Notice2023-11356
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
May 30, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 103 (Tuesday, May 30, 2023)</title>
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[Federal Register Volume 88, Number 103 (Tuesday, May 30, 2023)]
[Notices]
[Pages 34550-34556]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-11356]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97547; File No. SR-CboeEDGX-2023-036]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
May 23, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 10, 2023, Cboe EDGX Exchange, Inc. (``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 applicable to its
equities trading platform (``EDGX Equities'') as follows: (1) by
modifying and introducing certain Add/Remove Volume Tiers; (2) by
eliminating certain Growth Tiers; (3) by modifying the criteria of the
Non-Displayed Add Volume Tiers; (4) by eliminating certain Non-
Displayed Step-Up Tiers; (5) by eliminating certain Retail Growth
Tiers; and (6) by introducing new fee code DX and modifying the
description and fee associated with fee code DQ. The Exchange proposes
to implement these changes effective May 1, 2023.\3\
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\3\ The Exchange initially filed the proposed fee changes on May
1, 2023 (SR-CboeEDGX-2023-034). On May 10, 2023, the Exchange
withdrew that filing and submitted 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 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,\4\ no single registered equities exchange has more than
16% 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. Currently, for orders in securities priced at
or above $1.00, the Exchange provides a standard rebate of $0.00160 per
share for orders that add liquidity and assesses a fee of $0.0030 per
share
[[Page 34551]]
for orders that remove liquidity.\5\ For orders in securities priced
below $1.00, the Exchange provides a standard rebate of $0.00009 per
share for orders that add liquidity and assesses a fee of 0.30% of the
total dollar value for orders that remove liquidity.\6\ 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.
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\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (April 21, 2023), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\5\ See EDGX Equities Fee Schedule, Standard Rates.
\6\ Id.
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Add/Remove Volume Tiers
Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers
three Add Volume Tiers that each provide an enhanced rebate for
Members' qualifying orders yielding fee codes B,\7\ V,\8\ Y,\9\ 3,\10\
and 4,\11\ where a Member reaches certain add volume-based criteria.
First, the Exchange is proposing to introduce a new Add Volume Tier 2
and a new Add Volume Tier 5 to provide Members an additional manner in
which they could receive an enhanced rebate if certain criteria is met.
The proposed criteria for proposed Add Volume Tier 2 is as follows:
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\7\ Fee code B is appended to orders adding liquidity to EDGX in
Tape B securities.
\8\ Fee code V is appended to orders adding liquidity to EDGX in
Tape A securities.
\9\ Fee code Y is appended to orders adding liquidity to EDGX in
Tape C securities.
\10\ Fee code 3 is appended to orders adding liquidity to EDGX
in the pre and post market in Tapes A or C securities.
\11\ Fee code 4 is appended to orders adding liquidity to EDGX
in the pre and post market in Tape B securities.
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<bullet> Add Volume Tier 2 provides a rebate of $0.0025 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee B, V, Y, 3, or 4) where Member adds an ADV \12\ (excluding
fee codes ZA \13\ or ZO \14\) >=0.18% of the TCV \15\ or Members adds
an ADV (excluding fee codes ZA or ZO) >=20,000,000.
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\12\ ``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.
\13\ Fee code ZA is appended to Retail Orders that add
liquidity.
\14\ Fee code ZO is appended to Retail orders that adds
liquidity during the pre- and post-market.
\15\ ``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.
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The criteria for proposed Add Volume Tier 5 is as follows:
<bullet> Add Volume Tier 5 provides a rebate of $0.0029 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee codes B, V, Y, 3, or 4) where Member adds a Retail Order
ADV (i.e., yielding fee codes ZA or ZO) >=0.45% of the TCV.
The Exchange believes proposed Add Volume Tier 2 and proposed Add
Volume Tier 5 provide rebates commensurate with the difficulty of
meeting the criteria associated with the proposed tiers.
Second, the Exchange proposes to modify the criteria of existing
Add Volume Tier 1. Currently, the criteria for Add Volume Tier 1 is as
follows:
<bullet> Add Volume Tier 1 provides a rebate of $0.0020 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee B, V, Y, 3, or 4) where Member adds an ADV >=0.20% of the
TCV.
Now, the Exchange proposes to exclude retail orders from the
calculation of ADV, lower the TCV threshold, and add an additional
prong of criteria that Members may satisfy to achieve the enhanced
rebate. The proposed criteria is as follows:
<bullet> Add Volume Tier 1 provides a rebate of $0.0020 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee B, V, Y, 3, or 4) where Member adds an ADV (excluding fee
codes ZA and ZO) >=0.15% of the TCV or Member adds an ADV (excluding
fee codes ZA and ZO) >=16,000,000.
