Notice2023-03476
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
February 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 34 (Tuesday, February 21, 2023)</title>
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[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10605-10608]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03476]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96914; File No. SR-CboeEDGX-2023-008]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
February 14, 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 February 1, 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'') 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.
[[Page 10606]]
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, effective February
1, 2023. Specifically, the Exchange proposes to eliminate the rebate
currently provided for Customer-to-Customer orders in Penny and Non-
Penny Securities that add liquidity (currently yielding fee codes PC
and NC, respectively) and to amend the Fee Schedule so that such orders
will be free.
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 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 (January 24, 2023), 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 Fee Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange currently provides a
standard rebate of $0.01 per contract for Customer orders in both Penny
and Non-Penny Securities. The Fee Codes and Associated Fees section of
the Fee Schedule also provides for certain fee codes associated with
certain order types and market participants that provide for various
other fees or rebates.
The Exchange no longer wishes to provide a rebate for Customer-to-
Customer orders in Penny and Non-Penny Securities that add liquidity
and now proposes to amend its Fee Schedule so that such orders will be
free. As such, the Exchange also proposes to adopt new fee codes TP and
TN, which will apply to Customer-to-Customer (i.e., ``Customer (contra
Customer)) orders in Penny and Non-Penny Securities that add liquidity,
respectively; the proposed fee codes assess no fee for such
transactions. The Exchange notes that it currently assesses no charge
or a marginal charge on other Customer transactions. For example, the
Exchange does not charge a transaction fee for Complex Customer-to-
Customer orders (yielding fee code ZC). Customer-to-Customer orders in
Penny and Non-Penny Securities that remove liquidity, as well as
Customer orders that execute against any Non-Customer as the contra-
party in Penny and Non-Penny Securities will still be eligible for the
current rebate (i.e., the standard rebate of $0.01 per contract).
Accordingly, the Exchange proposes to amend the definition of fee code
PC to clarify that such fee code (and corresponding standard rebate)
applies to Customer contra Non-Customer orders in Penny Securities, as
well as Customer contra Customer orders in Penny Securities that remove
liquidity. Similarly, the Exchange proposes to amend the definition of
fee code NC to clarify that such fee code (and related standard rebate)
applies to Customer contra Non-Customer orders in Non-Penny Securities,
as well as Customer contra Customer orders in Non-Penny Securities that
remove liquidity.
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.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ 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
market participants.
The Exchange also believes the proposed change to assess no charge
for Customer-to-Customer orders executed in Penny and Non-Penny
Securities which add liquidity is consistent with Section 6(b)(4) of
the Act in that the proposal is reasonable, equitable and not unfairly
discriminatory. The Exchange believes that eliminating the rebate for
Customer-to-Customer orders in Penny and Non-Penny Securities that add
liquidity is reasonable because the Exchange is not required to
maintain this rebate. Further, the Exchange believes that it is a
reasonable and equitable change because Customers will still not have
to pay any fee for Customer-to-Customer orders in Penny and Non-Penny
Securities which add liquidity. Moreover, it is in line with other
types of Customer orders for which the Exchange does not assess a fee
or provide a rebate. As described above, the Exchange currently does
not charge a transaction fee or provide a rebate for various other
Customer orders, including Complex Customer-to-Customer orders.
Further, Customers executing an order in Penny and Non-Penny Securities
with a Non-Customer or Customers executing an order in Penny and Non-
Penny Securities which removes liquidity will still be eligible for the
current rebate, i.e., a standard rebate of $0.01 per contract.
The Exchange believes that, although it is eliminating the rebate
for Customer-to-Customer orders executed in Penny and Non-Penny
Securities which add liquidity, the proposal to not assess any fees for
such transactions will continue to incentivize Customer-to-Customer
order flow in Penny and Non-Penny Securities, which enhances liquidity
on the Exchange. This enhanced Customer liquidity benefits all market
participants
[[Page 10607]]
by providing more trading opportunities, which attracts Market Makers.
An increase in Market Maker activity in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants.
The Exchange also believes that the proposal to make Customer-to-
Customer orders that add liquidity free is equitable and not unfairly
discriminatory because it will apply equally to all Customer-to-
Customer transactions in Penny and Non-Penny Securities that add
liquidity, i.e. all Customers will be assessed the same amount for
these transactions. Moreover, the Exchange believes that continuing to
not assess any fee to Customer orders is equitable and not unfairly
discriminatory because, as stated above, Customer order flow enhances
liquidity on the Exchange, in turn providing more trading opportunities
and attracting Market-Makers to facilitate tighter spreads to the
benefit of all market participants. Moreover, the options industry has
a long history of providing preferential pricing to Customers, and the
Exchange's current Fee Schedule currently does so in many places, as do
the fees structures of multiple other exchanges.\7\
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\7\ See, e.g., EDGX Options Fee Schedule, ``Fee Codes and
Associated Fees'', which, for example, provides Customer AIM Agency
orders (i.e., orders yielding fee code BC) a rebate and also which
assesses no fee (nor provides any rebate) for QCC Agency and Contra
Customer orders (i.e., yielding fee codes QA and QC, respectively).
See also Cboe Options Fees Schedule, Rate Table--All Products
Excluding Underlying Symbol List A, which, for example, assesses no
fee (nor provides any rebate) for Customer orders in equity options.
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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 the rebate for Customer-to-Customer orders executed in Penny
and Non-Penny Securities that add liquidity will apply uniformly to all
Customers transacting in Penny and Non-Penny Securities. As described
above, while no fee will continue to be assessed for Customers,
different market participants have different circumstances, such as the
fact that preferential pricing to Customers is a long-standing options
industry practice which serves to enhance Customer order flow, thereby
attracting Market-Makers to facilitate tighter spreads and trading
opportunities to the benefit of all market participants. In addition to
this, the Exchange notes that it currently assesses no charge and
provides no rebate for various other types of Customer orders that
execute against another Customer as a contra party.
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. 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)(ii) of the Act \8\ and Rule 19b-4(f)(2) \9\ thereunder.
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\8\ 15 U.S.C. 78s(b)(3)(A)(ii).
\9\ 17 CFR 240.19b-4(f)(2).
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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 shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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#5220273e377f313d3f3f373c2621122137317c353d24"><span class="__cf_email__" data-cfemail="89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-008 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-2023-008. 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
[[Page 10608]]
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-2023-008 and should be
submitted on or before March 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03476 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
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