Notice2023-12577
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
June 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 113 (Tuesday, June 13, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 113 (Tuesday, June 13, 2023)]
[Notices]
[Pages 38557-38560]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12577]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97665; File No. SR-CboeEDGX-2023-038]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend its Fee Schedule
June 7, 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 June 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 38558]]
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, effective June 1,
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 15% [sic] 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.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (May 26, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
---------------------------------------------------------------------------
The Exchange's Fee Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange assesses a fee of $0.18
per contract for SAM \4\ Contra Non-Customer, Non-Professional orders,
yielding fee code SF, and SAM Agency Non-Customer, Non-Professional
orders, yielding fee code SA. The Exchange now proposes to increase the
standard fee for both SAM Contra Non-Customer, Non-Professional orders
and SAM Agency Non-Customer, Non-Professional orders (i.e., yielding
fee codes SF and SA, respectively) from $0.18 per contract to $0.20 per
contract.
---------------------------------------------------------------------------
\4\ The term ``SAM'' refers to Solicitation Auction Mechanism.
---------------------------------------------------------------------------
Additionally, the Fee Schedule offers tiered pricing which provides
Members \5\ 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.
---------------------------------------------------------------------------
\5\ See Exchange Rule 1.5(n).
---------------------------------------------------------------------------
For example, pursuant to Footnote 7 of the Fee Schedule, the
Exchange currently offers three QCC \6\ Initiator/Solicitation Rebate
Tiers which provide rebates between $0.14 and $0.28 per contract for
qualifying QCC Agency Orders or Solicitation Agency Orders where a
Member meets incrementally increasing volume thresholds. Particularly,
the Exchange will apply the QCC Initiator/Solicitation Rebate to a
Member that submits QCC Agency Orders or Solicitation Agency Orders,
including a Member who routed orders to the Exchange with a Designated
Give Up, when at least one side of the transaction is of Non-Customer,
Non-Professional capacity. Fee codes QA,\7\ QM,\8\ QO,\9\ SA,\10\
SC,\11\ and SG \12\ qualify for these rebates.\13\ There are two
separate rebates that are available under each tier, depending on
whether one or both sides of the transaction are of Non-Customer, Non-
Professional capacity. A qualifying order will receive the rebate under
``Rebate 1'' if one side of the transaction is of Non-Customer, Non-
Professional capacity. A qualifying order will receive the rebate under
``Rebate 2'', if both sides of the transaction are of Non-Customer,
Non-Professional capacity. The volume threshold (per month) for Tier 1
is 0 to 999,999 contracts, for Tier 2 is 1,000,000 to 1,999,999
contracts, for Tier 3 is 2,000,000+ contracts.
---------------------------------------------------------------------------
\6\ The term ``QCC'' refers to Qualified Contingent Cross
Orders.
\7\ Fee Code ``QA'' is appended to QCC Agency (Customer) Orders.
\8\ Fee Code ``QM'' is appended to QCC Agency (Non-Customer,
Non-Professional) Orders.
\9\ Fee Code ``QO'' is appended to QCC Agency (Professional)
orders.
\10\ Fee Code ``SA'' is appended to SAM Agency Non-Customer
orders.
\11\ Fee Code ``SC'' is appended to SAM Agency (Customer)
orders.
\12\ Fee Code ``SG'' is appended to SAM Agency (Professional)
orders.
\13\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote
7, QCC Initiator/Solicitation Rebate Tiers.
---------------------------------------------------------------------------
The Exchange proposes to amend the QCC Initiator/Solicitation
Rebate Tier program by amending current rebates for Tiers 1 through 4
[sic]. Specifically, the Exchange proposes to increase Tier 1 Rebate 1
from $0.14 to $0.16, Tier 1 Rebate 2 from $0.22 to $0.24, Tier 2 Rebate
1 from $0.16 to $0.18, Tier 2 Rebate 2 from $0.25 to $0.28, Tier 3
Rebate 1 from $0.18 to $0.19, and Tier 3 Rebate 2 from $0.28 to $0.30.
The volume thresholds for all tiers remain unchanged.
The Exchange believes the proposed rebate structure is competitive
with rebates offered at another exchange for similar transactions.\14\
Additionally, the proposed changes to the QCC Initiator/Solicitation
Rebate Tiers are designed to incentivize Members to grow their QCC
Initiator and/or Solicitation order flow to receive the enhanced
rebates. The Exchange believes that incentivizing greater QCC Initiator
and/or Solicitation order flow would provide more opportunities for
participation in QCC trades or in the SAM Auction which increases
opportunities for price improvement.
---------------------------------------------------------------------------
\14\ See Box Options Fee Schedule, Section IV(D)(1), which
provides rebates ranging from $0.14 to $0.17 per contract to the
Agency Order where at least one party to the QCC transaction is a
Broker-Dealer or Market-Maker (i.e., a non-customer, non-
professional) and from $0.22 to $0.27 per contract where both
parties to the QCC transaction are a Broker-Dealer or Market-Maker.
