Notice2022-22662
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
October 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 201 (Wednesday, October 19, 2022)</title>
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[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63555-63558]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22662]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96073; File No. SR-CboeEDGX-2022-043]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
October 13, 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 October 3, 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 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
[[Page 63556]]
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 modify rebates
related to Automated Improvement Mechanism (``AIM'') transactions,
effective October 3, 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 18% of the market share and
currently the Exchange represents only approximately 6% 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 (September 30, 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. The Fee Codes and Associated
Fees section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates. Fee code BC, for example, is
appended to Customer Agency orders executed in the Automated
Improvement Mechanism (``AIM'' or ``AIM Auction'') and currently offers
a rebate of $0.06 per contract. Additionally, the Fee Schedule offers
tiered pricing which provides Members \4\ opportunities to qualify for
higher rebates or reduced fees where certain volume criteria and
thresholds are met. 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.
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\4\ See Exchange Rule 1.5(n).
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For example, the Exchange currently offers two AIM Volume Tiers
which provide enhanced rebates between $0.11 and $0.12 per contract for
qualifying Customer orders that yield fee code BC where a Member meets
the respective tiers' volume threshold.\5\ More specifically, AIM Tier
1 currently offers an enhanced rebate of $0.11 per contract for a
Member's qualifying orders (i.e., yielding fee code BC) if a Member has
an ADV \6\ in Customer Orders greater than or equal to 0.30% of average
OCV.\7\ AIM Tier 2 currently offers an enhanced rebate of $0.12 per
contract for a Member's qualifying orders (i.e., yielding fee code BC)
if a Member has an ADV in Customer Orders greater than or equal to
0.50% of average OCV. The Exchange first proposes to reduce the current
rebates for both AIM Tiers. Specifically, the Exchange proposes to
reduce the current enhanced rebate for AIM Tier 1 from $0.11 per
contract to $0.09 per contract. The Exchange proposes to reduce the
current enhanced rebate for AIM Tier 2 from $0.12 per contract to $0.10
per contract. The Exchange notes that it believes the AIM Tiers
continue to provide Members with an opportunity to receive an enhanced
rebate (albeit at a lower amount), thus providing a continued incentive
to submit Customer order flow to the Exchange.
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\5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote
9, Automated Improvement Mechanism (``AIM'') Tiers.
\6\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day.
\7\ ``OCC Customer Volume or ``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.
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The Exchange also proposes to adopt new supplemental AIM Tiers
(under Footnote 9) which would provide additional rebates (i.e., in
addition to the standard rebate or enhanced rebates Members may receive
for Customer Agency orders executed in AIM). The proposed tiers would
be applicable to fee code BC and applied on an order-by-order basis. In
addition to a volume threshold described below, the proposed tiers
would include criteria based on the ``Interaction Rate'' of the order.
Particularly, the Exchange proposes to add new Supplemental Tier 1,
which would provide an additional rebate of $0.02 per contract where a
Member (i) has an ADV in Customer Orders greater than or equal to 0.50%
of average OCV and (ii) the order has an Interaction Rate greater than
or equal to 51% and less than 80%. The Exchange proposes to add new
Supplemental Tier 2, which would provide an additional rebate of $0.05
per contract where a Member (i) has Member has an ADV in Customer
Orders greater than or equal to 0.50% of average OCV and (ii) the order
has an Interaction Rate greater than or equal to 0% and less than 51%.
