standard Liquidity Provision Rates if they met performance criteria, such as maintaining continuous two-sided quotes.
The exchange states that it 'no longer wishes to, nor is required to, maintain such rebate' and intends to redirect resources to other programs incentivizing order flow. This change affects only ETP LMMs, who remain eligible for standard rates upon satisfying performance metrics. The removal reflects a strategic shift, as exchanges periodically adjust LMM incentives to balance costs and market-making obligations under Regulation NMS.
Legal and Statutory Basis
In its filing, Cboe BZX asserts that the changes comply with Section 6(b) of the Securities Exchange Act, promoting just and equitable principles of trade and protecting investors. The exchange argues that the new tier fosters competition by encouraging added liquidity, which supports price discovery and market quality without unfair discrimination, as all members can qualify. It cites precedents like similar tiered rebates on EDGX and NYSE Arca, noting that relative volume-based incentives are widespread and equitable.
For the rebate elimination, the exchange emphasizes that it is not obligated to provide such incentives and that the change applies uniformly to affected LMMs, enabling resource reallocation. The SEC's notice solicits comments, highlighting the regulatory process where immediate effectiveness under Rule 19b-4(f) allows prompt implementation while permitting potential suspension within 60 days if public interest concerns arise.
Implications and Perspectives
Short-term, the Step-Up Tier could boost displayed liquidity on Cboe BZX, attracting members seeking enhanced rebates amid low market concentration. Long-term, it may contribute to a more robust ecosystem but risks fragmenting incentives if competitors respond with similar or superior tiers. From members' perspectives, the tier offers opportunities for cost savings, though smaller firms might find thresholds challenging, potentially favoring larger participants. Regulators may view it as pro-competitive, aligning with Regulation NMS goals, but critics could argue it complicates fee transparency.
The rebate removal might reduce incentives for ETP market-making, possibly affecting quote quality in less liquid products. LMMs may adapt by relying on standard rates, while issuers could see minor impacts on trading costs. Broader industry views, as expressed in past SEC filings, often support flexible incentives to adapt to market conditions, though some advocate for standardized fees to reduce complexity.
In summary, these changes reflect Cboe BZX's efforts to refine its competitive positioning. Potential next steps include monitoring member participation and SEC review of comments, which could lead to modifications. Ongoing debates center on balancing innovation in fee structures with ensuring fair access, amid calls for greater regulatory oversight of exchange pricing models. Future challenges may involve adapting to evolving market dynamics, such as shifts in off-exchange trading or technological advancements in order routing.