Notice2022-26745
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 9, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 236 (Friday, December 9, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 236 (Friday, December 9, 2022)]
[Notices]
[Pages 75680-75683]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26745]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96447; File No. SR-CboeEDGX-2022-053]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
December 5, 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 December 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 Equities'') to (1) define the term
``Step-Up ADV'', and (2) introduce a new Retail Growth Tier 1 and
renumber the existing Retail Growth Tiers. The Exchange proposes to
implement these changes effective December 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
Securities Exchange Act of 1934 (the ``Act''), to which market
participants may direct their order flow. Based on publicly available
information,\3\ no single registered equities exchange has more than
14% 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. 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.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (November 28, 2022), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
---------------------------------------------------------------------------
The ``definitions'' section of the Exchange's Fee Schedule defines
various terms used throughout the Fee Schedule. The Exchange proposes
to adopt a new definition for the term ``Step-Up ADV''. Specifically,
as proposed ``Step-up ADV'' means ADV \4\ in the relevant baseline
months subtracted from current day ADV. Such definition would be
referenced in tiers designed to incentivize Members to grow their ADV
from the baseline month, such as the proposed Retail Growth Tier 1, as
discussed below.
---------------------------------------------------------------------------
\4\ ``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.
---------------------------------------------------------------------------
Under footnote 2 of the Fee Schedule, the Exchange currently offers
various Retail Volume Tiers, which provide an enhanced rebate for
Members' qualifying orders yielding fee codes ZA \5\ or ZO.\6\ Now, the
Exchange proposes to adopt a new Retail Growth Tier 1 and renumber the
existing Retail Growth Tiers. Specifically, the proposed Retail Growth
Tier 1 would provide a rebate of $0.0033 per share to qualifying orders
(i.e., orders yielding fee code ZA or ZO) in securities priced at or
above
[[Page 75681]]
$1 \7\ to Member Participant Identifiers (``MPIDs'') with a Step-Up ADV
from November 2022 greater than or equal to 0.05% of the TCV.\8\ The
proposed Retail Growth Tier 1 is designed to provide Members an
opportunity to receive an enhanced rebate by meeting the Retail Growth
Tier 1 criteria. Further, overall the Retail Growth Tiers are intended
to provide Members an opportunity to receive an enhanced rebate by
increasing their retail order flow to the Exchange, which further
contributes to a deeper, more liquid market and provides even more
execution opportunities for active market participants. Incentivizing
an increase in liquidity adding or removing volume, through enhanced
rebate opportunities, encourages liquidity adding Members on the
Exchange to contribute to a deeper, more liquid market, and liquidity
executing Members on the Exchange to increase transactions and take
execution opportunities provided by such increased liquidity, together
providing for overall enhanced price discovery and price improvement
opportunities on the Exchange. As such, increased overall order flow
benefits all Members by contributing towards a robust and well-balanced
market ecosystem.
---------------------------------------------------------------------------
\5\ Orders yielding fee code ``ZA'' are retail orders adding
liquidity to EDGX.
\6\ Orders yielding fee code ``ZO'' are retail orders adding
liquidity to EDGX in the pre and post market.
\7\ The proposed Retail Growth Tier 1 would provide no enhanced
rebate for applicable orders in securities priced under $1. However,
orders yielding fee codes ZA and ZO in securities priced under $1
would continue to receive the standard rebate of $0.0003 per share.
\8\ ``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.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
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 as well as section 6(b)(4) \12\
as it is designed to provide for the equitable allocation of reasonable
dues, fees and other charges among its Members and other persons using
its facilities.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
\12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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 proposal to adopt the
new Retail Growth Tier 1 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. Additionally, the Exchange notes
that relative volume-based incentives and discounts have been widely
adopted by exchanges,\13\ including the Exchange,\14\ 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 of liquidity provision and/or growth patterns.
Competing equity exchanges offer similar tiered pricing structures,
including schedules of rebates and fees that apply based upon members
achieving certain volume and/or growth thresholds, as well as assess
similar fees or rebates for similar types of orders, to that of the
Exchange.
---------------------------------------------------------------------------
\13\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\14\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed tier is
reasonable because it will be available to all Members and provide all
Members with an additional opportunity to receive an enhanced rebate.
The Exchange further believes the proposed tier will provide a
reasonable means to encourage retail orders flow to the Exchange and to
incentivize Members to continue to provide retail volume to the
Exchange by offering them an additional opportunity to receive an
enhanced rebate on qualifying orders. An overall increase in activity
would deepen the Exchange's liquidity pool, offer additional cost
savings, support the quality of price discovery, promote market
transparency and improve market quality, for all investors.
The Exchange believes that the proposed change is reasonable as it
does not represent a significant departure from the criteria currently
offered in the Fee Schedule. Specifically, the proposed new tier has
criteria similar to the existing Retail Growth Tiers, albeit with less
stringent criteria that applies at the MPID level rather than the
Member level. Nonetheless, the Exchange believes that the enhanced
rebate under the proposed new tier is commensurate with the criteria
and the type of order flow associated with the applicable tier by
allowing for MPID level activity to become eligible for the rebate
instead of only Member level activity. The Exchange also believes that
the proposal represents an equitable allocation of fees and rebates and
is not unfairly discriminatory because all Members will be eligible for
the proposed new tier and have the opportunity to meet the tier's
criteria and receive the corresponding enhanced 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
the new proposed tier. While the Exchange has no way of predicting with
certainty how the proposed changes will impact Member activity, based
on the prior months volume, the Exchange anticipates that at least one
MPID will be able to satisfy the criteria proposed under the proposed
new tier. The Exchange also notes that proposed change will not
adversely impact any Member's ability to qualify for enhanced rebates
offered under other tiers. Should a Member not meet the criteria of the
new tier, the Member will merely not receive that corresponding
enhanced rebate.
Finally, the Exchange believes the proposal to define the term
``Step-Up ADV'' is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Specifically, the proposal is
intended only to add clarity to the Exchange's Fee Schedule and
involves no substantive change.
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 changes would
[[Page 75682]]
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
new tier will apply to all Members equally in that all Members are
eligible the tier, 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. The Exchange does not believe the
proposed changes burden competition, but rather, enhance competition as
it is intended to increase the competitiveness of EDGX by adopting
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 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 changes 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 14% of the market share.\15\ 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.'' \16\ 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'. . . .''.\17\ 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.
---------------------------------------------------------------------------
\15\ Supra note 1.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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)).
---------------------------------------------------------------------------
Finally, the Exchange believes its proposal to add the definition
of Step-Up ADV will have no impact on competition as it is only
intended to add clarity to the Exchange's Fee Schedule and involves no
substantive change.
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 \18\ and paragraph (f) of Rule 19b-4 \19\
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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="7705021b125a14181a1a121903043704121459101801">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-053 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-2022-053. 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
[[Page 75683]]
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-2022-053, and should be submitted on or before December 30,
2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26745 Filed 12-8-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on December 9, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.