Notice2023-17862
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 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 160 (Monday, August 21, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56891-56894]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17862]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98137; File No. SR-CboeEDGX-2023-051]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
August 15, 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 August 1, 2023, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX'')
filed with the Securities and Exchange Commission (``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 applicable to its
equities trading platform (``EDGX Equities'') as follows: (1) by
modifying the criteria of Add Volume Tier 6; and (4) modifying the
rates associated with Remove Volume Tier 1. The Exchange proposes to
implement these changes 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 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,\3\ no single registered equities exchange has more than
14% 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 for orders that remove liquidity.\4\ For orders in securities
priced below $1.00, the Exchange provides a standard rebate
[[Page 56892]]
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.\5\
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.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (July 24, 2023), available at <a href="https://www.cboe.com/us/equities/_statistics/">https://www.cboe.com/us/equities/_statistics/</a>.
\4\ See EDGX Equities Fee Schedule, Standard Rates.
\5\ Id.
---------------------------------------------------------------------------
Add Volume Tiers
Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers six
Add Volume Tiers that each provide an enhanced rebate for Members'
qualifying orders yielding fee codes B,\6\ V,\7\ Y,\8\ 3,\9\ and 4,\10\
where a Member reaches certain add volume-based criteria. The Exchange
is proposing to modify the criteria associated with Add Volume Tier 6.
Currently, the criteria for Add Volume Tier 6 is as follows:
---------------------------------------------------------------------------
\6\ Fee code B is appended to orders adding liquidity to EDGX in
Tape B securities.
\7\ Fee code V is appended to orders adding liquidity to EDGX in
Tape A securities.
\8\ Fee code Y is appended to orders adding liquidity to EDGX in
Tape C securities.
\9\ Fee code 3 is appended to orders adding liquidity to EDGX in
the pre and post market in Tapes A or C securities.
\10\ Fee code 4 is appended to orders adding liquidity to EDGX
in the pre and post market in Tape B securities.
---------------------------------------------------------------------------
<bullet> Add Volume Tier 6 provides a rebate of $0.0034 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee B, V, Y, 3, or 4) where (1) MPID adds an ADV \11\
(excluding fee codes ZA \12\ or ZO \13\) >= 37,500,000; and (2) MPID
has a QDP ADV (i.e., yielding fee codes DQ \14\ and DX \15\)
>=8,000,000.
---------------------------------------------------------------------------
\11\ ``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.
\12\ Fee code ZA is appended to Retail Orders that add
liquidity.
\13\ Fee code ZO is appended to Retail orders that adds
liquidity during the pre- and post-market.
\14\ Fee code DQ is appended to orders using the QDP order type
that add liquidity to EDGX.
\15\ Fee code DX is appended to orders using the QDP order type
that remove liquidity from EDGX.
---------------------------------------------------------------------------
The proposed criteria for Add Volume Tier 6 is as follows:
<bullet> Add Volume Tier 6 provides a rebate of $0.0033 per share
for securities priced above $1.00 to qualifying orders (i.e., orders
yielding fee B, V, Y, 3, or 4) where (1) MPID adds an ADV (excluding
fee codes ZA or ZO) >= 27,500,000; and (2) MPID has a QDP ADV (i.e.,
yielding fee codes DQ and DX) >= 3,500,000.
The Exchange believes that the proposed modifications to Add Volume
Tier 6 continue to incentivize Members 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. The Exchange further believes the lower proposed rebate
associated with Add Volume Tier 6 provides a rebate commensurate with
the difficulty of meeting the revised criteria associated with the
tier.
Remove Volume Tiers
In addition to the Add/Remove Volume Tiers offered under footnote
1, the Exchange also offers three Remove Volume Tiers that each assess
a reduced fee for Members' qualifying orders yielding fee codes BB,\16\
N \17\ and W,\18\ where a Member reaches certain add volume-based
criteria. Currently, Members who satisfy the criteria of Remove Volume
Tier 1 are assessed a reduced fee of $0.00285 for securities priced
above $1.00 and a reduced fee of 0.28% of total dollar value for
securities priced at or below $1.00. The Exchange now proposes to
revise the fees associated with Remove Volume Tier 1. As proposed,
Members who satisfy the criteria of Remove Volume Tier 1 will be
assessed a reduced fee of $0.0029 for securities priced above $1.00 and
a reduced fee of 0.29% of total dollar value for securities priced at
or below $1.00. The Exchange does not propose to revise the fees
associated with Remove Volume Tiers 2 or 3. The purpose of increasing
the reduced fee associated with Remove Volume Tier 1 is for business
and competitive reasons, as the Exchange believes that increasing such
fee as proposed would decrease the Exchange's expenditures with respect
to transaction pricing in a manner that is still consistent with the
Exchange's overall pricing philosophy of encouraging added liquidity.
