Notice2023-23705
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees
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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
October 27, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 207 (Friday, October 27, 2023)</title>
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[Federal Register Volume 88, Number 207 (Friday, October 27, 2023)]
[Notices]
[Pages 73920-73924]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23705]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98783; File No. SR-CboeEDGA-2023-017]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fees Schedule Related to Physical Port Fees
October 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 October 13, 2023, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA Equities'') 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.
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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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA Equities'')
proposes to amend its Fees 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/equities/regulation/rule_filings/edga/">http://markets.cboe.com/us/equities/regulation/rule_filings/edga/</a>),
[[Page 73921]]
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 relating to
physical connectivity fees.\3\
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\3\ The Exchange initially filed the proposed fee changes on
July 3, 2023 (SR-CboeEDGA-2023-011). On September 1, 2023, the
Exchange withdrew that filing and submitted SR-CboeEDGA-2023-015. On
September 29, 2023, the Securities and Exchange Commission issued a
Suspension of and Order Instituting Proceedings to Determine whether
to Approve or Disapprove a Proposed Rule Change to Amend its Fees
Schedule Related to Physical Port Fees (the ``OIP''). On September
29, 2023, the Exchange filed the proposed fee change (SR-CboeEDGA-
2023-016). On October 13, 2023, the Exchange withdrew that filing
and submitted this filing. No comment letters were received in
connection with any of the foregoing rule filings.
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By way of background, a physical port is utilized by a Member or
non-Member to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently assesses the
following physical connectivity fees for Members and non-Members on a
monthly basis: $2,500 per physical port for a 1 gigabit (``Gb'')
circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange
proposes to increase the monthly fee for 10 Gb physical ports from
$7,500 to $8,500 per port. The Exchange notes the proposed fee change
better enables it to continue to maintain and improve its market
technology and services and also notes that the proposed fee amount,
even as amended, continues to be in line with, or even lower than,
amounts assessed by other exchanges for similar connections.\4\ The
physical ports may also be used to access the Systems for the following
affiliate exchanges and only one monthly fee currently (and will
continue) to apply per port: the Cboe BZX Exchange, Inc. (options and
equities), Cboe EDGX Exchange, Inc. (options and equities platforms),
Cboe BYX Exchange, Inc., and Cboe C2 Exchange, Inc. (``Affiliate
Exchanges'').\5\
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\4\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10 Gb Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10 Gb physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10 Gb
LX LCN Circuits (which are analogous to the Exchange's 10 Gb
physical port) are assessed $22,000 per month, per port.
\5\ The Affiliate Exchanges are also submitting contemporaneous
identical rule filings.
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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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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) \8\ 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) \9\ of the Act, 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed fee change is reasonable as it
reflects a moderate increase in physical connectivity fees for 10 Gb
physical ports. Further, the current 10 Gb physical port fee has
remained unchanged since June 2018.\10\ Since its last increase 5 years
ago however, there has been notable inflation. Particularly, the dollar
has had an average inflation rate of 3.9% per year between 2018 and
today, producing a cumulative price increase of approximately 21.1%
inflation since the fee for the 10 Gb physical port was last
modified.\11\ Moreover, the Exchange historically does not increase
fees every year, notwithstanding inflation. Accordingly, the Exchange
believes the proposed fee is reasonable as it represents only an
approximate 13% increase from the rates adopted five years ago,
notwithstanding the cumulative rate of 21.1%.
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\10\ See Securities and Exchange Release No. 83449 (June 15,
2018), 83 FR 28890 (June 21, 2018) (SR-CboeEDGA-2018-010).
\11\ See <a href="https://www.officialdata.org/us/inflation/2010?amount=1">https://www.officialdata.org/us/inflation/2010?amount=1</a>.
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The Exchange also believes the proposed fee is reasonable as it is
still in line with, or even lower than, amounts assessed by other
exchanges for similar connections.\12\ Indeed, the Exchange believes
assessing fees that are a lower rate than fees assessed by other
exchanges for analogous connectivity (which were similarly adopted via
the rule filing process and filed with the Commission) is reasonable.
As noted above, the proposed fee is also the same as is concurrently
being proposed for its Affiliate Exchanges. Further, Members are able
to utilize a single port to connect to any of the Affiliate Exchanges
with no additional fee assessed for that same physical port.
Particularly, the Exchange believes the proposed monthly per port fee
is reasonable, equitable and not unfairly discriminatory as it is
assessed only once, even if it connects with another affiliate exchange
since only one port is being used and the Exchange does not wish to
charge multiple fees for the same port. Indeed, the Exchange notes that
several ports are in fact purchased and utilized across one or more of
the Exchange's affiliated Exchanges (and charged only once).
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\12\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10 Gb Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10 Gb physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10 Gb
LX LCN Circuits (which are analogous to the Exchange's 10 Gb
physical port) are assessed $22,000 per month, per port.
