Notice2022-01228
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Applicable to Various Market Data Products
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 15 (Monday, January 24, 2022)</title>
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[Federal Register Volume 87, Number 15 (Monday, January 24, 2022)]
[Notices]
[Pages 3604-3610]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-01228]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93997; File No. SR-CboeEDGX-2022-002]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fees Applicable to Various Market Data Products
January 18, 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. (``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``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. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fees applicable to various market
data products. 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.
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 the Market Data section applicable
to its equities trading platform (``EDGX Equities''). Particularly, the
Exchange proposes to (i) increase the External Distribution fee
applicable to EDGX Top, (ii) modify the External Subscriber fees
applicable to EDGX Top Derived Data API Service, (iii) adopt a New
External Distributor Credit applicable to Cboe One Premium, (iv) extend
the New External Distributor Credit applicable to EDGX Summary Depth
Feed from one (1) month to three (3) months, and (v) eliminate the
waiver of EDGX Top and EDGX Last Sale External Distribution fees for
External Distributors of EDGX Depth.
Market Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. 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.'' \3\ As the Commission
itself recognized, the market for trading services in NMS stocks has
become ``more fragmented and competitive.'' \4\
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\3\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
\4\ See Securities Exchange Act Release No. 84875, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
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Equity trading is currently dispersed across sixteen exchanges,
more than 50 alternative trading systems,\5\ and numerous broker-dealer
internalizers and wholesalers, all competing fiercely for order flow.
Based on publicly-available information, no single U.S. equities
exchange has more than 17% market share.\6\ In turn, the market for
top-of-book quotation and transaction data is highly competitive as
national securities exchanges compete vigorously with each other to
provide efficient, reliable, and low-cost data to a wide range of
investors and market participants. In fact, there are twelve competing
products offered by other national securities exchanges today,\7\ not
counting products offered by the Exchange's affiliates, and each of the
Exchange's affiliated U.S. equities exchanges also offers similar top-
of-book data. Each of those exchanges offer top-of-book quotation and
last sale information based on their own quotation and trading activity
that is substantially similar to the information provided by the
Exchange through the EDGX Top Feed.\8\ Exchange top-of-book data is
therefore widely available today from a number of different sources.
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\5\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsData">https://otctransparency.finra.org/otctransparency/AtsData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\6\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (December 10, 2021) available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\7\ Competing top-of-book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BQT, NYSE
Arca BBO/Trades, NYSE American BBO/Trades, NYSE Chicago BBO/Trades,
IEX TOPS, MIAX PEARL Equities Top of Market Feed, and MEMX MEMOIR
Top.
\8\ For example, The Nasdaq Stock Market LLC (``Nasdaq'') offers
``Nasdaq Basic'' which is a real-time market data product that
offers best bid and offer and last sale information for all U.S.
exchange-listed securities based on liquidity within the Nasdaq
market center and trades reported to the FINRA/Nasdaq Trade
Reporting Facility (``Nasdaq TRF''). See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(a). The type of information
contained on the EDGX Top Feed is substantially similar to that
offered through Nasdaq Basic, except that the Exchange disseminates
information about quotes and trades on EDGX, whereas Nasdaq Basic
provides information about quotes and trades on Nasdaq and the
Nasdaq TRF. Other national securities with competing top-of-book
products also offer substantially similar types of information
through those top-of-book products.
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Fees for External Distribution of EDGX Top
The Exchange first proposes to increase the external distribution
fee applicable to EDGX Top,\9\ which is an uncompressed data feed that
offers top-of-book quotations and execution information based on equity
orders entered into the System.\10\ Currently, the Exchange charges an
external distribution fee (i.e., distribution outside the distributor's
own firm) of $1,500 per month to External Distributors \11\ of EDGX
Top. The
[[Page 3605]]
Exchange also charges a professional user fee of $4.00 per month, a
non-professional user fee of $0.10 per month, an enterprise fee of
$15,000 per month, and a digital media enterprise fee of $2,500 per
month that is applicable to External Distributors. The external
distribution fees have been in place, without change, since June 1,
2016.\12\ In the time since, the Exchange has made a number of
significant enhancements to its platform, including, among other
things, trading hours beginning at 4 a.m. Eastern time (which has
required additional operational support) and the introduction of Retail
Priority Orders.\13\ These enhancements have resulted in improved
trading opportunities for investors and, consequently, more valuable
market data. As such, the Exchange proposes to increase the monthly
charge for external distribution of EDGX Top from $1,500 to $2,250 per
month (i.e., an increase of $750 per month),\14\ which would continue
to be cheaper than similar products offered by the certain of the
Exchange's competitors.\15\ The Exchange proposes no changes to the
professional, non-professional, enterprise and digital media enterprise
fees associated with external distribution. Further, various incentive
programs that the Exchange has adopted to facilitate the provision of
lower-cost market data to retail and other investors would continue to
apply.\16\ As a result, the Exchange believes that the proposed fee
changes would allow it to be appropriately compensated for the value of
its market data, particularly from professional financial services
firms that use that data for external distribution, while
simultaneously ensuring that its data would continue to be available to
a wide range of investors and market participants at a cost that
facilitates widespread availability of such data.
