Notice2023-17755
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
August 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 159 (Friday, August 18, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56679-56681]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17755]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98123; File No. SR-CboeEDGX-2023-052]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
August 14, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 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.
---------------------------------------------------------------------------
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 August
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 17% 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 (July 27, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
---------------------------------------------------------------------------
The Exchange assesses fees in connection with orders routed away to
various exchanges. Currently, under the Fee Codes and Associated Fees
section of the Fee Schedule, fee code RP is appended to routed Customer
orders to NYSE American (``AMEX''), BOX Options Exchange (``BOX''),
Nasdaq BX Options (``BX''), Cboe Exchange, Inc. (``Cboe''), ISE
Mercury, LLC (``ISE Mercury'' or ``MERC''), MIAX Options Exchange
(``MIAX'') or Nasdaq PHLX LLC (``PHLX'') (excluding orders in SPY
options) and assesses a charge of $0.25 per contract; fee code RQ is
appended to routed Customer orders in Penny classes to NYSE Arca, Inc
(``ARCA''), Cboe BZX Exchange, Inc. (``BZX Options''), Cboe C2
Exchange, Inc. (``C2''), Nasdaq ISE (``ISE''), ISE Gemini, LLC (``ISE
Gemini''), MIAX Emerald Exchange (``MIAX Emerald''), MIAX Pearl
Exchange (``MIAX Pearl''), or Nasdaq Options Market LLC (``NOM'') and
assesses a charge of $0.85 per contract; and fee code RR is appended to
routed Customer orders in Non-Penny classes to ARCA, BZX Options, C2,
ISE, ISE Gemini, MIAX Emerald, MIAX Pearl or NOM and assesses a charge
of $1.25.
The Exchange notes that its current approach to routing fees is to
set forth in a simple manner certain sub-categories of fees that
approximate the cost of routing to other options exchanges based on the
cost of transaction fees assessed by each venue as well as costs to the
Exchange for routing (i.e., clearing fees, connectivity and other
infrastructure costs, membership fees, etc.) (collectively, ``Routing
Costs''). The Exchange then monitors the fees charged as compared to
the costs of its routing services and adjusts its routing fees and/or
sub-categories to ensure that the Exchange's fees do indeed result in a
rough approximation of overall Routing Costs, and are not significantly
higher or lower in any area. The Exchange notes that other options
exchanges currently assess routing fees in a similar manner as the
[[Page 56680]]
Exchange's current approach to assessing approximate routing fees.\4\
---------------------------------------------------------------------------
\4\ See e.g., MIAX Options Exchange Fee Schedule, Section 1(c),
``Fees for Customer Orders Routed to Another Options Exchange.''
---------------------------------------------------------------------------
The Exchange proposes to amend fee code RP to exclude applicable
Customer orders routed to ISE Mercury (i.e., MERC) \5\ and to amend fee
codes RQ and RR to add applicable Customer orders routed to MERC.\6\
The Exchange further proposes to amend fee codes RQ and RR to add
applicable Customer orders routed to MEMX LLC (``MEMX''), in
anticipation of the launch of the new options exchange. The charges
assessed per contract for each fee code remain the same under the
proposed rule change.
---------------------------------------------------------------------------
\5\ The Exchange also proposes non-substantive changes to fee
code RP to rename ``BX Options'' to ``BX'' and ``BZX Options'' to
``BZX.''
\6\ The Exchange proposes non-substantive changes to fee code RQ
to rename ``ISE Gemini'' to ``GMNI'', ``MIAX Emerald'' to ``EMLD'',
and ``MIAX Pearl'' to ``PERL.'' The Exchange further proposes non-
substantive changes to fee code RR to rename ``ISE Gemini'' to
``GMNI'', ``MIAX Emerald'' to ``EMLD'', and ``MIAX Pearl'' to
``PERL.''
---------------------------------------------------------------------------
The proposed changes result in an assessment of fees that,
following fee changes by an away options exchange and in anticipation
of the launch of another options exchange, is more in line with the
Exchange's current approach to routing fees, that is, in a manner that
approximates the cost of routing Customer orders to other away options
exchanges, based on the general cost of transaction fees assessed by
the sub-category of away options exchanges for such orders (as well as
the Exchange's Routing Costs).\7\ The Exchange notes that routing
through the Exchange is optional and that TPHs will continue to be able
to choose where to route applicable Customer orders.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 97800 (June 26,
2023), 88 FR 42409 (June 30, 2023) (SR-MRX-2023-11).
---------------------------------------------------------------------------
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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ 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,\11\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Trading Permit
Holders and other persons using its facilities.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change to amend fee codes
RP, RQ, and RR to account for MERC's current assessment of fees for
Customer orders and MEMX's expected assessment of fees for Customer
orders is reasonable because it is reasonably designed to assess
routing fees in line with the Exchange's current approach to routing
fees. That is, the proposed rule change is intended to include Customer
orders in Penny Program and Non-Penny classes routed to MERC and MEMX
in the most appropriate sub-category of fees that approximates the cost
of routing to a group of away options exchanges based on the cost of
transaction fees assessed by each venue as well as Routing Costs to the
Exchange.
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
Members. The Exchange notes that other options exchanges currently
approximate routing fees in a similar manner as the Exchange's current
approach.\12\
---------------------------------------------------------------------------
\12\ See supra note 4.
---------------------------------------------------------------------------
Finally, the Exchange believes that the proposed rule change is
equitable and not unfairly discriminatory because all Members' Customer
orders in Penny Program and Non-Penny classes routed to MERC and MEMX
will automatically yield fee codes RQ or RR, respectively, and
uniformly be assessed the corresponding fee.
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. The Exchange does not
believe the proposed rule change to amend fee codes RP, RQ, and RR will
impose any burden on intramarket competition. All Members' Customer
orders routing to MERC and currently yielding fee code RP will yield
fee code RQ or RR (depending on whether the order is in Penny Program
or Non-Penny classes, respectively) and will automatically and
uniformly be assessed the current fees already in place for such routed
orders, as applicable. Likewise, all Members' Customer orders routed to
MEMX will automatically yield fee code RQ or RR (depending on whether
the order is in Penny Program or Non-Penny classes, respectively) and
uniformly be assessed the corresponding fee. The Exchange notes that
other options exchange approximate routing costs in a similar manner as
the Exchange's current approach.\13\
---------------------------------------------------------------------------
\13\ Id.
---------------------------------------------------------------------------
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that other options exchange approximate routing costs in a
similar manner as the Exchange's current approach.\14\ Also, as
previously discussed, the Exchange operates in a highly competitive
market. Members have numerous alternative venues that they may
participate on and director their order flow, including 15 other
options exchanges and off-exchange venues. 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.\15\ Therefore, no exchange possesses significant
pricing power in the execution of option 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
[[Page 56681]]
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.'' \16\ 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'. . . .''.\17\ 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.
---------------------------------------------------------------------------
\14\ Id.
\15\ See supra note 3.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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)).
---------------------------------------------------------------------------
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 \18\ and paragraph (f) of Rule 19b-4 \19\
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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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#2b595e474e06484446464e455f586b584e48054c445d"><span class="__cf_email__" data-cfemail="7604031a135b15191b1b131802053605131558111900">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2023-052 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-2023-052. 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-2023-052 and should
be submitted on or before September 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17755 Filed 8-17-23; 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 August 18, 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.