Third, the Exchange proposes to renumber current Add Volume Tiers 2
and 3 and modify the criteria of proposed Add Volume Tiers 3 and 4
(current Add Volume Tiers 2 and 3). Currently, Add Volume Tiers 2 and 3
(proposed Add Volume Tiers 3 and 4) read as follows:
<bullet> Add Volume Tier 2 provides a rebate of $0.0027 per share
to qualifying orders (i.e., orders yielding fee codes B, V, Y, 3, or 4)
where (1) Member adds an ADV >=0.22% of the TCV; or (2) Member adds an
ADV >=25,000,000.
<bullet> Add Volume Tier 3 provides a rebate of $0.0029 per share
to qualifying orders (i.e., orders yielding fee codes B, V, Y, 3, or 4)
where Member adds an ADV >=0.65% of the TCV.
Now, the Exchange proposes to exclude retail orders from the
calculation of ADV. The proposed criteria for current Add Volume Tiers
2 and 3 (proposed Add Volume Tiers 3 and 4) is as follows:
<bullet> Proposed Add Volume Tier 3 provides a rebate of $0.0027
per share to qualifying orders (i.e., orders yielding fee codes B, V,
Y, 3, or 4) where (1) Member adds an ADV (excluding fee codes ZA and
ZO) >=0.22% of the TCV; or (2) Member adds an ADV (excluding fee codes
ZA and ZO) >=25,000,000.
<bullet> Proposed Add Volume Tier 4 provides a rebate of $0.0029
per share to qualifying orders (i.e., orders yielding fee codes B, V,
Y, 3, or 4) where Member adds an ADV (excluding fee codes ZA and ZO)
>=0.65% of the TCV.
The proposed modifications to current Add Volume Tier 1 and
proposed Add Volume Tiers 3 and 4 removes retail orders from the
calculation of ADV. By removing retail orders from the calculation of
ADV, the Exchange is limiting the amount of orders that qualify for
ADV. However, in Add Volume Tier 1 the Exchange has also proposed to
lower the TCV percentage and provided additional criteria by which
Members may receive an enhanced rebate. The Exchange has also proposed
to introduce a new Add Volume Tier 2, which offers a slightly higher
rebate for achieving criteria that is slightly more difficult than Add
Volume Tier 1. The Exchange believes that by introducing proposed Add
Volume Tier 2, decreasing the difficulty of the criteria under Add
Volume Tier 1, and removing retail orders from the calculation of ADV
in proposed Add Volume Tiers 3 and 4, Members are still incentivized to
add volume on the Exchange, thereby contributing to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange.
Growth Tiers
In addition to the Add/Remove Volume Tiers offered under footnote
1, the Exchange also offers Growth Tiers that each provide an enhanced
rebate for Members' qualifying orders yielding fee codes B, V, Y, 3,
and 4, where a Member reaches certain add volume-based criteria,
including ``growing'' its volume over a certain baseline month. The
Exchange now proposes to discontinue Growth Tiers 1-3, as no Members
have satisfied the criteria within the past six months and the Exchange
no longer wishes to, nor is required to, maintain such tiers.\16\ More
[[Page 34552]]
specifically, the proposed change removes these tiers as the Exchange
would rather redirect future resources and funding into other programs
and tiers intended to incentivize increased order flow. The Exchange
notes that it proposed a new Growth Tier 1 in its April 2023 fee filing
(the ``April Filing'') \17\ and the tier proposed in the April Filing
shall remain in effect following the suspension of its March 2023
proposed fees. As a result of the Notice, existing Growth Tiers 1 and
2, which were proposed in the Exchange's March Filing, shall revert
back to Growth Tiers 4 and 5 as they originally appeared in February
2023, prior to the Exchange's March Filing.\18\
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\16\ On April 28, 2023, the Commission issued Securities
Exchange Act Release No. 97406 (the ``Notice''), which temporarily
suspended File Number SR-CboeEDGX-2023-016 (the ``March Filing'').
As a result of the Notice, the Exchange's proposed changes to its
fee schedule as detailed in SR-CboeEDGX-2023-016 have been
temporarily suspended, and all proposed changes to the Growth Tiers
mentioned in this paragraph refer to the Growth Tiers as they
appeared on the Exchange's fee schedule on February 28, 2023.