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\9\ See Exchange Rule 13.8(c).
\10\ See Exchange Rule 1.5(cc).
\11\ An External Distributor of an Exchange Market Data product
is a Distributor that receives the Exchange Market Data product and
then distributes that data to a third party or one or more Users
outside the Distributor's own entity.
\12\ See Securities Exchange Act Release No. 77888 (May 24,
2016) 81 FR 34384 (May 31, 2016) (SR-BatsEDGX-2016-18).
\13\ See Exchange Rule 11.9.01.
\14\ The Exchange notes that the fee for Cboe One Summary is
equivalent to the aggregate EDGX Top, BZX, Top, BYX Top, and EDGA
Top fees. The Exchange is not proposing to change the current Cboe
One Summary external distribution fee. Instead, the Cboe BYX
Exchange, Inc. (``BYX'') has simultaneously with this proposal
proposed to decrease its fee for BYX Top by $750 in order to ensure
the proposed fee will continue to not cause the combined cost of
subscribing to EDGX, EDGA, BYX, and BZX individual Top and Last Sale
feeds to be greater than those currently charged to subscribe to the
Cboe One Summary fee.
\15\ See infra notes 38, 39, 41, and 42.
\16\ See e.g., EDGX Fees Schedule, Small Retail Broker
Distribution Program, which provides for a reduced EDGX Top
Distribution Fee for small broker-dealers that operate a retail
business and Retail Membership Program, which provides for
discounted membership fees, logical and physical port fees, and
market data fees and provides for an opportunity for Members to
receive an enhanced rebate for retail volume.
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EDGX Top Derived Data API Service External Subscriber Fees
The Exchange next proposes to modify fees charged to Distributors
that distribute EDGX Top Derived Data through an Application
Programming Interface (``API'')--i.e., the Derived Data API
Service.\17\ By way of background, ``Derived Data'' is pricing data or
other data that (i) is created in whole or in part from Exchange Data,
(ii) is not an index or financial product, and (iii) cannot be readily
reverse[hyphen]engineered to recreate Exchange Data or used to create
other data that is a reasonable facsimile or substitute for Exchange
Data. The Derived Data API Service program offers discounted fees for
Distributors that make Derived Data available through an API, thereby
allowing Distributors to benefit from reduced fees when distributing
Derived Data to subscribers that establish their own platforms (rather
than relying on a hosted display solution).
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\17\ An ``API Service'' is a type of data feed distribution in
which a Distributor delivers an API or similar distribution
mechanism to a third-party entity for use within one or more
platforms. The service allows Distributors to provide Derived Data
to a third-party entity for use within one or more downstream
platforms that are operated and maintained by the third-party
entity. The Distributor maintains control of the entitlements, but
does not maintain technical control of the usage or the display.
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As discussed above, the Exchange currently charges a fee of $1,500
per month for external distribution of EDGX Top (which is proposed to
be increased to $2,250). Instead of being assessed the flat regular fee
for external distribution, Distributors that distribute Derived Data
through an API are charged a tiered External Subscriber Fee based on
the number of API Service Platforms (i.e., ``External Subscribers'')
that receive Derived Data from the Distributor through a Derived Data
API Service. Currently, Distributors under this program continue to be
charged a fee of $1,500 per month (the fee normally assessed to
External Distributors for EDGX Top) for each External Subscriber if the
Distributor makes Derived Data available to 1-5 External Subscribers.
