Notice2023-06323
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
March 28, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 59 (Tuesday, March 28, 2023)</title>
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[Federal Register Volume 88, Number 59 (Tuesday, March 28, 2023)]
[Notices]
[Pages 18353-18356]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-06323]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97186; File No. SR-CboeEDGX-2023-019]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
March 22, 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 March 9, 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.
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.\3\ Specifically,
the Exchange proposes to eliminate the rebate currently provided for
the liquidity adding side of Customer-to-Customer orders in Penny and
Non-Penny Securities (currently yielding fee codes PC and NC,
respectively) and to amend the Fee Schedule so that such orders will be
free.
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\3\ The Exchange initially filed the proposed fee changes on
February 1, 2023 (SR-CboeEDGX-2023-008). On March 9, 2023, the
Exchange withdrew that filing and submitting this proposal.
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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.\4\ 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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\4\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (March 6, 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 that add or
remove liquidity, in both Penny and Non-Penny Securities. The Fee Codes
and Associated Fees section of the Fee Schedule also provides for
[[Page 18354]]
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 the liquidity
adding side of Customer-to-Customer orders in Penny and Non-Penny
Securities 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 the liquidity adding side of
Customer-to-Customer (i.e., ``Customer (contra Customer)'') orders in
Penny and Non-Penny Securities, 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 types of
Customer transactions. For example, the Exchange does not charge a
transaction fee for Complex Customer-to-Customer orders (yielding fee
code ZC). The liquidity removing side of Customer-to-Customer orders in
Penny and Non-Penny Securities, 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 the liquidity
removing side of Customer contra Customer orders in Penny Securities.
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
the liquidity removing side of Customer contra Customer orders in Non-
Penny Securities.
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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ 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 that is 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. While the Exchange is
eliminating a rebate for the liquidity adding side of Customer-to-
Customer orders in Penny and Non-Penny Securities, the Exchange
believes that providing that the liquidity adding side of the order
will instead be free will still continue to incentivize Customer order
flow in Penny and Non-Penny Securities as such Customer orders will
still not be subject to any transaction fees, which may lead to an
increase in liquidity on the Exchange. An overall increase in liquidity
benefits all market participants 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 the proposed change to assess no charge
for the liquidity adding side of Customer-to-Customer orders executed
in Penny and Non-Penny Securities 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
the liquidity adding side of Customer-to-Customer orders in Penny and
Non-Penny Securities is reasonable because Customers will continue to
not be subject to any fees for such transactions. Additionally, the
Exchange is not required to maintain this rebate.
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 on the liquidity removing side of orders executed in Penny
and Non-Penny Securities will still be eligible for the current rebate,
i.e., a standard rebate of $0.01 per contract.
The Exchange further believes that continuing to not assess any fee
to any side of a Customer order regardless of whether they are removing
or adding liquidity (as compared to other market participants that must
always pay a fee) is equitable and not unfairly discriminatory because,
as stated above, the Exchange wishes to incentivize (and at least not
discourage) Customer order flow, which can attract 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. Further, 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.\8\ Customers executing an order
in Penny and Non-Penny Securities will continue to either receive the
benefit of a rebate or free transaction, depending on if the order is
removing or adding liquidity and whether they are transacting against a
Customer or Non-Customer.
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\8\ 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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The Exchange also believes the proposed changes are reasonable,
equitably allocated and not unreasonably discriminatory despite a
proposed distinction between fees for Customer orders that add
liquidity and those that remove liquidity, regardless of the capacity
of the contra party. Particularly, the Exchange believes providing
rebates for the liquidity removing side of an order is reasonable,
equitable and not unfairly discriminatory because it provides an
incentive to bring additional liquidity to the Exchange, thereby
promoting price discovery and enhancing order
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execution opportunities for Members. The Exchange believes that not
providing a rebate for orders that add liquidity is reasonable,
equitable and not unfairly discriminatory because the Exchange must
balance the cost of credits for orders that remove liquidity. Further,
the Exchange is not proposing to adopt any fee for the liquidity adding
side of Customer orders, but rather merely removing the current rebate,
which as noted it's not required to maintain.
The Exchange lastly believes that the proposal to make the
liquidity adding side of Customer-to-Customer orders free is equitable
and not unfairly discriminatory because it will apply equally to all
liquidity adding sides of Customer-to-Customer transactions in Penny
and Non-Penny Securities, i.e., all Customers will be assessed the same
amount (no fee) for these transactions.
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 the liquidity adding side of Customer-to-
Customer orders executed in Penny and Non-Penny Securities 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 \9\ and Rule 19b-4(f)(2) \10\ thereunder.
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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
\10\ 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#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="7103041d145c121e1c1c141f0502310214125f161e07">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-019 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-2023-019. 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.
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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-2023-019 and should
be submitted on or before April 18, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06323 Filed 3-27-23; 8:45 am]
BILLING CODE 8011-01-P
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