\17\ See Securities Exchange Act Release No. 97393 (April 27,
2023); SR-CboeEDGX-2023-030 (April 17, 2023) (``Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change to Amend its Fee
Schedule'').
\18\ Id.
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Non-Displayed Add Volume Tiers
In addition to the Add/Remove Volume Tiers and Growth Tiers offered
under footnote 1, the Exchange also offers Non-Displayed Add Volume
Tiers that each provide an enhanced rebate for Members' qualifying
orders yielding fee codes DM,\19\ HA,\20\ MM,\21\ and RP,\22\ where a
Member reaches certain volume-based criteria offered in each tier. The
Exchange now proposes to amend the criteria of current Non-Displayed
Add Volume Tiers 1-3. Currently, the criteria for Non-Displayed Add
Volume Tiers 1-3 is as follows:
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\19\ Fee code DM is appended to orders that add liquidity using
MidPoint Discretionary Order within discretionary range.
\20\ Fee code HA is appended to non-displayed orders that add
liquidity.
\21\ Fee code MM is appended to non-displayed orders that add
liquidity using Mid-Point Peg.
\22\ Fee code RP is appended to non-displayed orders that add
liquidity using Supplemental Peg.
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<bullet> Non-Displayed Add Volume Tier 1 provides a rebate of
$0.0015 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV \23\ >=0.05% of TCV for
Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=4,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
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\23\ ``ADAV'' means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
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<bullet> Non-Displayed Add Volume Tier 2 provides a rebate of
$0.0020 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV >=0.08% of TCV for Non-
Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=7,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
<bullet> Non-Displayed Add Volume Tier 3 provides a rebate of
$0.0025 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV >=0.10% of TCV for Non-
Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=9,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
Now, the Exchange proposes to revise the second prong of criteria
in Non-Displayed Add Volume Tiers 1-3. The proposed criteria for Non-
Displayed Add Volume Tiers 1-3 is as follows:
<bullet> Non-Displayed Add Volume Tier 1 provides a rebate of
$0.0015 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV \24\ >=0.05% of TCV for
Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=5,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
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\24\ ``ADAV'' means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
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<bullet> Non-Displayed Add Volume Tier 2 provides a rebate of
$0.0020 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV >=0.08% of TCV for Non-
Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=8,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
<bullet> Non-Displayed Add Volume Tier 3 provides a rebate of
$0.0025 per share to qualifying orders (i.e., orders yielding fee code
DM, HA, MM, or RP) where (1) Member has an ADAV >=0.10% of TCV for Non-
Displayed orders that yield fee codes DM, HA, HI, MM or RP; or (2)
Member has an ADAV >=10,000,000 for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
The proposed modifications to Non-Displayed Add Volume Tiers 1-3 is
intended to incentivize Members to add non-displayed retail volume on
the Exchange by slightly increasing the difficulty of the criteria that
must be achieved in order to receive an enhanced rebate. By increasing
the difficulty of a criteria while keeping the enhanced rebate the
same, the proposed criteria slightly increases the difficulty required
for Members to meet the applicable tier threshold while continuing to
encourage Members to add non-displayed liquidity to the Exchange,
thereby contributing to a deeper and more liquid market, which benefits
all market participants and provides greater execution opportunities on
the Exchange.
Non-Displayed Step-Up Tiers
In addition to the Add/Remove Volume Tiers, Growth Tiers, and the
Non-Displayed Add Volume Tiers under footnote 1, the Exchange also
offers Non-Displayed Step-Up Volume Tiers that each provide an enhanced
rebate for Members' qualifying orders yielding fee codes DM, HA, MM,
and RP, where a Member reaches certain volume-based criteria, including
``growing'' its volume over a certain baseline month. The Exchange now
proposes to discontinue Non-Displayed Step-Up Tiers 1 and 2, as no
Members have satisfied the criteria within the past six months and the
Exchange no longer wishes to, nor is required to, maintain such
tiers.\25\ More specifically, the proposed change removes these tiers
as the Exchange would rather redirect future resources and funding into
other programs and tiers intended to incentivize increased order flow.