Distributors that make Derived Data available to additional External
Subscribers however benefit from discounted pricing based on the number
of subscribers. Specifically, the external distribution fee is lowered
to $1,250 per month for each External Subscriber if the Distributor
makes Derived Data available to 6-20 External Subscribers, and further
lowered to $1,000 per month for each External Subscriber if the
Distributor makes Derived Data available to 21 or more External
Subscribers. In light of the proposed increase of the EDGX Top external
distribution fee to $2,250, the Exchange proposes to make corresponding
changes to the distribution fees for Distributors of Derived Data
through a Derived API Service. Particularly, the Exchange proposes to
modify the External Subscriber fees as follows:
------------------------------------------------------------------------
Current Proposed
Number of external subscribers fee fee
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1-5............................................... $1,500 $2,250
6-20.............................................. 1,250 1,800
21 and above...................................... 1,000 1,500
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The Exchange notes that the External Subscriber Fee is non-
progressive and based on the number of External Subscribers that
receive Derived Data from the Distributor. To illustrate how the
discount is applied, the Exchange has codified an example in the Fees
Schedule under the notes section of the Derived Data Platform Service
section, which it now proposes to update in connection with the
proposed changes to the External Subscriber fees. Currently, the
example provides that a Distributor providing Derived Data based on
EDGX Top to six (6) External Subscribers that are API Service Platforms
would be charged a monthly fee of $7,500 (i.e., 6 External Subscribers
x $1,250 each). The Exchange proposes to update the example to provide
that Distributor providing Derived Data based on EDGX Top to six (6)
External Subscribers that are API Service Platforms would be charged a
monthly fee of $10,800 (i.e., 6 External Subscribers x $1,800 each).
Cboe One Premium and EDGX Top Depth New External Distributor Credit
The Exchange next proposes to adopt a New External Distributor
Credit applicable to Cboe One Premium and extend the New External
Distributor Credit applicable to EDGX Summary Depth Feed from one (1)
month to three (3) months. By way of background, Cboe One Premium is a
data feed that disseminates, on a real-time basis, the aggregate best
bid and offer (``BBO'') of all displayed orders for securities traded
on EDGX and its affiliated exchanges (i.e., BYX, Cboe EDGA Exchange,
Inc. (``EDGA''), and Cboe BZX Exchange, Inc. (``EDGX'')) and contains
optional functionality which enables recipients to receive aggregated
two-sided quotations from EDGX and its affiliated equities exchanges
for up to five (5)
[[Page 3606]]
price levels.\18\ Currently, the Exchange charges an external
distribution fee of $12,500 per month to External Distributors \19\ of
Cboe One Premium. The Exchange now proposes to adopt a New External
Distributor Credit which provide that new External Distributors of the
Cboe One Premium Feed will not be charged an External Distributor Fee
for their first three (3) months in order to allow them to enlist new
Users to receive the Cboe One Summary[sic] Feed. The Exchange believes
the proposal will incentivize External Distributors to enlist new users
to receive Cboe One Premium. To ensure consistency across the Cboe
Equity Exchanges, BZX, BYX, and EDGA will be filing companion proposals
to reflect this proposal in their respective fee schedules.
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\18\ The Cboe Aggregated Market (``Cboe One'') Feed is a data
feed that contains the aggregate best bid and offer of all displayed
orders for securities traded on the Exchange and its affiliated
exchanges (i.e., BYX, Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe
BZX Exchange, Inc. (``EDGX'')[sic]). See Exchange Rule 13.8(b). The
Cboe One Feed contains optional functionality which enables
recipients to receive aggregated two-sided quotations from the Cboe
Equities Exchanges for up to five (5) price levels (``Cboe One
Premium Feed''). See Exchange Rule 13.8(b)(i). The Cboe One Premium
external distribution fee is equal to the aggregate EDGX Summary
Depth, BYX Summary Depth, EDGA Summary Depth, and BZX Summary Depth
external distribution fees.
\19\ An External Distributor of an Exchange Market Data product
is a Distributor that receives the Exchange Market Data product and
then distributes that data to a third party or one or more Users
outside the Distributor's own entity.
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The Exchange notes that it offers similar credits for other market
data products. For example, the Exchange currently offers a one (1)
month New External Distributor Credit applicable to Cboe One
Summary,\20\ which is a data feed that disseminates, on a real-time
basis, the aggregate BBO of all displayed orders for securities traded
on EDGX and its affiliated equities exchanges and also contains
individual last sale information for the EDGX and its affiliated
equities exchanges.\21\ It also offers a New External Distributor
Credit of one (1) month for subscribers of EDGX Summary Depth, which is
a data feed that offers aggregated two-sided quotations for all
displayed orders entered into the System for up to five (5) price
levels. EDGX Summary Depth also contains the individual last sale
information, Market Status, Trading Status, and Trade Break
messages.\22\ The External Distribution fees for Cboe One Premium is
equivalent to the aggregate EDGX Summary Depth, BZX Summary Depth, BYX
Summary Depth, and EDGA Summary Depth External Distribution fees. In
order to alleviate any competitive issues that may arise with a vendor
seeking to offer a product similar to the Cboe One Premium Feed based
on the underlying data feeds, the Exchange proposes to also extend the
current New External Distributor Credit for EDGX Summary Depth from one
(1) month to three (3) months and the Exchange's affiliates BYX, BZX
and EDGA are also submitting similar proposals to increase the length
of their respective Summary Depth New External Distributor Credits from
one (1) month to three (3) months. The respective proposals to extend
these credits to three months ensures the proposed New External
Distributor Credit for Cboe One Premium will continue to not cause the
combined cost of subscribing to EDGX, EDGA, BYX, and BZX Summary Depth
feeds for new External Distributors to be greater than those currently
charged to subscribe to the Cboe One Premium feed.
