Notice2021-19613
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fee Schedule
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Published
September 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 174 (Monday, September 13, 2021)</title>
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[Federal Register Volume 86, Number 174 (Monday, September 13, 2021)]
[Notices]
[Pages 50919-50922]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19613]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92892; File No. SR-CboeEDGX-2021-038]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend its Fee Schedule
September 7, 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 September 1, 2021, Cboe EDGX Exchange, Inc. (the ``Exchange''
or ``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'' or ``EDGX
Equities'') proposes to amend its 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/options/regulation/rule_filings/edgx/">http://markets.cboe.com/us/options/regulation/rule_filings/edgx/</a>) [sic], 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.
[[Page 50920]]
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 applicable to its
equities trading platform (``EDGX Equities'') to modify Growth Tier,
effective September 1, 2021.
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,\3\ no single registered
equities exchange has more than 16% 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 ``Maker-Taker'' model
whereby it pays rebates to members that add liquidity and assesses fees
to those that remove liquidity. The Exchange's Fee Schedule sets forth
the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Currently, for orders in
securities priced at or above $1.00, the Exchange provides a standard
rebate of $0.00160 per share for orders that add liquidity and assesses
a fee of $0.00285 per share for orders that remove liquidity. For
orders in securities priced below $1.00, the Exchange provides a
standard rebate of $0.00009 per share for orders that add liquidity and
assesses a fee of 0.30% of total dollar value for orders that remove
liquidity. Additionally, in response to the competitive environment,
the Exchange also 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.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (August 30, 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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Under footnote 1 of the Fee Schedule the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers
three Growth Tiers that each provide an enhanced rebate for Members'
qualifying orders yielding fee codes B, V, Y, 3 and 4,\4\ where a
Member reaches certain add volume-based criteria, including ``growing''
its volume over a certain baseline month. Currently, Growth Tier 1
provides an enhanced rebated of $0.0026 per share on qualifying orders
(i.e., orders yielding fee code B, V, Y, 3 and 4) where a Member (1)
adds an ADV \5\ of greater than or equal to 0.20% of the TCV,\6\ and
(2) has a Step-Up Add TCV \7\ from March 2019 that is greater than or
equal to 0.10%. The Exchange proposes to amend the second prong of
Growth Tier 1 to update the baseline month and provide an alternative
threshold that Members may meet to satisfy the second prong criteria.
More specifically, the Exchange proposes to require that in addition to
a Member needing to add an ADV of greater than or equal to 0.20% of the
TCV, the Member must (i) have a Step-Up Add TCV from August 2021
greater than or equal to 0.10% or (ii) must add a Step-Up ADAV \8\ from
August 2021 greater than or equal to 8,000,000. Overall, the Growth
tiers, including Growth Tier 1 as amended, are designed to provide
Members with an additional opportunity to receive an enhanced rebate by
increasing their order flow to the Exchange, which further contributes
to a deeper, more liquid market and provides even more execution
opportunities for active market participants. Incentivizing an increase
in liquidity adding volume, through enhanced rebate opportunities,
encourages liquidity adding Members on the Exchange to contribute to a
deeper, more liquid market, and liquidity executing Members on the
Exchange to increase transactions and take execution opportunities
provided by such increased liquidity, together providing for overall
enhanced price discovery and price improvement opportunities on the
Exchange. As such, increased overall order flow benefits all Members by
contributing towards a robust and well-balanced market ecosystem.
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\4\ B is appended to orders that add liquidity to EDGX in Tape B
securities, V is appended to order that add liquidity to EDGX in
Tape A securities, Y is appended to orders that add liquidity to
EDGX in Tape C securities, 3 is appended to orders that add
liquidity to EDGX in pre and post market in Tape A or C securities,
and 4 is appended to orders that add liquidity to EDGX in pre and
post market in Tape A [sic] or C [sic] securities. Each is provided
the standard rebate of $0.00160.
\5\ ADV means average 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.
\6\ 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.
\7\ Step-Up Add TCV means ADAV as a percentage of TCV in the
relevant baseline month subtracted from current ADAV as a percentage
of TCV.
\8\ ``Step-up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ 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) \11\
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.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f.(b)(5).
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As described above, 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 changes
reflect 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. Additionally, the Exchange notes that relative volume-based
incentives and discounts have been widely adopted by exchanges,\12\
[[Page 50921]]
including the Exchange,\13\ and are reasonable, equitable and non-
discriminatory because they are open to all members on an equal basis
and provide additional benefits or discounts that are reasonably
related to (i) the value to an exchange's market quality and (ii)
associated higher levels of market activity, such as higher levels of
liquidity provision and/or growth patterns. Competing equity exchanges
offer similar tiered pricing structures, including schedules of rebates
and fees that apply based upon members achieving certain volume and/or
growth thresholds, as well as assess similar fees or rebates for
similar types of orders, to that of the Exchange.
