Notice2022-14750
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
July 12, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 132 (Tuesday, July 12, 2022)</title>
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[Federal Register Volume 87, Number 132 (Tuesday, July 12, 2022)]
[Notices]
[Pages 41371-41374]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95203; File No. SR-CboeEDGX-2022-030]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
July 6, 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 July 1, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule
[[Page 41372]]
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'') proposes to
amend its Fee Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/options/regulation/rule_filings/edgx/">http://markets.cboe.com/us/options/regulation/rule_filings/edgx/</a>) [sic], at the Exchange's Office of the Secretary,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
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 Equity'') to modify the criteria of
Add Volume Tier 2. The Exchange proposes to implement these changes
effective July 1, 2022.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\3\ no single registered
equities exchange has more than 16% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Maker-Taker'' model
whereby it pays rebates to members that add liquidity and assesses fees
to those that remove liquidity. The Exchange's Fee Schedule sets forth
the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Currently, for orders in
securities priced at or above $1.00, the Exchange provides a standard
rebate of $0.00160 per share for orders that add liquidity and assesses
a fee of $0.0030 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 the total dollar value for orders that remove
liquidity. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing which provides Members
opportunities to qualify for higher rebates or reduced fees where
certain volume criteria and thresholds are met. Tiered pricing provides
an incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (June 27, 2022), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
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Add Volume Tier 2
Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers
four [sic] Add Volume Tiers that each provide an enhanced rebate for
Members' qualifying orders yielding fee codes B,\4\ V,\5\ Y,\6\ 3 \7\
or 4,\8\ where a Member reaches certain add volume-based criteria.
Specifically, Add Volume Tier 2 offers an enhanced rebate of $0.0027
per share for qualifying orders (i.e., yielding fee codes B, V, Y, 3 or
4) where a Member (i) adds an ADV \9\ greater than or equal to 0.28% of
the TCV; \10\ or (ii) a Member adds and ADV greater than or equal to
30,000,000 shares. The Exchange proposes to amend the criteria of Add
Volume Tier 2 to offer an enhanced rebate of $0.0027 per share for
qualifying orders (i.e., yielding fee codes B, V, Y, 3 or 4) where a
Member (i) adds an ADV greater than or equal to 0.22% (instead of
0.28%) of the TCV; or (ii) a Member adds an ADV greater than or equal
to 25,000,000 shares (instead of 30,000,000 shares).
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\4\ Orders yielding Fee Code ``B'' are orders adding liquidity
to EDGX (Tape B).
\5\ Orders yielding Fee Code ``V'' are orders adding liquidity
to EDGX (Tape A).
\6\ Orders yielding Fee Code ``Y'' are orders adding liquidity
to EDGX (Tape C).
\7\ Orders yielding Fee Code ``3'' are orders adding liquidity
to EXGX [sic] in the pre and post market (Tapes A or C).
\8\ Orders yielding Fee Code ``4'' are orders adding liquidity
to EDGX in the pre and post market (Tape B).
\9\ ``ADV'' means average daily volume calculated as the number
of shares added to, removed from, or routed by, the Exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
\10\ ``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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The Exchange believes that the proposed lower thresholds in Add
Volume Tier 2 will incentivize market participants to provide
additional displayed liquidity on the Exchange, thereby contributing to
a deeper and more liquid market, which benefits all market participants
and provides greater execution opportunities on the Exchange. The
Exchange is not proposing any changes to Add Volume Tier 1 or Add
Volume Tier 3.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
[[Page 41373]]
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 change
reflects 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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In particular, the Exchange believes that the proposed changes to
Add Volume Tier 2 are reasonable, equitable and not unfairly
discriminatory because the tier, as modified, continues to be available
to all Members and provide Members an opportunity to receive an
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. Specifically, the Exchange notes
that relative volume-based incentives and discounts have been widely
adopted by exchanges,\14\ including the Exchange,\15\ and are
reasonable, equitable and non-discriminatory because they are open to
all Members on an equal basis and provide additional benefits or
discounts that are reasonably related to (i) the value to an exchange's
market quality and (ii) associated higher levels of market activity,
such as higher levels or liquidity provision and/or growth thresholds,
as well as assess similar fees or rebates for similar types of orders,
to that of the Exchange.
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\14\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\15\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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Specifically, the Exchange believes the proposed criteria changes
for Add Volume Tier 2 are reasonable because the tier will continue to
provide Members with an opportunity to receive an enhanced rebate or
reduced fee by encouraging Members to increase their order flow to the
Exchange. In particular, the Exchange believes that the changes to Add
Volume Tier 2 will provide reasonable means for Members to receive an
enhanced rebate for adding liquidity on the Exchange. The Exchange also
believes that the current enhanced rebate for Add Volume Tier 2
continues to be commensurate with the proposed criteria. That is, the
rebate reasonably reflects the difficulty in achieving the applicable
criteria as amended. Furthermore, the Exchange believes that the
proposed lower thresholds in Add Volume Tier 2 will incentivize market
participants to provide additional displayed liquidity on the Exchange,
thereby contributing to a deeper and more liquid market, which benefits
all market participants and provides greater execution opportunities on
the Exchange.
The Exchange believes the proposed changes to Add Volume Tier 2
represent an equitable allocation of rebates and fees and are not
unfairly discriminatory because all Members are eligible for those
tiers and would have the opportunity to meet a tier's criteria and
would receive the proposed enhanced rebate or reduced fee if such
criteria is met. Without having a view of activity on other market 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 proposed tiers. While the Exchange has no way of predicting
with certainty how the proposed tiers will impact Member activity, the
Exchange anticipates that two Members will be able to satisfy the
criteria proposed for Add Volume Tier 2. The Exchange also notes that
the proposed changes will not adversely impact any Member's ability to
qualify for other reduced fee or enhanced rebated tiers. Should a
Member not meet the proposed criteria under the modified tier, the
Member will merely not receive that corresponding enhanced rebate or
reduced fee. The Exchange believes that the proposed changes to Add
Volume 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, as discussed above,
the Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
The Exchange believes the proposed rule change does not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
tier changes will apply to all Members equally in that all Members will
continue to be eligible for Add Volume 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 are met.
The Exchange does not believe the proposed changes burden
competition, but rather, enhance competition as they are intended to
increase the competitiveness of EDGX by amending existing pricing
incentives 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 benefit 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
[[Page 41374]]
than 16% of the market share.\16\ 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.'' \17\ 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'. . .''.\18\
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\16\ Supra note 3.
\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\18\ 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 \19\ and paragraph (f) of Rule 19b-4 \20\
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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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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#d1a3a4bdb4fcb2bebcbcb4bfa5a291a2b4b2ffb6bea7"><span class="__cf_email__" data-cfemail="651710090048060a0808000b1116251600064b020a13">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-030 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-2022-030. 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. 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-2022-030, and
should be submitted on or before August 2, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14750 Filed 7-11-22; 8:45 am]
BILLING CODE 8011-01-P
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