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\20\ See Exchange Rule 13.8(b).
\21\ The Exchange notes that when it first adopted the New
External Distributor Credit for Cboe One Summary, it similarly
applied for a new External Distributor's first three (3) months. See
Securities Exchange Act Release No. 74282 (February 17, 2015), 80 FR
9487 (February 23, 2015) (SR-EDGX-2015-09).
\22\ See Exchange Rule 13.8(f).
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Waiver of External Distribution Fees for EDGX Top and EDGX Last Sale
The Exchange currently provides External Distributors of EDGX
Depth,\23\ upon request and at no additional External Distribution Fee,
access to the EDGX Top or EDGX Last Sale \24\ feeds for External
Distribution. This waiver was intended to encourage the distribution of
the EDGX Top and Last Sale data products. The waiver has been in place,
without change, since June 1, 2016.\25\ The Exchange believes such
waiver has been in place for ample time to allow External Distributors
to grow their respective subscriber bases and no longer wishes to
provide this waiver of the External Distribution fees for EDGX Top and
EDGX Last Sale feeds. Accordingly, the Exchange proposes to strike this
language from the fees schedule.
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\23\ EDGX Depth is a data feed that contains all displayed
orders for listed securities trading on the Exchange, order
executions, order cancellations, order modifications, order
identification numbers, and administrative messages. See Exchange
Rule 13.8(a).
\24\ EDGX Last Sale is an uncompressed data feed that offers
only execution information based on orders entered into the System.
See Exchange Rule 13.8(d).
\25\ See Securities Exchange Act Release No. 77888 (May 24,
2016) 81 FR 34384 (May 31, 2016) (SR-BatsEDGX-2016-18).
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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,\26\ in general, and
furthers the objectives of Section 6(b)(4),\27\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data. In addition, the Exchange believes that the proposed
rule change is consistent with Section 11(A) of the Act as it supports
(i) fair competition among brokers and dealers, among exchange markets,
and between exchange markets and markets other than exchange markets,
and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities.\28\ Finally, the proposed rule change is also consistent
with Rule 603 of Regulation NMS,\29\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
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\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(4).
\28\ 15 U.S.C. 78k-1.
\29\ See 17 CFR 242.603.
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The Exchange operates in a highly competitive environment. Indeed,
there are now sixteen registered U.S equities exchanges, and with the
exception of Long-Term Stock Exchange, Inc. (``LTSE''), which has
determined to not offer any proprietary market data feeds, each of
these exchanges offer associated market data products to their
customers, either with or without a fee. It is in this robust and
competitive market in which the Exchange is proposing to increase its
fees, while still providing its data at a significantly lower price
than competing products offered by other national securities exchanges
with similar data quality.
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Further, with respect
to market data, the decision of the United States Court of Appeals for
the District of Columbia Circuit in NetCoalition v. SEC upheld the
Commission's reliance on the existence of competitive market mechanisms
to evaluate the reasonableness and fairness of fees for proprietary
market data: ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and
[[Page 3607]]
that the SEC wield its regulatory power `in those situations where
competition may not be sufficient,' such as in the creation of a
`consolidated transactional reporting system.' '' \30\ The court agreed
with the Commission's conclusion that ``Congress intended that
`competitive forces should dictate the services and practices that
constitute the U.S. national market system for trading equity
securities.' '' \31\ As discussed in this filing, significant
competitive forces constrain the ability of the Exchange to charge
supra-competitive fees.
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\30\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
\31\ Id. at 535.
