Notice2022-05986
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
March 22, 2022
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 87 Issue 55 (Tuesday, March 22, 2022)</title>
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[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16296-16299]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05986]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94437; File No. SR-CboeEDGX-2022-013]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend its Fee Schedule
March 16, 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 9, 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.
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'') as follows: (1) Amend fee
code ZM so that it applies to applicable orders with a time-in-force of
Good `til Extended Day (``GTX''); and (2) modify the criteria of Growth
Tier 2. The Exchange proposes to implement these changes effective
March 1, 2022.\3\
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\3\ The Exchange initially filed the proposed fee changes on
March 1, 2022 (SR-CboeEDGX-2022-009). On March 9, 2022, the Exchange
withdrew that filing and submitted this proposal.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\4\ no single registered
equities exchange has more than 17% 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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\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (February 27, 2022), 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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As noted under the Fee Codes and Associated Fees section of the Fee
Schedule, fee code ZM is appended to retail orders with a time-in-force
of Day \5\/Regular Hours Only (``RHO'') \6\ that remove liquidity on
arrival and provides a fee/rebate of free. Now the Exchange proposes to
amend fee code ZM so that is appended to retail with a time-in-force of
Day/RHO or GTX \7\ that remove liquidity on arrival. Currently, retail
orders with a time-in-force of GTX that remove liquidity upon arrival
are appended fee code ZR which are assessed a fee of $0.00300 per share
in securities at or above $1.00 and 0.30% of dollar value to securities
below $1.00. Therefore, the proposal would decrease the fee associated
with retail orders with a time-in-force of GTX that remove liquidity
upon arrival by $0.00300.
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\5\ See Exchange Rule 11.6(q)(2)
\6\ See Exchange Rule 11.6(q)(6).
\7\ See Exchange Rule 11.6(q)(5).
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Further, the Growth Volume Tiers Volume Tiers set forth in footnote
1 of the Fee Schedule (Add/Remove Volume Tiers) provide Members an
opportunity for qualifying orders (i.e., orders yielding fee code B,\8\
V,\9\ Y,\10\ 3 \11\ or 4 \12\) to receive an enhanced rebate and are
designed to encourage growth in order flow by providing specific
criteria in which Members must increase their relative liquidity each
month over a predetermined baseline. Growth Tier 2, for example,
provides an opportunity for qualifying orders (i.e., orders yielding
fee code B, V, Y, 3 or 4) to receive an enhanced rebate of $0.0027 per
share to Members that (1) add a Step-Up ADAV \13\ from June 2021
greater than or equal to 0.10% of the TCV \14\ or Members that add a
Step-Up
[[Page 16297]]
ADAV from June 2021 equal to or greater than 8 million shares; and (2)
Members that have a total remove ADV equal to or greater than 0.70% of
TCV. The Exchange now proposes to modify the criteria in the second
prong of Growth Tier 2 to require that Members (i) have a total remove
ADV equal to or greater than 0.70% of TCV, or alternatively, (ii) have
a total remove ADV equal to or greater than 60,000,000 shares.
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\8\ Orders yielding Fee Code ``B'' are orders adding liquidity
to EDGX (Tape B).
\9\ Orders yielding Fee Code ``V'' are orders adding liquidity
to EDGX (Tape A).
\10\ Orders yielding Fee Code ``Y'' are orders adding liquidity
to EDGX (Tape C).
\11\ Orders yielding Fee Code ``3'' are orders adding liquidity
to EDGX in the pre and post market (Tapes A or C).
\12\ Orders yielding Fee Code ``4'' are orders adding liquidity
to EDGX in the pre and post market (Tape B).
\13\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV.
\14\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Securities and Exchange Act of
1933 (the ``Act''),\15\ in general, and furthers the objectives of
Section 6(b)(4),\16\ 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) \17\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest,
and, particularly, is not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers. 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.
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\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(4).
\17\ 15 U.S.C. 78f.(b)(5).
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Regarding the proposed amendment to fee code ZM, the Exchange notes
that the competition for retail order flow is particularly intense,
especially as it relates to exchange versus off-exchange venues, as
prominent retail brokerages tend to route a majority of their limit
orders to off-exchange venues.\18\ Accordingly, competitive forces
compel the Exchange to use exchange transaction fees and credits,
particularly as they relate to competing for retail order flow, because
market participants can readily trade on competing venues if they deem
pricing levels at those other venues to be more favorable.
