Notice2022-00877
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
January 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 12 (Wednesday, January 19, 2022)</title>
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[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2947-2950]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-00877]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93964; File No. SR-CboeEDGX-2022-001]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
January 12, 2022.
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 January 4, 2022, 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>), 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 2948]]
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 (1) modify the
criteria of Growth Tier 4, and (2) adopt a new Retail Growth Tier 1,
effective January 3, 2022.
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 18% 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 $0.0030 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 (December 20, 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
four Growth Tiers that each provide an enhanced rebate for Members'
qualifying orders yielding fee codes B,\4\ V,\5\ Y,\6\ 3 \7\ and 4,\8\
where a Member reaches certain add volume-based criteria, including
``growing'' its volume over a certain baseline month. Currently, Growth
Tier 4 is as follows:
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\4\ Orders yielding Fee Code ``B'' are orders adding liquidity
to EDGX (Tape B).
\5\ Orders yielding Fee Code ``V'' are orders adding liquidity
to EDGX (Tape A).
\6\ Orders yielding Fee Code ``Y'' are orders adding liquidity
to EDGX (Tape C).
\7\ Orders yielding Fee Code ``3'' are orders adding liquidity
to EDGX in the pre and post market (Tapes A or C).
\8\ Orders yielding Fee Code ``4'' are orders adding liquidity
to EDGX in the pre and post market (Tape B).
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<bullet> Growth Tier 4 provides a rebate of $0.0034 per share to
qualifying orders (i.e., orders yielding fee codes B, V, Y, 3, or 4)
where (1) the Member adds a Step-Up ADAV from October 2021 equal to or
greater than 0.10% of the TCV or the Member adds a Step-Up ADAV from
October 2021 equal to or greater than 10 million shares; and (2) the
Member has a total remove ADV equal to or greater than 0.60% of TCV.
Now, the Exchange proposes to amend the second prong of the
criteria. Specifically, proposed Growth Tier 4 is as follows:
<bullet> Proposed Growth Tier 4 provides a rebate of $0.0034 per
share to qualifying orders (i.e., orders yielding fee codes B, V, Y, 3,
or 4) where (1) the Member adds a Step-Up ADAV from October 2021 equal
to or greater than 0.10% of the TCV or the Member adds a Step-Up ADAV
from October 2021 equal to or greater than 10 million shares; and (2)
the Member has a total remove ADV equal to or greater than 0.60% of TCV
or the Member has a total remove ADV equal to or greater than 60
million shares.
The proposed modification to Growth Tier 4 is designed to provide
Members an additional opportunity to meet the tier.
Under footnote 2 of the Fee Schedule, the Exchange currently offers
various Retail Volume Tiers, which provide an enhanced rebate for
Members' qualifying orders yielding fee code ZA.\9\ Now, the Exchange
proposes to adopt a Retail Growth Tier 1, which would provide for the
same required criteria as Growth Tier 4, as modified. Specifically, the
proposed Retail Growth Tier 1 is as follows:
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\9\ Orders yielding Fee Code ``ZA'' are retail orders adding
liquidity to EDGX.
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<bullet> Proposed Growth Tier 4 [sic] provides a rebate of $0.0034
per share to qualifying orders (i.e., orders yielding fee code ZA)
where (1) the Member adds a Step-Up ADAV from October 2021 equal to or
greater than 0.10% of the TCV or the Member adds a Step-Up ADAV from
October 2021 equal to or greater than 10 million shares; and (2) the
Member has a total remove ADV equal to or greater than 0.60% of TCV or
the Member has a total remove ADV equal to or greater than 60 million
shares.
The proposed Retail Growth Tier 1 is designed to provide Members an
opportunity to receive an enhanced rebate by meeting the Retail Growth
Tier 1 criteria. Further, overall the Growth Tiers are intended to
provide Members an 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 or removing 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.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\10\ in general, and
furthers the objectives of Section 6(b)(4),\11\ 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) \12\
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
[[Page 2949]]
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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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
\12\ 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,\13\
including the Exchange,\14\ 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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\13\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\14\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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In particular, the Exchange believes Growth Tier 4, as modified,
and the proposed Retail Growth Tier 1 are reasonable because they will
be available to all Members and provide all Members with an additional
opportunity to receive an enhanced rebate. The Exchange further
believes the proposed Growth Tier 4 and Retail Growth Tier 1 will
provide a reasonable means to encourage overall and retail growth,
respectively, in Members' order flow to the Exchange and to incentivize
Members to continue to provide liquidity adding and removing 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. Specifically, the
proposed change to Growth Volume Tier 4 merely adds additional criteria
to achieve the Tier, and the proposed Retail Growth Tier 1 is nearly
identical to the Growth Volume Tier 4, as modified. Additionally, the
Exchange believes that the enhanced rebates under Growth Tier 4, which
is not being changed, and the Proposed Retail Growth Tier 1 is
commensurate with the criteria.
The Exchange also believes that the proposal represents an
equitable allocation of fees and rebates and is not unfairly
discriminatory because all Members will be eligible for Growth Tier 4
and the proposed Retail Growth Tier 1 and have the opportunity to meet
the Tiers' 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 4, as amended, or the proposed
Retail Growth Tier 1. 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 each tier. 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 changes 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 changes
further 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 changes do 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 4 and the proposed Retail Growth Tier 1 will
apply to all Members equally in that all Members are eligible for each
of the Tiers, have a reasonable opportunity to meet the Tiers' 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 and adopting a 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 18% 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
[[Page 2950]]
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-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 1.
\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> Send an email to <a href="/cdn-cgi/l/email-protection#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-001 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-2022-001. 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-2022-001, and should be
submitted on or before February 9, 2022.
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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. 2022-00877 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P
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