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EDGX Top and EDGX Top Derived Data API Service
i. The EDGX Top Feed Is an Optional Market Data Product, and the
Exchange Is Constrained in Its Pricing by Significant Competitive
Forces
Subscribing to EDGX Top is entirely optional. The Exchange is not
required to make EDGX Top available to any customers, nor is any
customer required to purchase EDGX Top.\32\ A customer's decision as to
whether to purchase EDGX Top is therefore entirely discretionary and is
based on that firms individual business needs. Generally, firms that
choose to subscribe to EDGX Top do so because they believe that it is a
cost-effective source for top-of-book data that provides valuable
information about the market for national market system (``NMS'')
stocks traded on the Exchange, where a consolidated display covering
all U.S. equities exchanges is not required. Such firms are able to
determine for themselves whether EDGX Top helps them to achieve their
business goals, and if so, whether or not it is attractively priced
compared to other similar top-of-book products offered by competing
exchanges. Indeed, if EDGX Top does not provide sufficient value to
firms based on the uses those firms may have for it, such firms may
simply choose to conduct their business operations in ways that do not
use EDGX Top. In fact, comparing the number of External Distributors
that currently subscribe to EDGX Top, based on data compiled by the
Exchange as of November 2021, to the total number of External
Distributors that subscribe to core data offered by the CTA and UTP
SIPs, as published on plan websites for Q1 2021,\33\ less than 7.37% of
External Distributors that purchase U.S. equities data choose to
subscribe to EDGX Top.\34\ The EDGX Top Feed therefore represents an
insignificant proportion of the market for such market data, and
significantly more External Distributors choose not to purchase this
product than those that do. Given the insignificant percentage of
External Distributors that consume EDGX Top, it is clear that such
firms can and do exercise their right to choose to purchase, or not
purchase, this particular market data product. And, as discussed later
in this filing, any External Distributor of top-of-book data that does
not wish to purchase EDGX Top, due to the price of that data or for any
other reason, can choose to substitute similar information from other
exchanges. Although the Exchange is not required to make any data,
including top-of-book data, available through its proprietary market
data platform, the Exchange believes that making such data available
increases investor choice, and contributes to a fair and competitive
market. Specifically, making such data publicly available through
proprietary data feeds allows investors to choose alternative,
potentially less costly, market data based on their business needs. For
example, a broker or fintech firm may choose to purchase EDGX Top, or a
similar product from another exchange, in order to perform investment
analysis, or to provide general information about the market for U.S.
equity securities, respectively. In either case the choice to purchase
EDGX Top would be based on the firm's determination of the value of the
data offered by their chosen product compared to the cost of acquiring
this data instead of receiving similar data from other sources. EDGX
Top serves as a valuable reference for investors that do not require a
consolidated display. Making alternative products available to market
participants ultimately ensures competition in the marketplace, and
constrains the ability of exchanges to charge supra-competitive fees.
Further, in the event that a market data customer views one exchange's
top-of-book data product and/or fees as more or less attractive than a
competitor's offerings they can and often do switch between competing
products. As discussed, similar top-of-book information is available
from a number of competing U.S. equities exchanges.\35\ This includes a
number of large established exchanges that charge for access to such
top-of-book data, as well as certain smaller or new exchange entrants
that provide similar data without charge, in many cases as a way of
attracting customers to their exchange while they seek to grow market
share. In this way, EDGX Top and other top-of-book products offered by
a number of U.S. equities exchanges, are all substitutes. The
availability of these substitute products constrains the Exchange's
ability to charge supra-competitive prices as market participants can
easily obtain similar data from one of the Exchange's many competitors.
In fact, the impact of competition on the market in which EDGX Top is
offered to market participants and investors is showcased by Exchange
affiliates' other recent fee changes related to this product, which
involved the reduction of fees to facilitate the Exchange affiliates'
ability to compete for customers.
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\32\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
\33\ See CTA Quarterly Population Metrics (Q1 2021), available
at <a href="https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2021.pdf">https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2021.pdf</a>; UTP Quarterly Population
Metrics (Q1 2021), available at <a href="https://www.utpplan.com/DOC/UTP_2021_Q1_Stats_with_Processor_Stats.pdf">https://www.utpplan.com/DOC/UTP_2021_Q1_Stats_with_Processor_Stats.pdf</a>.
\34\ This statistic reflects the number of External Distributors
that purchase EDGX Top divided by the number of External
Distributors that purchase consolidated market data from the SIPs,
as reflected in publicly available information. Id. The Exchange
does not have similar information about the number of External
Distributors that purchase top-of-book data from other exchanges as
competing exchanges do not typically make this information publicly
available due to the commercially sensitive nature of such
information.
\35\ Although the Exchange does not have access to the customer
lists for other competing products, it understands based on
conversations with subscribers to EDGX Top that they typically view
exchange top-of-book products as substitutes and do not generally
look to purchase such data from more than one national securities
exchange.
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Distributors can discontinue use of EDGX Top at any time and for
any reason, including due to an assessment of the reasonableness of
fees charged. Other External Distributors are free to similarly cancel
their subscriptions in favor of a competitor offering, or cheaper or
free data offered by the Exchange's affiliated U.S. equities exchanges,
if they believe that the fees are too high given their particular use
case for obtaining the data that the Exchange provides over EDGX Top.
