Notice2022-27053
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
December 14, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 239 (Wednesday, December 14, 2022)</title>
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[Federal Register Volume 87, Number 239 (Wednesday, December 14, 2022)]
[Notices]
[Pages 76530-76532]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27053]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96466; File No. SR-CboeEDGX-2022-052]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
December 8, 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.
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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 eliminate two
Market Maker Volume Tiers, 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 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
[[Page 76531]]
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 (November 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 assesses a standard fee
of $0.20 per contract for Market Maker orders that add liquidity 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. 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, pursuant to Footnote 2 of the Fees Schedule, the
Exchange currently offers eight Market Maker Volume Tiers which provide
reduced fees between $0.01 and $0.17 per contract for qualifying Market
Makers orders that yield fee code PM or NM where a Member meets the
respective tiers' volume thresholds.\5\ In particular, Market Maker
Volume Tier 7 provides a reduced fee of $0.04 per contract for a
Member's qualifying orders (i.e., yielding fee code PM or NM) if a
Member: (1) has an ADV in Customer orders greater than or equal to
0.70% of average OCV; (2) has an ADV in Customer or Market Maker orders
greater than or equal to 0.50% of average OCV; (3) has an ADV in AIM
Agency Orders greater than or equal to 0.30% of average OCV; and (4)
has an ADV in complex Customer orders (yielding fee codes ZA, ZB, ZC,
or ZD) greater than or equal to 0.10% of average OCV. Market Maker
Volume Tier 8 provides a reduced fee of $0.03 per contract for a
Member's qualifying orders (i.e., yielding fee code PM or NM) if a
Member: (1) has an ADV in Customer orders greater than or equal to
1.00% of average OCV; (2) has an ADV in Customer or Market Maker orders
greater than or equal to 1.10% of average OCV; (3) has an ADV in AIM
Agency Orders greater than or equal to 0.75% of average OCV; and (4)
has an ADV in complex Customer orders (yielding fee codes ZA, ZB, ZC,
or ZD) greater than or equal to 0.20% of average OCV. The Exchange
notes that no Member has reached either Tier 7 or 8 in several months
and the Exchange therefore proposes to eliminate these Tiers from the
Fees Schedule.\6\
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\5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote
2, Market Maker Volume Tiers.
\6\ In connection with the proposed elimination of Tier 7, the
Exchange also proposes to eliminate references to the listed fee of
``$0.04'' for fee codes PM and NM in the Standard Rates table as
such reduced fee will no longer be an option for Market-Maker orders
that add liquidity. The Exchange notes that it is not proposing to
eliminate the reference to ``$0.03'' notwithstanding the proposed
elimination of Tier 8 as another Market Maker Volume Tier (i.e.,
Tier 5) currently also offers a reduced fee of $0.03.
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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 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 Exchange believes that eliminating Market Maker Volume Tiers 7
and 8 under Footnote 2 is reasonable because the Exchange is not
required to maintain these tiers or provide reduced fees. The Exchange
also believes the proposed change is reasonable because no Members have
reached these tiers in several months. Further, Members still have
other opportunities to obtain reduced fees, such as via Market Maker
Volume Tiers 1 through 6.\10\ The Exchange believes that eliminating
Market Maker Volume Tiers 7 and 8 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, Footnote 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. Particularly, the proposal to
eliminate Market Maker Volume Tiers 7 and 8 applies to all Members, in
that, such Tiers 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 Market Maker Volume
Tiers 1 through 6, 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
[[Page 76532]]
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 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. 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 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#b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf"><span class="__cf_email__" data-cfemail="fe8c8b929bd39d9193939b908a8dbe8d9b9dd0999188">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-052 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-2022-052. 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-2022-052, and
should be submitted on or before January 4, 2023.
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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\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27053 Filed 12-13-22; 8:45 am]
BILLING CODE 8011-01-P
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