Notice2021-12745
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
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Published
June 17, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 115 (Thursday, June 17, 2021)</title>
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[Federal Register Volume 86, Number 115 (Thursday, June 17, 2021)]
[Notices]
[Pages 32298-32301]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12745]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92152; File No. SR-CboeEDGA-2021-015]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
June 11, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 9, 2021, Cboe EDGA Exchange, Inc. (the
[[Page 32299]]
``Exchange'' or ``EDGA'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/edga/">http://markets.cboe.com/us/equities/regulation/rule_filings/edga/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule as follows: (1)
Decrease the standard liquidity adding rebate, (2) define the term
``Step-Up ADV'', and (3) rename the existing Remove Volume Tier 1 to
Remove Volume Tier 2 and add new Remove Volume Tiers 1 and 3.\3\
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\3\ The Exchange initially filed the proposed fee changes June
1, 2021 (SR-CboeEDGA-2021-014). On June 9, 2021 the Exchange
withdrew that filing and submitted this proposal.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\4\ no single registered
equities exchange has more than 15% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Taker-Maker'' model
whereby it pays credits to Members that remove liquidity and assesses
fees to those that add liquidity. The Exchange's fee schedule sets
forth the standard rebates and rates applied per share for orders that
remove and provide liquidity, respectively. Particularly, for
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0018 per share for orders that remove liquidity and assesses a
fee of $0.0030 per share for orders that add liquidity. For order
priced below $1.00, the Exchange does not assess any fees or provide
any rebates for orders that add or remove liquidity. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable.
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\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (May 24, 2021), available at <a href="https://markets.cboe.com/us/equities/market_statistics/">https://markets.cboe.com/us/equities/market_statistics/</a>.
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Additionally, in response to the competitive environment, the
Exchange offers tiered pricing which provides Members opportunities to
qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. Tiered pricing provides an incremental
incentive for Members to strive for higher tier levels, which provides
increasingly higher benefits or discounts for satisfying increasingly
more stringent criteria.
Standard Liquidity Rebate
As stated above, the Exchange currently provides a standard rebate
of $0.0018 per share for liquidity removing orders (i.e., those
yielding fee codes N,\5\ W,\6\ 6,\7\ and BB \8\) in securities priced
at or above $1.00. Orders in securities priced below $1.00 that remove
liquidity are provided no rebate and assessed no fee. The Exchange now
proposes to reduce the standard rebate for liquidity removing orders to
$0.0016 per share. Although this proposed standard rebate for liquidity
removing orders is lower than the current base rebate for such orders,
the proposed rebate is in line with or superior to similar rebates for
liquidity removing orders in place on other ``Taker-Maker''
exchanges.\9\
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\5\ Orders yielding Fee Code ``N'' are removing liquidity from
EDGA (Tape C).
\6\ Orders yielding Fee Code ``W'' are removing liquidity from
EDGA (Tape A).
\7\ Orders yielding Fee Code ``6'' are removing liquidity from
EDGA (All Tapes).
\8\ Orders yielding Fee Code ``BB'' are removing liquidity from
EDGA (Tape B).
\9\ E.g., Nasdaq BX, Inc. (``BX''), which operates a ``Taker-
Maker'' model, charges a standard fee of $0.0007 for liquidity
removing orders unless certain volume criteria is met, in which case
BX provides a rebate ranging from $0.0004 up to $0.0018.
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Definition and Remove Volume Tiers
The Exchange proposes to adopt a new definition for the term
``Step-Up ADV''. Specifically, as proposed ``Step-up ADV'' means ADV
\10\ in the relevant baseline month subtracted from current ADV. Such
definition would be referenced in the proposed Remove Volume Tier 3, as
discussed below.
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\10\ ADV means daily volume calculated as the number of shares
added to, removed from, or routed by, the Exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
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Pursuant to footnote 7 of the fee schedule, the Exchange currently
offers a Remove Volume Tier that provides a rebate to Members meeting a
certain volume threshold. Specifically, Tier 1 currently provides an
opportunity for Members to receive an enhanced rebate of $0.0022 per
share for qualifying liquidity removing orders (i.e., yielding fee
codes N, W, 6, and BB), where a Member adds or removes an ADV greater
than or equal to 0.05% of the TCV.\11\ Now, the Exchange proposes to
rename existing Tier 1 of the Remove Volume Tiers to Tier 2, and add
additional Tiers 1 and 3. Specifically, proposed Tier 1 would provide a
rebate of $0.0018 per share to Members that add or remove an ADV of
greater than or equal to 0.02% of the TCV. Proposed Tier 3 would
provide a rebate of $0.0024 to Members that (1) add or remove a Step-Up
ADV from May 2021 greater
[[Page 32300]]
than or equal to 0.05% of the TCV or add or remove a Step-Up ADV from
May 2021 greater than or equal to 3,000,000 shares; and (2) add an ADV
greater than or equal to 0.05% or add an ADV of greater than or equal
to 3,000,000 shares.
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\11\ TCV means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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The Exchange notes that the Remove Volume Tiers, as modified, will
continue to be available to all Members and provide Members an
opportunity to receive enhanced rebates. Moreover, the proposed changes
are designed to encourage Members to increase both adding and removing
liquidity on the Exchange, which further contributes to a deeper, more
liquid market and provides even more execution opportunities for active
market participants.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\12\ in general, and
furthers the objectives of Section 6(b)(4),\13\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of Section 6(b)(5) \14\
requirements that the rules of an exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
Members.