The Exchange offers all of its proprietary market data products
pursuant to a month-to-month contract that allows subscribers to choose
to terminate their subscription at any time. As a result, there are no
contractual or other legal impediments for firms that wish to cancel
their subscription to the Exchange's market data products,
[[Page 3608]]
including EDGX Top. In addition, the Exchange notes that a majority of
External Distributors of EDGX Top either receive this data through a
market data vendor, as opposed to directly from the Exchange, or is a
market data vendor itself. Thus, firms can seamlessly switch to any
other competitor product offered by their chosen vendor without
incurring additional switching costs, such as the cost of establishing
connectivity to another exchange to receive its market data.\36\
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\36\ Market data vendors typically establish connectivity to a
number of national securities exchanges to be able to offer their
market data to customers.
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In setting the proposed fees for EDGX Top, the Exchange considered
the competitiveness of the market for proprietary data and all of the
implications of that competition. Indeed, the Exchange is not in a
position to charge unreasonable fees for its top-of-book data as there
are a number of competing products in the market, including products
that are currently offered free of charge by certain other exchanges
that have determined not to charge for their market data. The existence
of alternatives to EDGX Top ensures that the Exchange cannot set
unreasonable fees when vendors and subscribers can freely elect these
alternatives or choose not to purchase a specific proprietary data
product if the attendant fees are not justified by the returns that any
particular vendor or data recipient would achieve through the purchase.
Similarly, in an effort to widen distribution to market
participants that use equities market data to compute pricing for
certain derivatives instruments, national securities exchanges,
including for example the Exchange and The Nasdaq Stock Market LLC
(``Nasdaq''),\37\ offer discounted pricing for Derived Data that is
created using their top of book products. Derived Data is largely used
to create derivative instruments, such as contracts for difference,
rather than to trade equity securities, and is often purchased by
market data customers outside of the U.S. where such derivative
instruments are more commonly offered. As a result, customers that
purchase top of book data to create Derived Data do not need a
consolidated quotation, and typically only purchase top of book data to
create Derived Data from one source. If a competing exchange were to
charge less for a similar product than the Exchange proposes to charge
under the EDGX Top Derived Data API Service fee structure, prospective
subscribers may choose not subscribe to, or cease subscribing to, the
EDGX Top Derived Data API Service. The existence of alternatives
ensures that the Exchange cannot set unreasonable or unfairly
discriminatory fees, as subscribers are free to elect such
alternatives.
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\37\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(c)(1). In addition, Nasdaq also charges distributors a
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7,
Pricing Schedule, Section 135.
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ii. The Proposed Fees Are Reasonable Given the Value of the Data
Provided to Customers, and When Compared to Competing Market Data
Products
The proposed fees are also reasonable as even with the proposed fee
increase they would continue to represent a relatively modest fee for
top-of-book data that has proven valuable for investors. EDGX Top is a
competitively-priced alternative to top-of-book data disseminated by
other national securities exchanges. It is purchased by a wide variety
of market participants and vendors, including data platforms, websites,
fintech firms, buy-side investors, retail brokers, regional banks, and
securities firms inside and outside of the U.S. that desire low cost,
high quality, real-time U.S. equity market data. By providing lower
cost access to U.S. equity market data, EDGX Top benefits a wide range
of investors that participate in the national market system. As
discussed, the decision to purchase a particular market data product
from a particular exchange is largely based on two factors: (1) The
quality of the data, and (2) the price charged for access to that data.
The Exchange believes that EDGX Top is competitive on both of these
factors.
First, EDGX Top would remain competitively priced compared to
similar products offered by other comparable U.S. equities exchanges.
Although EDGX Top is not offered free of charge like certain other
competitor offerings, particularly those offered by newer U.S. equities
exchanges that are seeking to grow market share, it is made available
at a price that is less than the prices charged by the Exchange's main
competitors--i.e., those with comparable market shares and data
quality. Notably, even with the proposed fee increase, EDGX Top would
remain significantly cheaper than similar products offered by New York
Stock Exchange LLC (``NYSE'') and Nasdaq in terms of the fees charged
for external distribution. For example, NYSE charges a total of $4,000
per month for access and redistribution of their equivalent products,
i.e., $1,500 per month for applicable top-of-book quotation
information,\38\ and an additional $1,500 per month for transaction
information,\39\ both of which are included in EDGX Top for a single
fee.\40\ In addition, a $1,000 per month redistribution fee is applied.
