Notice2022-05595
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the External Subscriber Fees Applicable To Cboe One Summary Derived Data API Service
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Published
March 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 52 (Thursday, March 17, 2022)</title>
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[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Notices]
[Pages 15292-15296]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05595]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94405; File No. SR-CboeEDGX-2022-008]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Modify the External Subscriber Fees Applicable To Cboe One Summary
Derived Data API Service
March 11, 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 March 1, 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. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to modify the External
[[Page 15293]]
Subscriber fees applicable to Cboe One Summary Derived Data API
Service. 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 modify fees charged to External
Distributors that distribute Cboe One Summary Derived Data through an
Application Programming Interface (``API'')--i.e., the Derived Data API
Service, effective March 1, 2022.
Background
By way of background, the Exchange offers a Financial Product
Distribution Program (``Program''), under which a Distributor may
subscribe to one of three Derived Data Service options, White Label
Service,\3\ API Service \4\ or Platform Service,\5\ each of which
offers either EDGX Top Data, which is an uncompressed data feed that
offers top of book quotations and execution information based on equity
orders entered into the System \6\ or Cboe One Summary Data, which is a
proprietary data product that provides the top of book quotations and
execution information for all listed equity securities traded across
the Exchange and its affiliated U.S. equities exchanges (the ``Cboe
equity exchanges'').\7\ Under the Program, regardless of the Service
option selected by a Distributor, the Distributors receive the same
real-time Exchange data (i.e., EDGX Top or Cboe One Summary) as all
other subscribers of such Exchange data. From the Exchange data, a
Distributor may create ``Derived Data'', which 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. Derived Data may be created by Distributors for a number of
different purposes, as determined by the Distributor. The specific use
of Exchange data is determined by the Distributor, as applicable fees
do not depend on the purpose for placing the Derived Data under the
Program.
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\3\ A ``White Label Service'' is a type of hosted display
solution in which a Distributor hosts or maintains a website or
platform on behalf of a third-party entity. The service allows
Distributors to make Derived Data available on a platform that is
branded with a third-party brand, or co-branded with a third party
and a Distributor. The Distributor maintains control of the
application's data, entitlements and display.
\4\ 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.
\5\ A ``Platform Service'' is a type of hosted display solution
in which a Distributor provides derivative products to Platform
Service Data Users within their infrastructure. The service allows
Distributors to make Derived Data available as part of a platform,
providing users remote access to derivative products based in whole
or in part on Exchange Data.
\6\ See Exchange Rule 13.8(c).
\7\ See Exchange Rule 13.8(b). The Cboe One Summary external
distribution fee is equal to the aggregate EDGX Top, BZX, Top, BYX
Top, and EDGA Top fees external distribution fees.
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Cboe One Summary Derived Data API Service External Subscriber Fees
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). Instead of the regular flat
fee for External Distribution of Exchange data, Distributors of Derived
Data under the API Service 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 and may benefit from discounted pricing based
on the number of subscribers. Currently, Distributors under this
program are charged a fee of $5,000 per month for each External
Subscriber if the Distributor makes Derived Data available to 1-5
External Subscribers; $4,000 per month for each External Subscriber if
the Distributor makes Derived Data available to 6-20 External
Subscribers, and further lowered to $3,000 per month for each External
Subscriber if the Distributor makes Derived Data available to 21 or
more External Subscribers. The Exchange now proposes to further reduce
the distribution fees for Distributors of Cboe One Summary Derived Data
through a Derived API Service. Particularly, the Exchange proposes to
modify the External Subscriber fees as follows:
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Number of external subscribers Current fee Proposed fee
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1-5..................................... $5,000 $3,000
6-20.................................... 4,000 2,500
21 and above............................ 3,000 2,000
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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 API Service
section, which it now proposes to update in connection with the
proposed changes to the External Subscriber fees.\8\ Currently, the
[[Page 15294]]
example provides that a Distributor providing Derived Data based on
Cboe One Summary to six (6) External Subscribers that are API Service
Platforms would be charged a monthly fee of $24,000 (i.e., 6 External
Subscribers x $4,000 each). The Exchange proposes to update the example
to provide that Distributor providing Derived Data based on Cboe One
Summary to six (6) External Subscribers that are API Service Platforms
would be charged a monthly fee of $15,000 (i.e., 6 External Subscribers
x $2,500 each). The proposal to reduce the External Subscriber fees is
designed to provide a price structure that is competitive and attract
Distributors for its Cboe One Summary data offering through the Derived
Data API Service.
