Notice2022-17434
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
August 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 156 (Monday, August 15, 2022)</title>
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[Federal Register Volume 87, Number 156 (Monday, August 15, 2022)]
[Notices]
[Pages 50137-50140]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17434]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95459; File No. SR-CboeEDGX-2022-035]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
August 9, 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 August 1, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
[[Page 50138]]
(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 Options'')
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 to (1) eliminate
the Step Up Mechanism (``SUM'') Auction Pricing Tier and (2) modify the
Automated Improvement Mechanism (``AIM'') Tier 2, effective August 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 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 17% of the market share and
currently the Exchange represents only approximately 7% of the market
share.\3\ Thus, in such a low-concentrated and highly competitive
market, no single options exchange, including the Exchange, possesses
significant pricing power in the execution of option order flow. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain the Exchange's transaction fees, and 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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\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (July 27, 2022), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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The Exchange's Fees Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides standard
rebates ranging from $0.01 up to $0.21 per contract for Customer orders
in both Penny and Non-Penny Securities. Additionally, in response to
the competitive environment, the Exchange also offers tiered pricing,
which provides Members with 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.
For example, the Exchange currently offers two tiers related to
Customer volume under proposed footnote 9 (Automated Improvement
Mechanism (``AIM'') Tier) applicable to orders yielding fee code
``BC'', which fee code is appended to Customer Agency orders executed
in AIM. Orders yielding fee code BC are currently provided a standard
rebate of $0.06 per contract. The AIM Tiers currently provide enhanced
rebates between $0.11 and $0.14 per contract for qualifying orders that
yield fee code BC where a Member meets the respective tier's volume
threshold. Under AIM Tier 2, a Member will receive an enhanced rebate
of $0.14 per contract on such orders where it has an ADV \4\ in
Customer orders greater than or equal to 0.50% of average OCV.\5\ The
Exchange now proposes to reduce the enhanced rebate amount under AIM
Tier 2 from $0.14 per contract to $0.12 per contract.
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\4\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day. ADV is calculated
on a monthly basis. See Cboe EDGX Options Exchange Fee Schedule.
\5\ ``OCV'' means the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close. See
Cboe EDGX Options Exchange Fee Schedule.
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The Exchange also offers Members an opportunity to receive an
additional rebate under footnote 3 of the Fee Schedule (Step Up
Mechanism (``SUM'') Auction Pricing Tier). Under the SUM Response Tier,
the Exchange provides an additional rebate of $0.05 per contract for
any order submitted in response to, and executed against, an order
subject to the SUM Auction.\6\ The Exchange no longer wishes to
maintain this rebate and proposes to eliminate the SUM Auction Pricing
Tier from the Fee Schedule (and eliminate corresponding references to
footnote 3 in the Fee Codes and Associated Fees table). Further, the
Exchange would rather redirect future resources and funding into other
programs and tiers intended to incentivize increased order flow.
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\6\ Applicable to orders yielding fee codes: NB, NC, NF, NM, NN,
NO, NP, NT, PB, PC, PF, PM, PN, PO, PP and PT.
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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.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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As described above, the Exchange operates in a highly competitive
market in which market participants can
[[Page 50139]]
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.
The Exchange believes the proposed reduction in rebate amount under
AIM Tier 2 for orders yielding fee code BC is reasonable, equitable,
and not unfairly discriminatory. The Exchange believes that the
proposed change to AIM Tier 2 is reasonable because it continues to
provide an enhanced rebate (albeit at a lower amount), which the
Exchange believes is still commensurate with the current criteria. The
proposed rule change is equitable and unfairly discriminatory as the
amended rebate amount applies uniformly to all Members' respective
qualifying Customer orders. The Exchange believes that AIM Tier 2
continues to benefit all Members by contributing towards a robust and
well-balanced market ecosystem. Indeed, the Exchange believes AIM Tier
2 will continue to incentivize increased Customer order flow and
overall order flow to the Exchange's Book, which creates more trading
opportunities, which, in turn attracts Market-Makers. A resulting
increase in Market-Maker activity may facilitate tighter spreads, which
may lead to an additional increase of order flow from other market
participants. Increased overall order flow benefits all investors by
deepening the Exchange's liquidity pool, potentially providing even
greater execution incentives and opportunities, offering additional
flexibility for all investors to enjoy cost savings, supporting the
quality of price discovery, promoting market transparency, and
improving investor protection.
The Exchange believes that eliminating the SUM Auction Pricing Tier
under Footnote 3 is reasonable because the Exchange is not required to
maintain this program or provide additional rebates. Members may still
have other opportunities to obtain enhanced rebates, such as via the
Customer Volume Tiers or Market-Maker Volume Tiers.\10\ The Exchange
believes that eliminating the SUM Auction Pricing Tier is equitable and
not unfairly discriminatory because it applies uniformly to all
Members. The Exchange also notes that the proposed changes will not
adversely impact any Member's ability to otherwise qualify for reduced
fees or enhanced rebates offered under other tiers.
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\10\ See Cboe EDGX Options Fees Schedule, Footnotes 1 and 2.
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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. In particular, 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. Indeed, the Exchange notes the
proposed change to AIM Tier 2 will apply to all Members equally in that
all Members will continue to be eligible for AIM Tier 2, have a
reasonable opportunity to meet the tier's criteria and receive the
enhanced rebate (albeit at a slightly lower amount) on their qualifying
orders if such criteria is met. Also, as stated above, the proposal to
eliminate the SUM Auction Pricing Tier will also apply to all Members,
in that, such Tier will not be available for any Member. The Exchange
does not believe the proposed changes burden competition as all Members
will continue to have an opportunity receive enhanced rebates or
reduced fees offered under various tiers, including AIM Tier 2, which
tiers are generally designed to increase the competitiveness of EDGX
and 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.
The Exchange also 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 they may participate on and
direct their order flow, including 15 other options exchanges.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no single options
exchange has more than 17% of the market share. Therefore, no exchange
possesses significant pricing power in the execution of order flow.
Indeed, participants can readily choose to send their orders to other
exchanges if they deem fee levels at those other venues to be more
favorable. As noted above, the Exchange believes that the proposed fee
changes are comparable to that of other exchanges offering similar
functionality. 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.'' 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' . . . .''. 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.
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 \11\ and paragraph (f) of Rule 19b-4 \12\
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
[[Page 50140]]
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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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#9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed"><span class="__cf_email__" data-cfemail="a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-035 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-2022-035. 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-2022-035, and
should be submitted on or before September 6, 2022.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17434 Filed 8-12-22; 8:45 am]
BILLING CODE 8011-01-P
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