NYSE Arca, Inc. (``Arca''), which has a similar pricing model to NYSE,
charges a rate of $2,250 per month for access and redistribution of its
equivalent products, separated into a $750 per month charge for top-of-
book quotation information, an additional $750 per month charge for
transaction information, and $750 per month for redistribution.\41\
Therefore, while Arca's fees are slightly less than the proposal, the
proposed fees are in-line with those charged by Arca. Finally, Nasdaq
charges its External Distributors a fee of $2,000 per month for Nasdaq
Basic, which includes both top-of-book quotation information and
transaction information for the same fee, a $350 per month Data
Consolidation fee, and a $100 per month Monthly Administrative Fee.\42\
The external distribution charges associated with obtaining comparable
U.S. equities market data from NYSE and Nasdaq runs more than the
proposed fee to be charged by the Exchange, meaning that the Exchange
would continue to be offering its data at a price that is attractive
compared to the prices charged by its competitors. The fee for EDGX Top
Derived Data API Service would remain competitively priced compared to
Nasdaq which also offers pricing discounts for Derived Data.\43\
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\38\ See NYSE PDP Market Data Pricing, Section 1.3, NYSE BBO.
\39\ See NYSE PDP Market Data Pricing, Section 1.4, NYSE Trades.
\40\ Supra note 3.
\41\ See NYSE PDP Market Data Pricing, Section 3.3, NYSE Arca
BBO; NYSE PDP Market Data Pricing, Section 3.4, NYSE Arca Trades.
\42\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(c)(1). In addition, Nasdaq also charges distributors a
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7,
Pricing Schedule, Section 135.
\43\ See generally, the Nasdaq Basic fees at <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
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Second, the proposed fees are reasonable given the value of the
data provided in EDGX and used by data recipients in their profit-
generating activities. EDGX Top provides top-of-book quotations and
transactions executed on the Exchange, and provides a valuable window
into the market for securities traded on a market that accounts for
about 5% of U.S. equity market volume today.\44\ As discussed, the
Exchange offers EDGX Top in a competitive environment where firms may
freely choose which market data
[[Page 3609]]
products best suit their business needs. Invariably, firms that choose
to purchase EDGX Top instead of receiving one of the many free products
offered by other exchanges,\45\ have decided that the value of EDGX Top
is greater than that offered by those other products. The Exchange
consistently ranks among the top U.S. equities exchanges in terms of
various market quality measures, e.g., NBBO quote quality and NBBO
market share.\46\ In turn, investors may choose to rely on the
Exchange's market data products instead of other competitor offerings
based on the value they provide in relation to any additional cost
associated with obtaining that market data from the Exchange. For
example, investors may wish to obtain market data from an exchange that
has a higher time at the inside, as data obtained from an exchange that
is quoting more often at the NBBO may better reflect the applicable
market for securities it trades. Similarly, an exchange with greater
overall market share will produce more transaction information that may
be valuable to consumers of its data. Improvements in market quality
will therefore directly impact the value of the market data that an
exchange is able to offer to investors.
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\44\ Supra note 10.
\45\ See e.g., Cboe EDGA Exchange, Inc., Fee Schedule, EDGA Top.
\46\ See <a href="https://www.cboe.com/us/equities/market_statistics/market_quality/">https://www.cboe.com/us/equities/market_statistics/market_quality/</a>.
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iii. The Proposed Fees Are Equitable and Not Unfairly Discriminatory as
External Distributors Will Be Subject to Uniform Pricing Based on Their
Usage of the Data and Differences Between the Fees Charged for Internal
and External Distribution are Appropriate
The Exchange believes the proposed fees for external distribution
of EDGX Top will continue to be allocated fairly and equitably among
subscribers, and are not unfairly discriminatory, as the proposed fees
will apply equally to all data recipients that choose to subscribe to
EDGX Top and distribute that data to external subscribers. As proposed,
all External Distributors of EDGX Top will continue to be subject to
the same external distribution fee, regardless of the type of business
that they operate, or the use they plan to make of the data feed. Thus,
all External Distributors would have access to EDGX Top on the same
equitable and non-discriminatory terms.
The Exchange believes that it is also fair and equitable, and not
unfairly discriminatory to continue to charge different fees for
internal and external distribution of the EDGX Top. As is common
practice, the Exchange charges lower fees to distributors that use its
market data products for internal distribution only than to
distributors that redistribute that data externally to their customers.
In the case of EDGX Top, External Distributors are subject to a higher
distribution fee, and are also subject to professional user fees, non-
professional user fees, an enterprise fee, and a digital media
enterprise fee. The Exchange continues to believe that it is
appropriate to distinguish between internal and External Distributors
in setting fees for EDGX Top as External Distributors can redistribute
the Exchange's market data to its clients for a fee, whereas Internal
Distributors are not allowed to redistribute the data.