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\12\ See generally NYSE Price List, Transaction Fees; Nasdaq
Equity 7, Section 118(a)(1), Fees for Execution and Routing of
Orders in Nasdaq-Listed Securities; and BZX Equities Fee Schedule,
Footnote 1, Add/Remove Volume Tiers.
\13\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes the proposed changes to Growth
Tier 1 is reasonable because the Tier will continue to be available to
all Members and provide all Members with an additional opportunity to
receive an enhanced rebate, albeit using slightly modified criteria and
providing an alternative criteria Members may satisfy. The Exchange
further believes the Growth Tier 1, even as amended, continues to
provide a reasonable means to encourage overall growth in Members'
order flow to the Exchange and to incentivize Members to continue to
provide liquidity adding volume to the Exchange by offering them an
additional opportunity to receive an enhanced rebate on qualifying
orders. An overall increase in activity would deepen the Exchange's
liquidity pool, offers additional cost savings, support the quality of
price discovery, promote market transparency and improve market
quality, for all investors.
Further, the Exchange believes that the proposed changes are
reasonable as it does not represent a significant departure from the
criteria currently offered in the Fee Schedule. For example, the
Exchange notes similar criteria is offered under the first prong of
Growth Tier 2 which provides an enhanced rebate where a Member adds a
Step-Up ADAV from June 2021 of greater than or equal to 0.10% of the
TCV or adds a Step-Up ADAV from June 2021 greater than or equal to
8,000,000.\14\ Additionally, the Exchange believes that the proposed
enhanced rebate under Growth Tier 1, which is not being changed,
continues to be commensurate with the new criteria.
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\14\ A Member must also meet the second prong under Growth Tier
2 which requires the Member to have a total remove ADV of greater
than or equal to 0.70% of TCV. See EDGX Equities Fees Schedule,
Footnote 1.
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The Exchange also believes that the proposal represents an
equitable allocation of fees and rebates and is not unfairly
discriminatory because all Members continue to be eligible for Growth
Tier 1 and have the opportunity to meet the Tier's criteria and receive
the corresponding enhanced rebate if such criteria is met. Without
having a view of activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
definitely result in any Members qualifying for Growth Tier 1, as
amended. While the Exchange has no way of predicting with certainty how
the proposed changes will impact Member activity, the Exchange
anticipates that at least one Member will be able to satisfy the
criteria proposed under the Tier (currently, two Members satisfy Growth
Tier 1). The Exchange also notes that proposed changes will not
adversely impact any Member's ability to qualify for reduced fees or
enhanced rebates offered under other tiers. Should a Member not meet
the proposed new criteria, the Member will merely not receive that
corresponding enhanced rebate.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, as discussed above, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
The Exchange believes the proposed rule change does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes to Growth Tier 1 applies to all Members equally in that all
Members are eligible for the Tier, have a reasonable opportunity to
meet the Tier's criteria and will receive the enhanced rebate on their
qualifying orders if such criteria is met. The Exchange does not
believe the proposed changes burdens competition, but rather, enhances
competition as it is intended to increase the competitiveness of EDGX
by amending an existing pricing incentive in order to attract order
flow and incentivize participants to increase their participation on
the Exchange, providing for additional execution opportunities for
market participants and improved price transparency. Greater overall
order flow, trading opportunities, and pricing transparency benefits
all market participants on the Exchange by enhancing market quality and
continuing to encourage Members to send orders, thereby contributing
towards a robust and well-balanced market ecosystem.
Next, 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 purposes 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 16% of the market share.\15\ 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.'' \16\ 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-
[[Page 50922]]
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' . . . .''.\17\
Accordingly, the Exchange does not believe its proposed fee change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\15\ Supra note 4.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#91e3e4fdf4bcf2fefcfcf4ffe5e2d1e2f4f2bff6fee7"><span class="__cf_email__" data-cfemail="4b393e272e66282426262e253f380b382e28652c243d">[email protected]</span></a>. Please
include File Number SR-CboeEDGX-2021-038 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-CboeEDGX-2021-038. 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-CboeEDGX-2021-
038 and should be submitted on or before October 4, 2021.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19613 Filed 9-10-21; 8:45 am]
BILLING CODE 8011-01-P
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