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\8\ The Exchange notes that it inadvertently omitted appending
three asterisks to the External Subscriber Fee in the ``Cboe One
Summary Derived Data API Service'' table to reference the
corresponding notes section that includes the summary as to how the
discount is applied and seeks to update the Fees Schedule now to
avoid potential confusion.
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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 other recipients of
Exchange data.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act.\11\ Specifically, the
proposed rule change 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. In addition, the
proposed rule change is consistent with Rule 603 of Regulation NMS,\12\
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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\11\ 15 U.S.C. 78k-1.
\12\ See 17 CFR 242.603.
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that the proposed fee change would further broaden
the availability of U.S. equity market data to investors, consistent
with the principles of Regulation NMS.
The Exchange operates in a highly competitive environment. Indeed,
there are 16 registered national securities exchanges that trade U.S.
equities and have the capability to offer associated top of book market
data products to their customers.\13\ Additionally, two other exchange
families specifically offer similar consolidated top of book products
that compete directly with Cboe One Summary.\14\ 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.'' \15\ The proposed fee change is a result of the
competitive environment, as the Exchange seeks to amend its fees to
attract additional Distributors for its Cboe One Summary data offering
through the Derived Data API Service.
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\13\ 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.
\14\ Competing consolidated top of book products include Nasdaq
Basic and NYSE BQT. As described on the Nasdaq website, available
here: <a href="http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqbasic">http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqbasic</a>, Nasdaq
Basic is a ``low cost alternative'' that provides ``Best Bid and
Offer and Last Sale information for all U.S. exchange-listed
securities based on liquidity within the Nasdaq market center, as
well as trades reported to the FINRA Trade Reporting Facility
(``TRF'').'' As described on the NYSE website, available here:
<a href="https://www.nyse.com/market-data/real-time/nyse-bqt">https://www.nyse.com/market-data/real-time/nyse-bqt</a> NYSE Best Quote
and Trades (BQT) ``is a cost efficient, consolidated market data
feed that provides a unified view of quotes and trades from NYSE,
NYSE American, NYSE Arca, NYSE Chicago and NYSE National.''
\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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The Exchange believes that the proposed change is reasonable as it
lowers the existing External Subscriber fees and these fee reductions
would continue to facilitate cost effective access to market
information that is used primarily to create certain derivative
instruments rather than to trade U.S. equity securities. As discussed,
the Cboe One Summary data offering through the Derived Data API Service
allows Distributors to create Derived Data that is based on a more
comprehensive view of the U.S. equities market. Because Exchange data
in this context is primarily purchased for the creation of Derived Data
encompassing certain derivative instruments, Distributors do not
require a consolidated view of the market across several exchanges, and
will generally purchase such data from a single or select few
exchange(s) for their purposes. As noted above, Cboe One Summary
includes top of book quotation and transaction data across all four
Cboe equity exchanges, which allows Distributors to create more
meaningful Derived Data than that available from a single exchange's
market data at a potentially reduced price.
The existence of alternatives to the Program therefore ensures that
the Exchange cannot set unreasonable or unfairly discriminatory fees,
as subscribers are free to elect such alternatives. That is, the
Exchange competes with other exchanges that provide similar top of book
and/or consolidated top of book products and pricing programs for
Derived Data.\16\ The availability of diverse competitive products
promotes additional competition as it ensures that alternative products
from different sources are readily available to Distributors and the
broader market. The Exchange therefore believes that the existing
Derived Data API Service is not only constrained by competition but
also ensures continued competition that acts as a constraint on the
pricing of services provided by other national securities exchanges. If
a competing exchange were to charge less for a similar product than the
Exchange charges under the existing fee structure, even as amended,
prospective subscribers may choose not to subscribe to, or cease
subscribing to, the Program. The Exchange believes that further
lowering the cost of accessing Derived Data may make the Exchange's
market information more attractive, and encourage additional
Distributors to subscribe to Exchange market data instead of competitor
products. While the Exchange has no way of predicting with certainty
the impact of the proposed changes, it anticipates up to two
Distributors will create Derived Data from Cboe One Summary using the
API Service.