The ``Interaction Rate'' of an order refers to the percentage of the
Agency Order that traded against the Initiating Order.\8\ By way of
example, if an AIM Agency Order trades 35 out of 40 contracts with the
paired Initiating Order (i.e., 15 [sic] contracts were executed against
a response or unrelated order), the Interaction Rate would be 87.5% (35
/ 40). Because the Interaction Rate was above 80% in this example, that
order would not qualify for either additional rebate. However, if an
AIM Agency Order trades 25 out of 40 contracts with the paired
Initiating Order, the Interaction Rate would be 62.5% (25 / 40), and
that order would be entitled to an additional rebate of $0.02 per
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contract (provided the Member also meets the requirements of the first
prong and has an ADV in Customer Orders greater than or equal to 0.50%
of average OCV). The proposed new tiers are designed to incentivize
order flow providers to continue to route AIM orders to the Exchange,
notwithstanding the potential for such orders to be broken up. The
Exchange also proposes to clarify that the additional proposed rebates
will apply to the Member that submitted a qualifying AIM Agency Order,
including a Member who routed an order to the Exchange with a
Designated Give Up, when the Agency Order trades with a Response Order.
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\8\ An Options Member may electronically submit for execution in
AIM an order it represents as agent (``Agency Order'') against
principal interest or a solicited order(s) (except for an order for
the account of any Options Market Maker registered in the applicable
series on the Exchange) (an ``Initiating Order''). See EDGX Options
Rule 21.19.
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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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
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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.
The Exchange believes the proposed reduction in rebate amounts
under AIM Tiers 1 and 2 for orders yielding fee code BC is reasonable
both tiers continue to provide an enhanced rebate (albeit at lower
amounts), which the Exchange believes is still commensurate with the
current criteria. The proposed rule change is equitable and unfairly
[sic] discriminatory as the amended rebate amounts apply uniformly to
all Members' respective qualifying Customer orders. The Exchange
believes that the current AIM Tiers continue to benefit all Members by
contributing towards a robust and well-balanced market ecosystem.
Indeed, the Exchange believes AIM Tiers 1 and 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 the proposed rule change to adopt new AIM
Supplemental Tiers is reasonable because it provides an opportunity for
Members to receive additional rebates for meeting certain thresholds
and based on the Interaction Rate of the AIM order. The Exchange also
believes the proposed additional rebates are commensurate with the
proposed criteria. The Exchange further believes the proposal
encourages the use of AIM. Specifically, the Exchange believes that the
proposed additional rebates for AIM Agency Orders would incentivize
Agency Order flow to AIM Auctions, notwithstanding the potential for
such orders to be broken up. Additional auction order flow provides
market participants with additional trading opportunities at improved
prices. Moreover, exchanges have a history of providing credits when an
auctioned order is broken up.\12\ Lastly, the proposed additional
rebates are not unreasonably discriminatory because such rebates are
equally available to all Members submitting AIM Agency Orders to the
Exchange.
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\12\ See e.g., Nasdaq ISE Options 7 Pricing Schedule,
Facilitation and Solicitation Break-Up Rebate.
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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, but rather, serves to increase
intra-market competition by incentivizing members to direct their
orders, and, in particular, Customer orders, to the Exchange's AIM
Auction, in turn providing for more opportunities to compete at
improved prices. Moreover, the Exchange notes the proposed change to
AIM Tiers will apply to all Members equally in that all Members will be
eligible to receive the rebates under the tiers, have a reasonable
opportunity to meet the tier's criteria and receive the enhanced
rebates (albeit at a lower amount) on their qualifying orders if such
criteria is met.
Also, as stated above, the proposal to adopt the proposed
Supplemental AIM Tiers will also apply to all Members, in that, such
Tier will be available for any Member that meets the criteria. The
Exchange does not believe the proposed changes burden competition as
all Members will continue to have an opportunity receive enhanced
rebates or additional rebates offered under various tiers, 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
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single options exchange has more than 18% 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 \13\ and paragraph (f) of Rule 19b-4 \14\
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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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 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#cab8bfa6afe7a9a5a7a7afa4beb98ab9afa9e4ada5bc"><span class="__cf_email__" data-cfemail="cdbfb8a1a8e0aea2a0a0a8a3b9be8dbea8aee3aaa2bb">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-043 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-2022-043. 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-2022-043 and should be
submitted on or before November 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22662 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P
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