Notice2024-08575
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Regarding Dedicated Cores
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Published
April 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 79 (Tuesday, April 23, 2024)</title>
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[Federal Register Volume 89, Number 79 (Tuesday, April 23, 2024)]
[Notices]
[Pages 30418-30421]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08575]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99983; File No. SR-CboeEDGA-2024-014]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fees Schedule Regarding Dedicated Cores
April 17, 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 April 12, 2024, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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.
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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>), 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 to amend the fees
and increase the maximum cap for Dedicated Cores.\3\
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\3\ The Exchange initially filed the proposed rule change on
April 1, 2024 (SR-CboeEDGA-2024-012). On April 12, 2024, the
Exchange withdrew that filing and submitted this filing.
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By way of background, the Exchange recently began to allow Users
\4\ to assign a Single Binary Order Entry (``BOE'') logical order entry
port \5\ to a single dedicated Central Processing Unit (CPU Core)
(``Dedicated Core''). Historically, CPU Cores had been shared by
logical order entry ports (i.e., multiple logical ports from multiple
firms may connect to a single CPU Core). Use of Dedicated Cores
however, can provide reduced latency, enhanced throughput, and improved
performance since a firm using a Dedicated Core is utilizing the full
processing power of a CPU Core instead of sharing that power with other
firms. This offering is completely voluntary and is available to all
Users that wish to purchase Dedicated Cores. Users may utilize BOE
logical order entry ports on shared CPU Cores, either in lieu of, or in
addition to, their use of Dedicated Core(s). As such, Users are able to
operate across a mix of shared and dedicated CPU Cores which the
Exchange believes provides additional risk and capacity management.
Further, Dedicated Cores are not required nor necessary to participate
on the Exchange and as such Users may opt not to use Dedicated Cores at
all.
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\4\ A User may be either a Member or Sponsored Participant. The
term ``Member'' shall mean any registered broker or dealer that has
been admitted to membership in the Exchange, limited liability
company or other organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has been approved by
the Exchange. A Sponsored Participant may be a Member or non-Member
of the Exchange whose direct electronic access to the Exchange is
authorized by a Sponsoring Member subject to certain conditions. See
Exchange Rule 11.3.
\5\ Users may currently connect to the Exchange using a logical
port available through an application programming interface
(``API''), such as the Binary Order Entry (``BOE'') protocol. A BOE
logical order entry port is used for order entry.
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The Exchange currently assesses the following monthly fees for
those Users that wish to use Dedicated Cores: $650 per Dedicated Core
for the first 3 Dedicated Cores; $1,050 per Dedicated Core for the 4th-
6th Dedicated Cores; and $1,450 per Dedicated Core for 7 or more
Dedicated Cores. The proposed fees are progressive and are assessed and
applied in their entirety and are not
[[Page 30419]]
prorated. The monthly Dedicated Core fees are in addition to the
standard per port fee assessed to Users for the BOE Logical Port(s)
ports assigned to the Dedicated Core(s).\6\ The Exchange notes the
current standard fees assessed for BOE Logical Ports, whether used with
Dedicated or shared CPU cores, are applicable and unchanged.\7\
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\6\ The Exchange currently assesses $550 per port per month. See
Cboe EDGA Equities Fee Schedule.
\7\ See Cboe U.S. Equities Fees Schedules, EDGA Equities,
Logical Port Fees.
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Since the Exchange currently has finite amount of space in its data
centers in which its servers (and therefore corresponding CPU Cores)
are located, the Exchange has also prescribed a maximum limit on the
number of Dedicated Cores that Users may purchase each month.
Particularly, the Exchange currently provides that Members are limited
to a maximum number of 10 Dedicated Cores and Sponsoring Members are
limited to a maximum number of 4 Dedicated Cores for each of their
Sponsored Access relationships.\8\ The purpose of establishing these
limits is to manage the allotment of Dedicated Cores in a fair manner
and to prevent the Exchange from being required to expend large amounts
of resources in order to provide an unlimited number of Dedicated
Cores.
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\8\ The Exchange announced the initial limit via Exchange Notice
which was issued on January 29, 2024. <a href="https://cdn.cboe.com/resources/release_notes/2024/Cboe-Global-Markets-to-Introduce-Cboe-Dedicated-Cores-for-EDGA-Equities.pdf">https://cdn.cboe.com/resources/release_notes/2024/Cboe-Global-Markets-to-Introduce-Cboe-Dedicated-Cores-for-EDGA-Equities.pdf</a>.