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The Exchange also believes that the proposed fee change is not
unfairly discriminatory because it would be assessed uniformly across
all market
[[Page 73922]]
participants that purchase the physical ports. The Exchange believes
increasing the fee for 10 Gb physical ports and charging a higher fee
as compared to the 1 Gb physical port is equitable as the 1 Gb physical
port is 1/10th the size of the 10 Gb physical port and therefore does
not offer access to many of the products and services offered by the
Exchange (e.g., ability to receive certain market data products). Thus,
the value of the 1 Gb alternative is lower than the value of the 10 Gb
alternative, when measured based on the type of Exchange access it
offers. Moreover, market participants that purchase 10 Gb physical
ports utilize the most bandwidth and therefore consume the most
resources from the network. As such, the Exchange believes the proposed
fee change for 10 Gb physical ports is reasonably and appropriately
allocated.
The Exchange also notes Members and non-Members will continue to
choose the method of connectivity based on their specific needs and no
broker-dealer is required to become a Member of, let alone connect
directly to, the Exchange. There is also no regulatory requirement that
any market participant connect to any one particular exchange.
Moreover, direct connectivity is not a requirement to participate on
the Exchange. The Exchange also believes substitutable products and
services are available to market participants, including, among other
things, other equities exchanges that a market participant may connect
to in lieu of the Exchange, indirect connectivity to the Exchange via a
third-party reseller of connectivity, and/or trading of any equities
product, such as within the Over-the-Counter (OTC) markets which does
not require connectivity to the Exchange. Indeed, there are currently
16 registered equities exchanges that trade equities (12 of which are
not affiliated with Cboe), some of which have similar or lower
connectivity fees.\13\ Based on publicly available information, no
single equities exchange has more than approximately 16% of the market
share.\14\ Further, low barriers to entry mean that new exchanges may
rapidly enter the market and offer additional substitute platforms to
further compete with the Exchange and the products it offers. For
example, in 2020 alone, three new exchanges entered the market: Long
Term Stock Exchange (LTSE), Members Exchange (MEMX), and Miami
International Holdings (MIAX Pearl).
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\13\ Id.
\14\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (June 29, 2023), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
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As noted above, there is no regulatory requirement that any market
participant connect to any one equities exchange, nor that any market
participant connect at a particular connection speed or act in a
particular capacity on the Exchange, or trade any particular product
offered on an exchange. Moreover, membership is not a requirement to
participate on the Exchange. Indeed, the Exchange is unaware of any one
equities exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 103 members that
trade equities, Cboe EDGX has 124 members that trade equities, Cboe BYX
has 110 members and Cboe BZX has 132 members. There is also no firm
that is a Member of EDGA Equities only. Further, based on publicly
available information regarding a sample of the Exchange's competitors,
NYSE has 143 members,\15\ IEX has 129 members,\16\ and MIAX Pearl has
51 members.\17\
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\15\ See <a href="https://www.nyse.com/markets/nyse/membership">https://www.nyse.com/markets/nyse/membership</a>,.
\16\ See <a href="https://www.iexexchange.io/membership">https://www.iexexchange.io/membership</a>.
\17\ See <a href="https://www.miaxglobal.com/sites/default/files/page-files/20230630_MIAX_Pearl_Equities_Exchange_Members_June_2023.pdf">https://www.miaxglobal.com/sites/default/files/page-files/20230630_MIAX_Pearl_Equities_Exchange_Members_June_2023.pdf</a>.
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A market participant may also submit orders to the Exchange via a
Member broker or a third-party reseller of connectivity. The Exchange
notes that third-party non-Members also resell exchange connectivity.
This indirect connectivity is another viable alternative for market
participants to trade on the Exchange without connecting directly to
the Exchange (and thus not pay the Exchange connectivity fees), which
alternative is already being used by non-Members and further constrains
the price that the Exchange is able to charge for connectivity to its
Exchange.\18\ The Exchange notes that it could, but chooses not to,
preclude market participants from reselling its connectivity. Unlike
other exchanges, the Exchange also chooses not to adopt fees that would
be assessed to third-party resellers on a per customer basis (i.e., fee
based on number of Members that connect to the Exchange indirectly via
the third-party).\19\ Particularly, these third-party resellers may
purchase the Exchange's physical ports and resell access to such ports
either alone or as part of a package of services. The Exchange notes
that multiple Members are able to share a single physical port (and
corresponding bandwidth) with other non-affiliated Members if purchased
through a third-party re-seller.\20\ This allows resellers to mutualize
the costs of the ports for market participants and provide such ports
at a price that may be lower than the Exchange charges due to this
mutualized connectivity. These third-party sellers may also provide an
additional value to market participants as they may also manage and
monitor these connections, and clients of these third-parties may also
be able to connect from the same colocation facility either from their
own racks or using the third-party's managed racks and infrastructure
which may provide further cost-savings. As such, even firms that wish
to utilize a single, dedicated 10 Gbps port (i.e., use one single 10
Gbps port themselves instead of sharing a port with other firms), may
still realize cost savings via a third-party reseller because such
reseller may be providing additional services and infrastructure
support alongside the physical port offering (e.g., providing space,
hosting, power, and other long-haul connectivity options). Further, as
noted above, the Exchange does not receive any connectivity revenue
when connectivity is resold by a third-party, which often is resold to