---------------------------------------------------------------------------
[[Page 38559]]
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.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) of the Act,\18\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Members and other
persons using its facilities.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
\18\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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 is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The proposed fee
changes reflect a competitive pricing structure designed to incentivize
market participants to direct their order flow, which the Exchange
believes would enhance market quality to the benefit of all Members.
The Exchange believes the fee changes for SAM Contra Non-Customer,
Non-Professional and SAM Agency Non-Customer, Non-Professional orders
is consistent with Section 6(b)(4) of the Act in that the proposed fees
are reasonable, equitable and not unfairly discriminatory. The Exchange
believes that the proposed increase for SAM Non-Customer, Non-
Professional Agency and Contra orders, is reasonable, equitable, and
not unfairly discriminatory because the increase is modest and the
Exchange believes the propose fees will still encourage participation
in SAM as the rate, even as amended, is equivalent to or better than
most other price improvement auctions offered by other options
exchanges as well as the Exchange itself.\19\ The Exchange believes the
fees, as proposed, will continue to promote order flow through SAM and
attract liquidity, which benefits all market participants by providing
additional trading opportunities at improved prices. This, in turn,
attracts increased large-order flow from liquidity providers which
facilitates tighter spreads and potentially triggers a corresponding
increase in order flow originating from other market participants.
---------------------------------------------------------------------------
\19\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX
Price Improvement Mechanism (``PRIME'') Fees, which provides for
comparable rates for similar market participant type orders
submitted into its PRIME auctions. For example, PRIME Customer
Agency orders are free of charge; PRIME Agency orders for a Public
Customer that is Not a Priority Customer, MIAX Market Maker, Non-
MIAX Market Maker, Non-Member Broker-Dealer, and Firm are assessed a
fee of $0.30; PRIME Customer Contra-side orders are free of charge;
PRIME Contra-side orders for a Public Customer that is Not a
Priority Customer, MIAX Market Maker, Non-MIAX Market Maker, Non-
Member Broker-Dealer, and Firm are assessed a fee of $0.05. See also
Box Options Fee Schedule, Section IV(C), which provides varying
rates for similar market participant type orders submitted as a
solicitation transaction.
---------------------------------------------------------------------------
The Exchange believes the proposed changes to the QCC Initiator/
Solicitation Rebate Tiers are reasonable, equitable, and not unfairly
discriminatory. The Exchange believes that increasing the rebates
offered under Tiers 1 through 4 [sic] is reasonable because Members
will be receiving higher rebates for meeting the criteria corresponding
to each tier. Additionally, the Exchange believes the changes to the
QCC Initiator/Solicitation Rebate Tiers are reasonable overall because,
as stated above, in order to operate in the highly competitive markets,
the Exchange and its competing exchanges seek to offer similar pricing
structures, including assessing comparable rates and offering multiple
enhanced pricing opportunities for various types of orders. Thus, the
Exchange believes the proposed changes are reasonable as they are
generally aligned with and competitive with the amounts assessed for
similar orders on other options exchanges.\20\ Further, the Exchange
believes the rebates, as modified, continue to serve as a reasonable
means to encourage Members to increase their liquidity on the Exchange,
particularly in connection with additional QCC and/or Solicitation
Agency Order flow to the Exchange in order to benefit from the proposed
enhanced rebates. The Exchange believes that incentivizing greater QCC
Initiator and/or Solicitation order flow would provide more
opportunities for participation in QCC trades or in the SAM Auction
which increases opportunities for price improvement. The Exchange also
believes that amending the rebates represents an equitable allocation
of fees and is not unfairly discriminatory because they will continue
to automatically and uniformly apply to all Members' respective
qualifying orders.
---------------------------------------------------------------------------
\20\ See supra note 14.
---------------------------------------------------------------------------
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 change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities for all Members.
The Exchange believes that 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. First, the
Exchange notes that the proposed changes apply uniformly to similarly
situated Members. The Exchange believes that the proposed changes
related to QCC transactions would not impose any burden on intramarket
competition, but rather, serves to increase intramarket competition by
incentivizing members to direct their QCC orders to the Exchange, in
turn providing for more opportunities to compete at improved prices.
Additionally, the proposed rule change benefits all market participants
as any overall increased liquidity that may result from the proposed
rebate incentives benefits all investors by offering additional
flexibility for all investors to enjoy cost savings,
[[Page 38560]]
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
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. Particularly, as
noted above, competing options exchanges have similar fees in place in
connection with price improvement auctions.\21\ Further, 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 15%
[sic] 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.
---------------------------------------------------------------------------
\21\ See supra note 19.
---------------------------------------------------------------------------
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 \22\ and paragraph (f) of Rule 19b-4 \23\
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.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#abd9dec7ce86c8c4c6c6cec5dfd8ebd8cec885ccc4dd"><span class="__cf_email__" data-cfemail="a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2023-038 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-2023-038. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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-2023-038 and should
be submitted on or before July 5, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12577 Filed 6-12-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 13, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.