Notice2024-03454
Self-Regulatory Organizations; Cboe EDGA 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
February 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 35 (Wednesday, February 21, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Notices]
[Pages 13128-13131]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03454]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99540; File No. SR-CboeEDGA-2024-005]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
February 14, 2024.
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 February 7, 2024, Cboe EDGA Exchange, Inc. (``Exchange'' or
``EDGA'') 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') 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/equities/regulation/rule_filings/edga/">http://markets.cboe.com/us/equities/regulation/rule_filings/edga/</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 (``EDGA Equities'') by: (1) modifying the
rate associated with fee code DQ; and (2) modifying certain Add/Remove
Volume Tiers. The Exchange proposes to implement these changes
effective February 1, 2024.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee change on
February 1, 2024 (SR-CboeEDGA-2024-004). On February 7, 2024, the
Exchange withdrew that filing and submitted this proposal.
---------------------------------------------------------------------------
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
[[Page 13129]]
responsibilities under the Securities Exchange Act of 1934 (the
``Act''), to which market participants may direct their order flow.
Based on publicly available information,\4\ no single registered
equities exchange has more than 13% 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 ``Taker-Maker'' model
whereby it pays credits to members that remove liquidity and assesses
fees to those that add liquidity. The Exchange's Fee Schedule sets
forth the standard rebates and rates applied per share for orders that
remove and provide 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 remove liquidity and
assesses a fee of $0.0030 per share for orders that add liquidity.\5\
For orders in securities priced below $1.00, the Exchange does not
assess any fees or provide any rebates for orders that add or remove
liquidity.\6\ Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing which provides Members
opportunities to qualify for higher rebates or reduced fees where
certain volume criteria and thresholds are met. Tiered pricing provides
an incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
---------------------------------------------------------------------------
\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (January 26, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\5\ See EDGA Equities Fee Schedule, Standard Rates.
\6\ Id.
---------------------------------------------------------------------------
Fee Code DQ
The Exchange currently offers fee code DQ, which is appended to
Midpoint Discretionary Orders (``MDOs'') \7\ using the Quote Depletion
Protection (``QDP'') \8\ order instruction which add liquidity to the
EDGA Book.\9\ QDP is designed to provide enhanced protections to MDOs
by tracking significant executions that constitute the best bid or
offer on the EDGA Book and enabling Users to avoid potentially
unfavorable executions by preventing MDOs entered with the optional QDP
instruction from exercising discretion to trade at more aggressive
prices when QDP has been triggered.\10\ Currently, MDOs entered with a
QDP instruction and which add liquidity to the EDGA Book are appended
fee code DQ and assessed a fee of $0.0015 per share in securities at or
above $1.00 and 0.30% of dollar value for securities priced below
$1.00. The Exchange now proposes to amend the fee associated with fee
code DQ from $0.0015 per share in securities at or above to $1.00 to
$0.0018 per share. There is no proposed change in the fee assessed to
securities priced below $1.00. The purpose of increasing the fee
associated with fee code DQ 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.
---------------------------------------------------------------------------
\7\ See Exchange Rule 11.8(e).
\8\ See Exchange Rule 11.8(e)(10).
\9\ See Exchange Rule 1.5(d).
\10\ See Securities Exchange Act Release No. 89016 (June 4,
2020), 85 FR 35488 (June 10, 2020) (SR-CboeEDGA-2020-005) (``Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend
the Rule Relating to MidPoint Discretionary Orders to Allow Optional
Offset or Quote Depletion Protection Instructions'').
---------------------------------------------------------------------------
Add/Remove Volume Tiers
Under footnote 7 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers
three Remove Volume Tiers that each provide an enhanced rebate for
Members' qualifying orders yielding fee codes N,\11\ W,\12\ 6 \13\ and
BB \14\ where a Member reaches certain add volume-based criteria. The
Exchange now proposes to modify the criteria associated with Remove
Volume Tier 1 and Remove Volume Tier 2. The current criteria for Remove
Volume Tiers 1-2 is as follows:
---------------------------------------------------------------------------
\11\ Fee code N is appended to orders that remove liquidity from
EDGA in Tape C securities.
\12\ Fee code W is appended to orders that remove liquidity from
EDGA in Tape A securities.
\13\ Fee code 6 is appended to orders that remove liquidity from
EDGA in the pre and post market for securities listed on all tapes.
\14\ Fee code BB is appended to orders that remove liquidity
from EDGA in Tape B securities.
---------------------------------------------------------------------------
<bullet> Remove Volume Tier 1 provides an enhanced rebate of
$0.0018 per share for securities priced at or above $1.00 to qualifying
orders (i.e., orders yielding fee codes N, W, 6, or BB) where a Member
adds or removes an ADV \15\ >=0.02% of the TCV.\16\
---------------------------------------------------------------------------
\15\ ``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.
\16\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
---------------------------------------------------------------------------
<bullet> Remove Volume Tier 2 provides an enhanced rebate of
$0.0020 per share for securities priced at or above $1.00 to qualifying
orders (i.e., orders yielding fee codes N, W, 6, or BB) where a Member
adds or removes an ADV >=0.05% of the TCV.
The proposed criteria for Remove Volume Tiers 1-2 is as follows:
<bullet> Remove Volume Tier 1 provides an enhanced rebate of
$0.0018 per share for securities priced at or above $1.00 to qualifying
orders (i.e., orders yielding fee codes N, W, 6, or BB) where a Member
adds or removes an ADV >=0.05% of the TCV.