As a result of the Notice, existing Non-Displayed Step-Up Volume Tier
1, which was proposed in the Exchange's March Filing, shall revert back
to Non-Displayed Step-Up Volume Tier 3 as it originally appeared in
February 2023, prior to the Exchange's March Filing.\26\
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\25\ Pursuant to the Notice issued by the Commission on April
28, 2023 (supra note 16), the Exchange's proposed changes to its fee
schedule as detailed in SR-CboeEDGX-2023-016 have been temporarily
suspended, and all proposed changes to the Non-Displayed Step-Up
Tiers mentioned in this paragraph refer to the Non-Displayed Step-Up
Tiers as they appeared on the Exchange's fee schedule on February
28, 2023. The Exchange notes that current Non-Displayed Step-Up Tier
1 (as of April 1, 2023) will be renumbered back to Non-Displayed
Step-Up Tier 3 as the Notice stays the implementation of the fees as
described in SR-CboeEDGX-2023-016.
\26\ Supra note 16.
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[[Page 34553]]
Retail Growth Tiers
Pursuant to footnote 2 of the Fee Schedule, the Exchange offers
Retail Volume Tiers which provide Retail Member Organizations
(``RMOs'') \27\ an opportunity to receive an enhanced rebate from the
standard rebate for Retail Orders \28\ that add liquidity (i.e.,
yielding fee code ZA or ZO). Currently, the Retail Volume Tiers offer
three Retail Growth Tiers, where a Member is eligible for an enhanced
rebate for qualifying orders (i.e., yielding fee code ZA or ZO) meeting
certain add volume-based criteria, including ``growing'' its volume
over a certain baseline month. The Exchange now proposes to eliminate
Retail Growth Tiers 1 and 2, as Members have not consistently satisfied
the criteria of these tiers over the past six months and the Exchange
no longer wishes to, nor is required to, maintain such tiers. More
specifically, the proposed change removes these tiers as the Exchange
would rather redirect future resources and funding into other programs
and tiers intended to incentivize increased order flow.
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\27\ See EDGX Rule 11.21(a)(1). A ``Retail Member Organization''
or ``RMO'' is a Member (or a division thereof) that has been
approved by the Exchange under this Rule to submit Retail Orders.
\28\ See EDGX Rule 11.21(a)(2). A ``Retail Order'' is an agency
or riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by a Retail Member Organization, provided that no
change is made to the terms of the order with respect to price or
side of market and the order does not originate from a trading
algorithm or any other computerized methodology.
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Fee Codes DQ and DX
In the Exchange's March Filing, the Exchange proposed an amendment
to fee code DQ, which is appended to Midpoint Discretionary Orders
(``MDOs'') \29\ entered with a Quote Depletion Protection (``QDP'')
\30\ order instruction. QDP is designed to provide enhanced protections
to MDOs by tracking significant executions that constitute the best bid
or offer on the EDGX Book \31\ and enabling Users to avoid potentially
unfavorable executions by preventing MDOs entered with the optional QDP
instruction from exercising discretion to trade at more aggressive
prices when QDP has been triggered.\32\ The Exchange proposed amending
fee code DQ to be appended to MDOs entered with a QDP instruction that
added liquidity to the Exchange. There was no proposed change to the
fee associated with fee code DQ. At the time of the March Filing, MDOs
entered with the QDP instruction were appended fee code DQ and assessed
a flat fee of $0.00040 per share in securities at or above $1.00 and
0.30% of dollar value for securities priced below $1.00. Also in its
March Filing, the Exchange proposed to introduce fee code DX, which
would be appended to MDOs with a QDP instruction that remove liquidity
from the Exchange. Orders appended with fee code DX would be assessed a
fee of $0.00100 per share in securities at or above $1.00 and 0.30% of
dollar value for securities priced below $1.00. As a result of the
Notice issued by the Commission on April 28, 2023, the Exchange's March
Filing was temporarily suspended and all proposed changes to fee codes
DX and DQ mentioned in this paragraph refer to the fee codes as they
appeared on the Exchange's fee schedule on February 28, 2023.\33\
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\29\ See Exchange Rule 11.8(g).
\30\ See Exchange Rule 11.8(g)(10).
\31\ See Exchange Rule 1.5(d).
\32\ See Securities Exchange Act Release No. 89007 (June 4,
2020), 85 FR 35454 (June 10, 2020) (SR-CboeEDGX-2020-010) (``Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend
the Rule Relating to MidPoint Discretionary Orders to Allow Optional
Offset or Quote Depletion Protection Instructions'').
\33\ Supra note 16.