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\16\ 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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Moreover, External Subscriber fees only apply to Distributors that
elect to participate in the Program by distributing Derived Data from
Cboe
[[Page 15295]]
One Summary through an API Service. Cboe One Summary Feed is
distributed and purchased on a voluntary basis, in that neither the
Exchange nor market data distributors are required by any rule or
regulation purchase this data or to make this data available.
Accordingly, Distributors can discontinue distributing at any time and
for any reason, including due to an assessment of the reasonableness of
fees charged, Cboe One Summary Derived Data under the API Service.
Indeed, there are no Distributors who are currently subscribing to the
API Service for Cboe One Summary Derived Data. Further, as discussed,
firms have a wide variety of alternative market data products from
which to choose, such as similar proprietary consolidated top of book
data products offered by other national securities exchanges,\17\
including those that choose to offer discounted fees for the
distribution of Derived Data in an effort to compete for this business.
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\17\ Supra note 14.
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The proposed rule change also continues to provide an alternate,
and as proposed, lower, fee structure for providing Cboe One Summary
market data to Distributors that make Derived Data available to
External Subscribers via API Services. If a Distributor uses an API
Service to distribute Derived Data, the Distributor will still be
charged a fee that is tiered based on the number of External
Subscribers that are provided access to that data instead of the higher
fee normally charged for external distribution. The Exchange believes
that this fee 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 Derived Data through
an API Service. Also, all Distributors that make Derived Data available
to External Subscribers through an API Service will receive a discount
compared to the current pricing applicable for external distribution of
Cboe One Summary.\18\ The Exchange also believes its equitable and not
unfairly discriminatory to provide incrementally higher discounted
rates to Distributors that provide access to Derived Data to a greater
numbers of Subscribers as the discounted rates are designed to
incentivize firms to grow the number of External Subscribers that
purchase Derived Data from the Distributor.
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\18\ See Cboe EDGX U.S. Equities Exchange Fee Schedule.
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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, and pricing options, to their customers.
Top of book data is broadly disseminated by competing U.S. equities
exchanges. There are therefore a number of alternative products
available to market participants and investors. 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 broker-dealers or vendors
look to purchase the lowest priced top of book data product, or
quality, as market participants seek to purchase data that represents
significant market liquidity. In order to better compete for this
segment of the market, the Exchange is proposing to reduce fees charged
to Distributors that distribute certain Derived Data through an API
Service. The Exchange believes that this would facilitate greater
access to Exchange data and Derived Data, ultimately benefiting
investors that are provided access to such data.
The Exchange believes that the proposed fees do not put any market
participants at a relative disadvantage compared to other market
participants. The proposed fees would apply equally to external
distributors of Cboe One Summary that make Derived Data available
through the API Service option offered by the Exchange under the
Program. The continued difference in fees under the Program as compared
to the normal External Distribution fee for Cboe One Summary is
appropriate given that External Subscribers and Users receive Derived
Data, which by definition cannot be readily reverse[hyphen]engineered
to recreate Cboe One Summary data or used to create other data that is
a reasonable facsimile or substitute for Cboe One Summary. 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. Moreover, a number of national
securities exchanges, including the Exchange and its affiliated Cboe
U.S. equities exchanges offer pricing discounts for Derived Data
today.\19\ These pricing programs reduce the cost of accessing top of
book market information that is used, among other things, to create
derivative instruments rather than to trade U.S. equity securities.
Additionally, the Exchange is proposing to enhance the Program by
reducing the fees for Cboe One Summary Derived Data. The Exchange does
not believe that the proposal would cause any unnecessary or
inappropriate burden on intermarket competition as other exchanges are
free to lower their prices to better compete with the Exchange's
offering. The Exchange believes that the proposed rule change is pro-
competitive as it seeks to offer pricing incentives to customers to
better position the Exchange as it competes to attract additional
market data subscribers.
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\19\ Supra note 16. See also Cboe EDGX U.S. Equities Exchange
Fee Schedule, Financial Product Distribution Program.
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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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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:
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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#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="047671686129676b6969616a7077447761672a636b72">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-008 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-2022-008. 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-2022-008 and should be
submitted on or before April 7, 2022.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2022-05595 Filed 3-16-22; 8:45 am]
BILLING CODE 8011-01-P
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