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\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f.(b)(5).
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In particular, the Exchange believes that the proposed amendment to
reduce the standard liquidity removing rebate is reasonable because the
proposed change represents a modest rebate decrease and Members will
continue to receive a rebate on all liquidity removing orders, albeit
at a lower amount. The proposed change is also equitable and non-
discriminatory as such rebates are equally applicable to all Members of
the Exchange. Additionally, the proposed rebates for liquidity removing
orders are in-line with rebates offered at other exchanges for similar
transactions.\15\
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\15\ Supra note 8.
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The Exchange also believes the proposal to define the term ``Step-
Up ADV'' is reasonable as it will clarify terminology used in the fee
schedule, to the benefit of all Members. Further, the Exchange believes
the proposed changes to the Remove Volume Tiers are reasonable because
each tier, as modified, will be available to all Members and provide
Members an opportunity to receive an enhanced rebate. The Exchange next
notes that relative volume-based incentives and discounts have been
widely adopted by exchanges, including the Exchange, and are
reasonable, equitable, and non-discriminatory because they are open to
all Members on an equal basis and provide additional discounts that are
reasonably related to (i) the value to an exchange's market quality and
(ii) associated with higher levels of market activity, such as higher
levels of liquidity provision and/or growth patterns. The Exchange also
believes that the proposed and existing rebates under the Remove Volume
Tiers are commensurate with the respective proposed and existing
criteria. That is, the rebates reasonably reflect the difficulty in
achieving the corresponding criteria.
The Exchange believes that the changes to the Remove Volume Tiers,
will benefit all market participants by incentivizing continuous
liquidity and, thus, deeper more liquid markets as well as increased
execution opportunities. Particularly, the proposed changes to the
Remove Volume Tiers are designed to incentivize both adding and
removing liquidity, which further contributes to a deeper, more liquid
market and provide even more execution opportunities for active market
participants at improved prices. This overall increase in activity
deepens the Exchange's liquidity pool, offers additional cost savings,
supports the quality of price discovery, promotes market transparency
and improves market quality, for all investors.
The Exchange also believes that the proposed amendments to the
Remove Volume Tiers represent an equitable allocation of rebates and
are not unfairly discriminatory because all Members are eligible for
the Remove Volume Tiers and would have the opportunity to meet the
tiers' criteria and would receive the proposed rebate if such criteria
is met. The Exchange also notes that the proposed changes will not
adversely impact any Member's ability to qualify for other reduced fee
or enhanced rebate tiers. Should a Member not meet the proposed
criteria under any of the proposed tiers, the Member will merely not
receive that corresponding enhanced rebate. A number of Members have a
reasonable opportunity to satisfy proposed Remove Volume Tiers 1 and 3,
which the Exchange believes are less and more stringent than existing
Tier 1, respectively. While the Exchange has no way of knowing whether
this proposed rule change would definitively result in any particular
Member qualifying for the proposed tiers, the Exchange anticipates at
least seven Members to compete for and reasonably achieve proposed tier
1 and five Members to compete for and reasonably achieve proposed tier
3. However, the proposed tiers are open to any Member that satisfies
the applicable tier's criteria. The Exchange believes the proposed
tiers could provide an incentive for other Members to submit additional
liquidity on the Exchange to qualify for the proposed enhanced rebate.
As noted above, the Exchange operates in a highly competitive
market. The Exchange is only one of 16 equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. It is also only one of several taker-
maker exchanges. Competing equity exchanges offer similar rates and
tiered pricing structures to that of the Exchange, including schedules
of rebates and fees that apply based upon members achieving certain
volume thresholds.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
standard rebate reduction applies to all liquidity removing orders
equally, and thus applies to all Members equally. Similarly, all
Members have the opportunity to meet the tiers' criteria and would
receive the proposed rebate
[[Page 32301]]
if such criteria is met. The Exchange believes the proposed rule change
does not impose any burden on intermarket competition that is not
necessary or appropriate in furtherance of the purpose of the Act.
As previously discussed, the Exchange operates in a highly
competitive market. Members have numerous alternative venues that they
may participate on and direct their order flow, including other
equities exchanges, off-exchange venues, and alternative trading
systems. Additionally, the Exchange represents a small percentage of
the overall market. Based on publicly available information, no single
equities exchange has more than 15% of the market share.\16\ Therefore,
no exchange possesses significant pricing power in the execution of
order flow. Indeed, participants can readily choose to send their
orders to other exchange and off-exchange venues if they deem fee
levels at those other venues to be more favorable. Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. Specifically, in Regulation NMS, the
Commission highlighted the importance of market forces in determining
prices and SRO revenues and, also, recognized that current regulation
of the market system ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \17\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[N]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''.\18\ Accordingly, the Exchange
does not believe its proposed fee changes imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\16\ Supra note 3.
\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \19\ and paragraph (f) of Rule 19b-4 \20\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3042455c551d535f5d5d555e4443704355531e575f46"><span class="__cf_email__" data-cfemail="90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6">[email protected]</span></a>. Please include
File Number SR-CboeEDGA-2021-015 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGA-2021-015. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGA-2021-015 and should be
submitted on or before July 8, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-12745 Filed 6-16-21; 8:45 am]
BILLING CODE 8011-01-P
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