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As a result of the reversion back to the February 28, 2023, fee
schedule, the Exchange now proposes to amend fee code DQ to be appended
to MDOs entered with a QDP instruction that add liquidity to the
Exchange. There would be no change to the fee associated with fee code
DQ. Also as a result of the reversion back to the February 28, 2023,
fee schedule, the Exchange also now proposes to introduce fee code DX,
which would be appended to MDOs with a QDP instruction that remove
liquidity from the Exchange. Orders appended with fee code DX would be
assessed a fee of $0.0010 per share in securities at or above $1.00 and
0.30% of dollar value for securities priced below $1.00.\34\ While the
Exchange notes the difference between the fees assessed for fee codes
DX and DQ, the Exchange believes that charging a lower fee for MDOs
entered with a QDP instruction that add liquidity to the Exchange under
fee code DQ will incentivize Users to submit liquidity-adding MDOs
containing a QDP instruction, thereby contributing to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange.
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\34\ The Exchange notes that its April Filing proposed an
amendment of the rate associated with fee code DX from $0.00060 to
$0.0010. The rate of $0.0010 proposed above is in-line with the rate
of $0.0010 proposed in the April Filing and the Exchange is merely
re-introducing the proposed rate of $0.0010 as a result of the
Notice and subsequent suspension of the proposed changes contained
within its March Filing.
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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.\35\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \36\ 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) \37\ 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) \38\
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.
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\35\ 15 U.S.C. 78f(b).
\36\ 15 U.S.C. 78f(b)(5).
\37\ Id.
\38\ 15 U.S.C. 78f(b)(4).
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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
its proposal to: (1) introduce new Add Volume Tiers 2 and 5 and modify
current Add Volume Tiers 1, 2, and 3; and (2) modify Non-Displayed Add
Volume Tiers 1-3 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,\39\ including the Exchange,\40\ and are reasonable,
equitable and non-discriminatory because they are open to
[[Page 34554]]
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.
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\39\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\40\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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In particular, the Exchange believes its proposal to: (1) introduce
new Add Volume Tiers 2 and 5 and modify current Add Volume Tiers 1, 2,
and 3; and (2) modify Non-Displayed Add Volume Tiers 1-3 is reasonable
because the revised tiers will be available to all Members and provide
all Members with an additional opportunity to receive an enhanced
rebate or a reduced fee. The Exchange further believes the proposed
modifications to its Add/Remove Volume Tiers and Non-Displayed Add
Volume Tiers will provide a reasonable means to encourage liquidity
adding displayed orders and liquidity adding non-displayed orders,
respectively, in Members' order flow to the Exchange and to incentivize
Members to continue to provide liquidity adding volume to the Exchange
by offering them an additional opportunity to receive an enhanced
rebate or reduced fee on qualifying orders. 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.
The Exchange believes that its proposal to eliminate Growth Tiers
1-3,\41\ Non-Displayed Step-Up Volume Tiers 1 and 2,\42\ and Retail
Growth Tiers 1 and 2 is reasonable because the Exchange is not required
to maintain these tiers or provide Members an opportunity to receive
enhanced rebates. The Exchange believes the proposal to eliminate these
tiers is also equitable and not unfairly discriminatory because it
applies to all Members (i.e., the tiers will not be available for any
Member). The Exchange notes that Members have not consistently
satisfied the criteria over the past six months. The Exchange also
notes that the proposed rule change to remove these tiers merely
results in Members not receiving an enhanced rebate, which, as noted
above, the Exchange is not required to offer or maintain. Furthermore,
the proposed rule change to eliminate Growth Tiers 1-3, Non-Displayed
Step-Up Volume Tiers 1 and 2, and Retail Growth Tiers 1 and 2 enables
the Exchange to redirect resources and funding into other programs and
tiers intended to incentivize increased order flow.
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\41\ Supra note 16.
\42\ Supra note 25.
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The Exchange believes the proposed addition of fee code DX and the
revised applicability of fee code DQ are reasonable as the Exchange
offers many other fee codes that are specifically designed for orders
that add liquidity to the Exchange or remove liquidity from the
Exchange.\43\ While the fee assessed for orders appended with fee code
DX will be slightly higher than the fee assessed for orders appended
with fee code DQ, the Exchange believes that promoting liquidity-adding
MDOs containing a QDP instruction represents an equitable allocation of
fees and rebates and is not unfairly discriminatory because the fees
will apply to all Members who add or remove liquidity utilizing an MDO
with a QDP instruction, equally. Furthermore, the Exchange believes
that assessing a lower fee under fee code DQ will promote a reasonable
means to encourage liquidity adding volume to the Exchange for MDOs
utilizing a QDP instruction. While Members are assessed a small fee to
utilize MDOs with a QDP instruction, the Exchange believes that
promoting liquidity adding activity would help deepen the Exchange's
liquidity pool, support the quality of price discovery, and improve
market quality, for all investors.
