Notice2023-00906
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
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Published
January 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 12 (Thursday, January 19, 2023)</title>
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[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3453-3455]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00906]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96645; File No. SR-CboeEDGX-2023-002]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
January 12, 2023.
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 January 3, 2023, 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 amend three
Market Maker Volume Tiers and increase the Market Maker Add Liquidity
Fee, effective January 3, 2023.
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 (December 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 assesses a standard fee
of $0.20 per contract for Market Maker orders that add liquidity in
both Penny and Non-Penny Securities and $0.23 per contract for Market
Maker orders that remove liquidity in both Penny and Non-Penny
securities. The Fee Codes and Associated Fees section of the Fees
Schedule also provide 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 [sic] 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\ The Exchange
proposes to amend the reduced fees that correspond to Market Maker
Volume Tiers 4, 5 and 6. Currently, Market Maker Volume Tier 4 provides
a reduced fee of $0.07 per contract for a Member's qualifying orders
(i.e., yielding fee code PM or NM) if a Member has an ADV \6\ in
Customer
[[Page 3454]]
orders greater than or equal to 0.50% of average OCV \7\; Market Maker
Volume Tier 5 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 has an ADV in Customer orders greater than or equal to 0.95% of
average OCV; and Market Maker Volume Tier 6 provides a reduced fee of
$0.01 per contract for a Member's qualifying orders (i.e., yielding fee
code PM or NM) if a Member has an ADV in Customer orders greater than
or equal to 1.45% of average OCV. The Exchange proposes to increase
each of the offered reduced fees for each of these tiers by $0.01 per
contract. More specifically, the Exchange proposes to increase the
reduced fees as follows: under Tier 4 from $0.07 per contract to $0.08
per contract; under Tier 5 from $0.03 per contract to $0.04 per
contract; and under Tier 6 from $0.01 per contract to $0.02 per
contract. The Exchange also proposes to amend the criteria under Tier
5.\8\ Particularly, the Exchange proposes to require that Members have
an ADV in Market Maker orders of greater than or equal to 1.20%
(instead of 0.95%) of average OCV.
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\5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote
2, Market Maker Volume Tiers.
\6\ ``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.
\7\ ``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.
\8\ In connection with the proposed fee changes, the Exchange
also proposes to update the corresponding listed fees of ``$0.07'',
``$0.03'' and ``$0.01'' for fee codes PM and NM in the Standard
Rates table to the proposed new rates of ``$0.08'', ``$0.04'' and
``$0.02'', respectively.
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The Exchange lastly proposes to increase the standard fee for
Market Maker orders that remove liquidity in both Penny and Non-Penny
Securities (i.e., yield fee codes PT and NT, respectively) from $0.23
per contract to $0.024 per contract.
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. Additionally, the Exchange
notes that relative volume-based incentives and discounts have been
widely adopted by exchanges,\12\ including the Exchange,\13\ 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 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.
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\12\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\13\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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The Exchange believes that increasing the reduced fees offered
under Market Maker Volume Tiers 4, 5 and 6 under Footnote 2 are
reasonable because Members are still eligible to receive reduced fees
for meeting the corresponding criteria, albeit at less of a discount
than before. While Market Maker Volume Tiers 4, 5 and 6 will provide a
lower fee reduction than that currently offered and while the proposed
change to the criteria under Tier 5 will make it more difficult to
attain, the Exchange still believes that the changes are reasonable as
the tiers, even as amended, will continue to incentivize Members to
send additional Market Maker orders to the Exchange. An overall
increase in activity would deepen the Exchange's liquidity pool, offers
additional cost savings, support the quality of price discovery,
promote market transparency and improve market quality, for all
investors. Moreover, the Exchange is not required to maintain these
tiers nor provide reduced fees. The Exchange believes the proposed
changes to the reduced fees offered under these tiers still remain
commensurate with the corresponding criteria under the respective
tiers, including the proposed change to the criteria under Tier 5.
Further, Members still have other opportunities to obtain reduced fees
that are not being modified such as via Market Maker Volume Tiers 1
through 3.\14\
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\14\ See Cboe EDGX Options Fees Schedule, Footnote 2.
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The Exchange believes the proposed change is also equitable and not
unfairly discriminatory because it applies uniformly to all Members.
Without having a view of activity on other markets and off-exchange
venues, the Exchange has no way of knowing whether these proposed
changes would definitely result in any Members qualifying for Tiers 4,
5 and 6. While the Exchange has no way of predicting with certainty how
the proposed changes will impact Member activity, based on trading
activity from the prior months, the Exchange anticipates that at least
3 Members will achieve Tier 4, 1 Member will achieve Tier 5, and 1
Member will achieve Tier 6. The Exchange also believes 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.
The Exchange believes the proposed change to increase the standard
fee for Market Maker orders that remove liquidity in both Penny and
Non-Penny Securities (i.e., yield fee codes PT and NT, respectively) is
reasonable because it is a modest increase and is still in line with
(and in fact lower than) fees assessed for similar transactions at
other exchanges.\15\ The Exchange believes the proposed change is
equitable and not unfairly discriminatory because it applies uniformly
to all Members.
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\15\ See, e.g., NYSE Arca Fee Schedule, Transaction Fee for
Electronic Executions--Per Contract, which provides Market Makers
that remove liquidity are assessed $0.50 per contract in Penny
Issues and $1.10 per contract in Non-Penny Issues. See also Cboe BZX
Options Fees Schedule, which provides Market Makers that remove
liquidity are assessed $0.50 per contract in Penny Program
Securities and $1.10 per contract in Non-Penny Program Securities.
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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
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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
amend the Market Maker Volume Tiers and Market Maker fees for orders
that remove liquidity applies to all Members. All Members will continue
to have an opportunity to receive reduced fees 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 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 \16\ and paragraph (f) of Rule 19b-4 \17\
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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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#8cfef9e0e9a1efe3e1e1e9e2f8ffccffe9efa2ebe3fa"><span class="__cf_email__" data-cfemail="2250574e470f414d4f4f474c5651625147410c454d54">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-002 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-2023-002. 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-2023-002, and
should be submitted on or before February 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00906 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P
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