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\18\ See Securities Exchange Release No. 86375 (July 15, 2019),
84 FR 34960 (SRCboeEDGX-2019-045).
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The Exchange believes that its proposed change to amend fee code ZM
is reasonable, equitable and not unfairly discriminatory. First, the
Exchange notes that the current fee applied to retail orders with a
time-in-force of GTX that remove liquidity upon arrival is $0.00300 per
share in securities at or above $1.00 and 0.30% of dollar value to
securities below $1.00. Therefore, the proposal would decrease the fee
associated with retail orders with a time-in-force of GTX that remove
liquidity upon arrival. Second, while the proposed fee/rebate applies
only to retail orders, the Exchange does not believe this application
is discriminatory as the Exchange offers similar rebates or reduced
fees to non-retail order flow. The Exchange notes that, like all other
fee codes, ZM and the accompanying fee (which is free) will be
automatically and uniformly applied to all Members' qualifying orders
as applicable.
The Exchange believes its proposal to amend the criteria of the
Growth Tier 2 is reasonable because the tier is and will continue to be
available to all Members and provides Members an alternative
opportunity to meet the required criteria in order to receive an
enhanced rebate. The Exchange notes that relative volume-based
incentives and discounts have been widely adopted by exchanges,
including the Exchange, and are reasonable, equitable, and non-
discriminatory because they are open to all Members on an equal basis
and provide additional discounts that are reasonably related to (i) the
value to an exchange's market quality and (ii) associated with higher
levels of market activity, such as higher levels of liquidity provision
and/or growth patterns. The proposed amendment to Growth Tier 2 is
designed to give Members an alternative opportunity to meet the second
prong of the required criteria, and therefore the tier may be more
easily achieved by Members. The Exchange believes that the existing
rebates under Growth Tier 2 continues to be commensurate with the
proposed criteria. That is, the rebate reasonably reflects the
difficulty in achieving the corresponding criteria as amended.
The Exchange believes that the changes Growth Tier 2 will benefit
all market participants by incentivizing continuous liquidity and,
thus, deeper more liquid markets as well as increased execution
opportunities. Particularly, the proposal is designed to incentivize
liquidity, which further contributes to a deeper, more liquid market
and provide even more execution opportunities for active market
participants at improved prices. This overall increase in activity
deepens the Exchange's liquidity pool, offers additional cost savings,
supports the quality of price discovery, promotes market transparency
and improves market quality, for all investors.
The Exchange also believes that the proposed amendment to the
Growth Tier 2 represents an equitable allocation of rebates and are not
unfairly discriminatory because all Members are eligible for the tiers
and would have the opportunity to meet the tier's criteria and would
receive the proposed 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 the tier. While the
Exchange has no way of predicting with certainty how the proposed tier
will impact Member activity, based on trading activity on the Exchange
during the prior month, the Exchange anticipates that at least one
Member will be able to compete for and reach the proposed criteria in
Growth Tier 2. The Exchange also notes that proposed change will not
adversely impact any Member's ability to qualify for other reduced fee
or enhanced rebate tiers. Should a Member not meet the proposed
criteria under the tier, as amended, the Member will merely not receive
the corresponding enhanced rebate.
As noted above, the Exchange operates in a highly competitive
market. The Exchange is only one of 16 equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. It is also only one of several maker-
taker exchanges. Competing equity exchanges offer similar rates and
tiered pricing structures to that of the Exchange, including schedules
of rebates and fees that apply based upon members achieving certain
volume thresholds.
[[Page 16298]]
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
tier change will apply to Members equally in that all Members are
eligible for Growth Tier 2, have a reasonable opportunity to meet the
tier's criteria and will receive the enhanced rebate on their
qualifying orders if such criteria is met. Further, the fee code ZM is
and will continue to be available to all Members equally. The Exchange
does not believe the proposed changes burdens competition, but rather,
enhances competition as it is intended to increase the competitiveness
of EDGX by amending an existing pricing incentive in order to attract
order flow and incentivize participants to increase their participation
on the Exchange, providing for additional execution opportunities for
market participants and improved price transparency. Greater overall
order flow, trading opportunities, and pricing transparency benefits
all market participants on the Exchange by enhancing market quality and
continuing to encourage Members to send orders, thereby contributing
towards a robust and well-balanced market ecosystem.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and direct their order flow, including other equities exchanges, off-
exchange venues, and alternative trading systems. Additionally, the
Exchange represents a small percentage of the overall market. Based on
publicly available information, no single equities exchange has more
than 17% of the market share.\19\ Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other exchange
and off-exchange venues if they deem fee levels at those other venues
to be more favorable. Moreover, the Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
Specifically, in Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and,
also, recognized that current regulation of the market system ``has
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \20\ 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'. . . .''.\21\ 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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\19\ Supra note 4.
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\
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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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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#3745425b521a54585a5a525943447744525419505841"><span class="__cf_email__" data-cfemail="9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-013 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-2022-013. 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
[[Page 16299]]
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-2022-013 and should
be submitted on or before April 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05986 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P
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