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\43\ See e.g., EDGX Equities Fee Schedule, Fee Codes 3 and 6.
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The Exchange believes that the proposed changes to its Add/Remove
Volume Tiers and Non-Displayed Add Volume Tiers are reasonable as they
do not represent a significant departure from the criteria currently
offered in the Fee Schedule. 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 tiers and have the opportunity to meet the tiers'
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 tiers. 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 Member will be able to satisfy proposed Add Volume Tier 1, at
least two Members will be able to satisfy proposed Add Volume Tier 2,
at least two Members will be able to satisfy proposed Add Volume Tier
3, at least one Member will be able to satisfy proposed Add Volume Tier
4, at least 1 Member will be able to satisfy proposed Add Volume Tier
5, at least two Members will be able to satisfy proposed Non-Displayed
Add Volume Tier 1, at least two Members will be able to satisfy
proposed Non-Displayed Add Volume Tier 2, and at least one Member will
be able to satisfy proposed Non-Displayed Add Volume Tier 3. The
Exchange also notes that proposed changes will not adversely impact any
Member's ability to qualify for enhanced rebates offered under other
tiers. Should a Member not meet the proposed new criteria, the Member
will merely not receive that corresponding enhanced rebate.
Furthermore, the proposed rule change to eliminate Growth Tiers 1-3,
Non-Displayed Step-Up Volume Tiers 1 and 2, and Retail Growth Tiers 1
and 2 enables the Exchange to redirect resources and funding into other
programs and tiers intended to incentivize increased order flow.
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 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
changes to the Exchange's Add/Remove Volume Tiers and Non-Displayed Add
Volume Tiers will apply to all Members equally in that all Members are
eligible for each of the Tiers, have a reasonable opportunity to
[[Page 34555]]
meet the Tiers' criteria and will receive the enhanced rebate on their
qualifying orders if such criteria is met. In addition, the Exchange
proposal to eliminate Growth Tiers 1-3, Non-Displayed Step-Up Volume
Tiers 1 and 2, and Retail Growth Tiers 1 and 2 will not impose any
burden on intramarket competition because it applies to all Members
uniformly, as in, the tiers will no longer be available to any Member.
The Exchange does not believe the proposed changes burden competition,
but rather, enhances competition as it is intended to increase the
competitiveness of EDGX by amending an existing pricing incentive and
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.
The Exchange believes the proposal to introduce the DX fee code
does not impose a burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. The
proposed fees associated with fee code DX would apply to all Members
equally in that all Members would be subject to the same flat fee for
the execution of an MDO with a QDP instruction that removes liquidity
from the Exchange. Although MDOs entered with the QDP instruction would
be subject to the pricing described in this proposed rule change, the
Exchange does not believe that pricing would impose any significant
burden on intramarket competition as this fee would be applied in the
same manner to the execution of any MDO entered with a QDP instruction
that removes liquidity from the Exchange. Both MDO and the associated
QDP instruction are available to all Members on an equal and non-
discriminatory basis. As a result, any Member can decide to use (or not
use) the QDP instruction based on the benefits provided by that
instruction in potentially avoiding unfavorable executions, and the
associated charge that the Exchange proposes to introduce. As
discussed, any firm that chooses to use the QDP instruction with an MDO
that removes liquidity would be charged the same flat fee for the
execution of orders that are entered with this instruction. The
proposal to modify fee code DQ to apply only to MDO orders using the
QDP instruction that add liquidity to the Exchange similarly does not
impose a burden on intramarket competition in that the applicability of
the fee code will apply equally to all Members in that all Members
would be subject to the same flat fee for the execution of an MDO with
a QDP instruction that adds liquidity to the Exchange and the Exchange
does not propose a change to the existing fee.
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 16% of the market share.\44\ 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.'' \45\ 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'. . . .'' \46\ 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.
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\44\ Supra note 3.
\45\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\46\ 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)).
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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 \47\ and paragraph (f) of Rule 19b-4 \48\
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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\47\ 15 U.S.C. 78s(b)(3)(A).
\48\ 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#dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9"><span class="__cf_email__" data-cfemail="1260677e773f717d7f7f777c6661526177713c757d64">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-036 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 34556]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGX-2023-036. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CboeEDGX-2023-036, and should be
submitted on or before June 20, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11356 Filed 5-26-23; 8:45 am]
BILLING CODE 8011-01-P
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