Finally, the Exchange believes the proposed changes to the
distribution fees for Distributors of EDGX Top Derived Data through a
Derived API Service is equitable and not unfairly discriminatory
because the Exchange will apply the same fees to any similarly situated
Distributors that elect to participate in the program based on the
number of External Subscribers provided access to the Derived Data
through an API Service. The Exchange believes that it is equitable and
not unfairly discriminatory to continue to provide discounted rates to
Distributors that provide access to at least six External Subscribers
as the discounted rates are designed to incentivize firms to grow the
number of External Subscribers that purchase Derived Data from the
Exchange.
New External Distributor Fee Credit
The Exchange also believes that adopting a New External Distributor
Credit for Cboe One Premium is equitable and reasonable. As discussed
above, a similar New External Distributor Fee Credit was initially
adopted at the time the Exchange began to offer the Cboe One Summary to
subscribers. It was intended to incentivize new Distributors to enlist
Users to subscribe to Cboe One Summary in an effort to broaden the
product's distribution. Now the Exchange proposes to adopt a similar
credit for Cboe One Premium subscribers for their first three (3)
months to similarly incentivize new Distributors to enlist Users to
subscribe to Cboe One Premium in an effort to broaden the product's
distribution. While this incentive is not available to Internal
Distributors of Cboe One Premium, the Exchange believes it is
appropriate as Internal Distributors have no subscribers outside of
their own firm. The Exchange believes extending the New External
Distributor Credit for EDGX Summary Depth from one (1) month to three
(3) months is also equitable and reasonable, as it (along with
simultaneous corresponding proposals by the Exchange's affiliates)
ensures the proposed New External Distributor Credit for Cboe One
Premium will continue to not cause the combined cost of subscribing to
EDGX, EDGA, BYX, and BZX Summary Depth feeds for new External
Distributors to be greater than those currently charged to subscribe to
the Cboe One Premium feed.
EDGX Top and EDGX Last Sale External Distribution Fee Waiver for Fees
for External Distributors of EDGX Depth
Finally, the Exchange amending the fee waiver of EDGX Top and EDGX
Last Sale feeds for External Distributors of EDGX Depth is equitable
and reasonable. The Exchange believes eliminating the fee waiver is
equitable and reasonable because it has been available, without change,
since June 1, 2016 \47\ providing External Distributors with ample time
to grow their subscriber bases. Moreover, the Exchange is not required
to provide any such waiver to External Distributors of EDGX Depth.
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\47\ Supra note 16.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by competition among exchanges that
offer similar data products to their customers. Top-of-book data,
depth-of-book data, and derived data is broadly disseminated by
competing U.S. equities exchanges. There are therefore a number of
alternative products available to market participants and investors,
including products offered by certain competing exchanges without
charge. In this competitive environment potential subscribers are free
to choose which competing product to purchase to satisfy their need for
market information. Often, the choice comes down to price, as market
data customers look to purchase cheaper data products, and quality, as
market participants seek to purchase data that represents significant
market liquidity.
Intramarket Competition. The Exchange believes that the proposed
fees do not put any market participants at a relative disadvantage
compared to
[[Page 3610]]
other market participants. As discussed, the proposed fees, credit, and
eliminated waiver would apply to all External Distributors of EDGX Top,
Cboe One Premium, and EDGX Depth, respectively, on an equal and non-
discriminatory basis. The continued difference in fees for internal and
external distribution of EDGX Top are appropriate given the ability for
External Distributors to redistribute data externally to their clients.
Similarly, the credit applicable to only External Distributors is
appropriate as it incentivizes such External Distributors to enlist
subscribers, whereas Internal Distributors have no subscribers outside
their firm. The Exchange therefore believes that the proposed fees
neither favor nor penalize one or more categories of market
participants in a manner that would impose an undue burden on
competition.
Intermarket Competition. The Exchange believes that the proposed
fees do not impose a burden on competition or on other SROs that is not
necessary or appropriate in furtherance of the purposes of the Act. In
setting the proposed fees, the Exchange is constrained by the
availability of numerous substitute products offered by other national
securities exchanges. Because market data customers can find suitable
substitute feeds, an exchange that overprices its market data products
stands a high risk that users may substitute another product. These
competitive pressures ensure that no one exchange's market data fees
can impose an undue burden on competition, and the Exchange's proposed
fees do not do so here.
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 \48\ and paragraph (f) of Rule 19b-4 \49\
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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\48\ 15 U.S.C. 78s(b)(3)(A).
\49\ 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#2c5e594049014f4341414942585f6c5f494f024b435a"><span class="__cf_email__" data-cfemail="3c4e495059115f5351515952484f7c4f595f125b534a">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-002 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-2022-002. 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-2022-002 and should be
submitted on or before February 14, 2022.
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\50\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01228 Filed 1-21-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on January 24, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.