multiple customers, some of whom are agency broker-dealers that have
numerous customers of their own. Therefore, given the availability of
third-party providers that also offer connectivity solutions, the
Exchange believes participation on the Exchange remains affordable
(notwithstanding the proposed fee change) for all market participants,
including trading firms
[[Page 73923]]
that may be able to take advantage of lower costs that result from
mutualized connectivity and/or from other services provided alongside
the physical port offerings. Because third-party resellers also act as
a viable alternative to direct connectivity to the Exchange, the price
that the Exchange is able to charge for direct connectivity to its
Exchange is constrained. Further, the Exchange believes its offerings
are more affordable as compared to similar offerings at competitor
exchanges.\21\
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\18\ Third-party resellers of connectivity play an important
role in the capital markets infrastructure ecosystem. For example,
third-party resellers can help unify access for customers who want
exposure to multiple financial markets that are geographically
dispersed by establishing connectivity to all of the different
exchanges, so the customers themselves do not have to. Many of the
third-party connectivity resellers also act as distribution agents
for all of the market data generated by the exchanges as they can
use their established connectivity to subscribe to, and
redistribute, data over their networks. This may remove barriers
that infrastructure requirements may otherwise pose for customers
looking to access multiple markets and real-time data feeds. This
facilitation of overall access to the marketplace is ultimately
beneficial for the entire capital markets ecosystem, including the
Exchange, on which such firms transact business.
\19\ See, e.g., Nasdaq Price List--U.S. Direct Connection and
Extranet Fees, available at, US Direct-Extranet Connection
(<a href="http://nasdaqtrader.com">nasdaqtrader.com</a>); and Securities Exchange Act Release Nos. 74077
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022)
(SR-NASDAQ-2017-114).
\20\ For example, a third-party reseller may purchase one 10 Gb
physical port from the Exchange and resell that connectivity to
three different market participants who may only need 3 Gb each and
leverage the same single port.
\21\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10 Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10 Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
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Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether direct connectivity to the Exchange is appropriate and
worthwhile, and as noted above, no broker-dealer is required to become
a Member of the Exchange, let alone connect directly to it. In the
event that a market participant views the Exchange's proposed fee
change as more or less attractive than the competition, that market
participant can choose to connect to the Exchange indirectly or may
choose not to connect to that exchange and connect instead to one or
more of the other 12 non-Cboe affiliated equities markets. Indeed,
market participants are free to choose which exchange or reseller to
use to satisfy their business needs. Moreover, if the Exchange charges
excessive fees, it may stand to lose not only connectivity revenues but
also revenues associated with the execution of orders routed to it,
and, to the extent applicable, market data revenues. The Exchange
believes that this competitive dynamic imposes powerful restraints on
the ability of any exchange to charge unreasonable fees for
connectivity. Notwithstanding the foregoing, the Exchange still
believes that the proposed fee increase is reasonable, equitably
allocated and not unfairly discriminatory, even for market participants
that determine to connect directly to the Exchange for business
purposes, as those business reasons should presumably result in revenue
capable of covering the proposed 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 proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated Members equally (i.e., all market participants that
choose to purchase the 10 Gb physical port). Additionally, the Exchange
does not believe its proposed pricing will impose a barrier to entry to
smaller participants and notes that its proposed connectivity pricing
is associated with relative usage of the various market participants.
For example, market participants with modest capacity needs can
continue to buy the less expensive 1 Gb physical port (which cost is
not changing) or may choose to obtain access via a third-party re-
seller. While pricing may be increased for the larger capacity physical
ports, such options provide far more capacity and are purchased by
those that consume more resources from the network. Accordingly, the
proposed connectivity fees do not favor certain categories of market
participants in a manner that would impose a burden on competition;
rather, the allocation reflects the network resources consumed by the
various size of market participants--lowest bandwidth consuming members
pay the least, and highest bandwidth consuming members pays the most.
The Exchange's proposed fee is also still lower than some fees for
similar connectivity on other exchanges and therefore may stimulate
intermarket competition by attracting additional firms to connect to
the Exchange or at least should not deter interested participants from
connecting directly to the Exchange. Further, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in connectivity via 10 Gb physical ports as
a result. The Exchange operates in a highly competitive market in which
market participants can determine whether or not to connect directly to
the Exchange based on the value received compared to the cost of doing
so.
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.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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="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#3d4f485158105e5250505853494e7d4e585e135a524b"><span class="__cf_email__" data-cfemail="6f1d1a030a420c0002020a011b1c2f1c0a0c41080019">[email protected]</span></a>. Please include
file number SR-CboeEDGA-2023-017 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-CboeEDGA-2023-017. 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
[[Page 73924]]
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-CboeEDGA-2023-017 and should
be submitted on or before November 17, 2023.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-23705 Filed 10-26-23; 8:45 am]
BILLING CODE 8011-01-P
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