The Exchange notes that despite the modest increase of the fee
associated with Remove Volume Tier 1, the reduced fee remains
competitive and continues to be in-line with the reduced fee assessed
under Remove Volume Tiers 2 and 3.\19\
---------------------------------------------------------------------------
\16\ Fee code BB is appended to orders that remove liquidity
from EDGX in Tape B securities.
\17\ Fee code N is appended to orders that remove liquidity from
EDGX in Tape C securities.
\18\ Fee code W is appended to orders that remove liquidity from
EDGX in Tape A securities.
\19\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
---------------------------------------------------------------------------
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.\20\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \21\ 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) \22\ 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) \23\
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.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ Id.
\23\ 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 Exchange believes that
its proposal to modify the criteria of Add Volume Tier 6 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,\24\
including the Exchange,\25\ and are reasonable, equitable and non-
discriminatory because they are open to all Members on an equal basis
and
[[Page 56893]]
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.
---------------------------------------------------------------------------
\24\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\25\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
---------------------------------------------------------------------------
In particular, the Exchange believes its proposal to modify the
criteria of Add Volume Tier 6 is reasonable because the revised tier
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 Add Volume
Tier 6 will provide a reasonable means to encourage liquidity adding
displayed orders 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 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.
In addition, the Exchange believes that its proposal to increase
the reduced fee assessed to Members that satisfy the criteria of Remove
Volume Tier 1 is reasonable, equitable, and consistent with the Act
because such change is designed to decrease the Exchange's expenditures
with respect to transaction pricing in order to offset some of the
costs associated with the Exchange's current pricing structure, which
provides various rebates for liquidity-adding orders, and the
Exchange's operations generally, in a manner that is consistent with
the Exchange's overall pricing philosophy of encouraging added
liquidity. The proposed increased reduced fee ($0.0029 per share for
securities priced above $1.00 and 0.29% of total dollar value for
securities priced at or below $1.00) is reasonable and appropriate
because it represents only a modest increase from the current reduced
fee ($0.00285 per share for securities priced above $1.00 and 0.28% of
total dollar value for securities priced at or below $1.00) and remains
competitive with the reduced fees offered under Remove Volume Tiers 2
and 3. The Exchange further believes that the proposed increase to the
reduced fee associated with Remove Volume Tier 1 is not unfairly
discriminatory because it applies to all Members equally, in that all
Members will receive the reduced fee upon satisfying the criteria of
Remove Volume Tier 1.
The Exchange believes that the proposed changes to Add Volume Tier
6 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 revised tiers and have the opportunity to meet the
tiers' criteria and receive the corresponding enhanced rebate or
reduced fee 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 6, and at least two Members will be able to satisfy
Remove Volume Tier 1. The Exchange also notes that proposed changes
will not adversely impact any Member's ability to qualify for enhanced
rebates or reduced fees offered under other tiers. Should a Member not
meet the proposed new criteria, the Member will merely not receive that
corresponding enhanced rebate or reduced 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. 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 Volume Tier 6 and Remove Volume Tier 1
will apply to all Members equally in that all Members are eligible for
each of the Tiers, have a reasonable opportunity to meet the Tiers'
criteria and will receive the enhanced rebate or reduced fee on their
qualifying orders if such criteria is met. 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.
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 14% of the market share.\26\ 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
[[Page 56894]]
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.'' \27\ 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'. . . .''.\28\ 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.
---------------------------------------------------------------------------
\26\ Supra note 4.
\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\28\ 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 \29\ and paragraph (f) of Rule 19b-4 \30\
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.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 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#a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2"><span class="__cf_email__" data-cfemail="3a484f565f17595557575f544e497a495f59145d554c">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2023-051 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-2023-051.
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-2023-051 and
should be submitted on or before September 11, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17862 Filed 8-18-23; 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 21, 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.