<bullet> Remove Volume Tier 2 provides an enhanced rebate of
$0.0020 per share for securities priced at or above $1.00 to qualifying
orders (i.e., orders yielding fee codes N, W, 6, or BB) where a Member
adds or removes an ADV >=0.10% of the TCV.
The Exchange believes that the proposed modifications to Remove
Volume Tiers 1-2 will incentivize Members to add volume to and remove
volume from the Exchange, thereby contributing to a deeper and more
liquid market, which benefits all market participants and provides
greater execution opportunities on the Exchange. While the proposed
criteria is slightly more difficult to achieve than the current
criteria, the Exchange believes that the criteria continues to be
commensurate with the enhanced rebate offered by the Exchange for
Members who satisfy the proposed criteria of Remove Volume Tiers 1-2
and remains in-line with the criteria offered under Remove Volume Tier
3.
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.\17\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \18\ 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
[[Page 13130]]
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) \19\ 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) \20\
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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
\20\ 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 Remove Volume Tiers 1-2 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,\21\ including the Exchange,\22\ and
are reasonable, equitable and non-discriminatory because they are open
to all Members on an equal basis and provide additional benefits or
discounts that are reasonably related to (i) the value to an exchange's
market quality and (ii) associated higher levels of market activity,
such as higher levels of liquidity provision and/or growth patterns.
Competing equity exchanges offer similar tiered pricing structures,
including schedules of rebates and fees that apply based upon members
achieving certain volume and/or growth thresholds, as well as assess
similar fees or rebates for similar types of orders, to that of the
Exchange.
---------------------------------------------------------------------------
\21\ See e.g., BYX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\22\ See e.g., EDGA Equities Fee Schedule, Fee Codes 3 and 6.
---------------------------------------------------------------------------
In particular, the Exchange believes its proposal to modify Remove
Volume Tiers 1-2 is reasonable because the tiers will be available to
all Members and provide all Members with an opportunity to receive an
enhanced rebate. The Exchange further believes that modified Remove
Volume Tiers 1 and 2 will provide a reasonable means to encourage
adding displayed orders in Members' order flow to the Exchange and to
incentivize Members to continue to provide 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 fee associated with fee code DQ 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 assesses various fees for liquidity-adding orders and
provides various rebates for liquidity-removing 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 higher fee ($0.0018 per share in securities
priced at or above $1.00) is reasonable and appropriate because it
represents only a modest increase from the current fee ($0.0015 per
share) and remains competitive with, and generally lower than, other
fees assessed for liquidity-adding orders on the Exchange. The Exchange
further believes that the proposed increase to the fee associated with
fee code DQ is not unfairly discriminatory because it applies to all
Members equally, in that all Members will be assessed the higher fee
upon appending an order with fee code DQ.
The Exchange believes the proposed modified Remove Volume Tiers 1-2
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 new and revised tiers and have the opportunity to
meet the tiers' criteria and receive the corresponding reduced fee or
enhanced rebate if such criteria are met. Without having a view of
activity on other markets and off-exchange venues, the Exchange has no
way of knowing whether these proposed rule changes would definitely
result in any Members qualifying for 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 six Members will be able to
satisfy proposed Remove Volume Tier 1, and at least four Members will
be able to satisfy proposed Remove Volume Tier 2. The Exchange also
notes that the proposed changes will not adversely impact any Member's
ability to qualify for reduced fees or enhanced rebates offered under
other tiers. Should a Member not meet the proposed new criteria, the
Member will merely not receive that corresponding enhanced rebate.
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 Remove Volume Tiers 1 and 2 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 on their qualifying orders if such criteria are met.
The Exchange does not believe the proposed changes burden competition,
but rather, enhance competition as they are intended to increase the
competitiveness of EDGA by adopting a new pricing incentive and
amending existing 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.
[[Page 13131]]
Further, the Exchange believes the proposed increased fee
associated with fee code DQ does not impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed fees associated with fee code DQ
would apply to all Members equally in that all Members would be subject
to the same fee for the execution of an MDO with a QDP instruction that
adds liquidity to the Exchange. Both MDO and the associated QDP
instruction are available to all Members on an equal and non-
discriminatory basis. As a result, any Member can decide to use (or not
use) the QDP instruction based on the benefits provided by that
instruction in potentially avoiding unfavorable executions, and the
associated charge that the Exchange proposes to amend.
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 13% of the market share.\23\ Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other exchange
and off-exchange venues if they deem fee levels at those other venues
to be more favorable. Moreover, the Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
Specifically, in Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and,
also, recognized that current regulation of the market system ``has
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \24\ 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' . . . .''.\25\ 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.
---------------------------------------------------------------------------
\23\ Supra note 3.
\24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\25\ 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 \26\ and paragraph (f) of Rule 19b-4 \27\
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.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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#7301061f165e101c1e1e161d0700330016105d141c05"><span class="__cf_email__" data-cfemail="91e3e4fdf4bcf2fefcfcf4ffe5e2d1e2f4f2bff6fee7">[email protected]</span></a>. Please include
file number SR-CboeEDGA-2024-005 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-2024-005. 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-CboeEDGA-2024-005 and should
be submitted on or before March 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03454 Filed 2-20-24; 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 February 21, 2024.
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.