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The Exchange now proposes to amend these fees and maximum limits.
First the Exchange proposes to provide up to two Dedicated Cores to all
Users who wish to use Dedicated Cores, at no additional cost. The
Exchange also proposes to amend the Fees such that it proposes to
charge: $650 per Dedicated Core for 3-10 Dedicated Cores; $850 per
Dedicated Core for 11-15 Dedicated Cores; and $1,050 per Dedicated Core
for 16 or more Dedicated Cores. The Exchange notes the proposed fees
will continue to be progressive and the Exchange proposes to update the
current example in the fees schedule to maintain clarity as to how they
are applied.\9\
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\9\ Particularly, the Exchange will provide that if a User were
to purchase 11 Dedicated Cores, it will be charged a total of $6,050
per month ($0 * 2 + $650 * 8 + $850 * 1).
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The Exchange also proposes to increase the current maximum number
of Dedicated Cores that Users may purchase. In particular, the Exchange
continually monitors market participant demand and resource
availability and endeavors to adjust the limit if and when the Exchange
is able to accommodate additional CPU Cores (including Dedicated
Cores). In response to market participant demand and the ability to now
accommodate additional Dedicated Cores, the Exchange is proposing to
double the current maximum of Dedicated Cores that Users may purchase.
Particularly, the Exchange proposes to provide that Members will be
limited to a maximum number of 20 Dedicated Cores \10\ and Sponsoring
Members will be limited to a maximum number of 8 Dedicated Cores for
each of their Sponsored Access relationships.\11\ The Exchange notes
that it will continue monitoring Dedicated Core interest by all Users
and allotment availability with the goal of increasing these limits to
meet Users' needs.
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\10\ The prescribed maximum quantity of Dedicated Cores for
Members applies regardless of whether that Member purchases the
Dedicated Cores directly from the Exchange and/or through a Service
Bureau. In a Service Bureau relationship, a customer allows its MPID
to be used on the ports of a technology provider, or Service Bureau.
One MPID may be allowed on several different Service Bureaus.
\11\ The fee tier(s) applicable to Sponsoring Members are
determined on a per Sponsored Access relationship basis and not on
the combined total of Dedicated Cores across Sponsored Users. For
example, under the proposed changes, a Sponsoring Member that has
two Sponsored Access relationships is entitled to a total of 16
Dedicated Cores for those 2 Sponsored Access relationships but would
be assessed fees separately based on the 8 Dedicated Cores for each
Sponsored User (instead of combined total of 16 Dedicated Core). For
example, a Sponsoring Member with 2 Sponsored Access relationships
would be provided 2 Dedicated Cores at no additional cost for each
Sponsored User under Tier 1 (total of 4 Dedicated Cores at no
additional cost) and provided an additional 6 Dedicated Cores for
each Sponsored User under Tier 2 (total 12 Dedicated Cores) at $650
per month.
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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.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ 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) \14\ 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) \15\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
\15\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed changes are reasonable because
they provide any Users who wishes to utilize Dedicated Cores up to two
Dedicated Cores at no additional cost. Additionally, the proposed
changes generally result in reduced fees for Users. For example, only
the first three Dedicated Cores are currently assessed the lower $650
per Dedicated Core rate and Dedicated Core quantities above 3 are
assessed a higher rate of either $1,050 or $1,450, depending on how
many Dedicated Cores a User purchased. As proposed, Users not only get
the first two Dedicated Cores for free, but up to 8 additional
Dedicated Cores at the lower $650 rate. The Exchange also proposes to
reduce the fee rates for the next two tiers as well (i.e., $850 per
Dedicated Cores for 11-15 Dedicated Cores and $1,050 for 16-20
Dedicated Cores).
The Exchange also believes the proposed fees are reasonable as
Dedicated Cores provide a valuable service that can provide reduced
latency, enhanced throughput, and improved performance compared to use
of a shared CPU Core since a firm using a Dedicated Core is utilizing
the full processing power of a CPU Core. Dedicated Cores continue to
not be necessary for trading and as noted above, are entirely optional.
Indeed, Users can continue to access the Exchange through shared CPU
Cores at no additional cost. Depending on a firm's specific business
needs, the proposal enables Users to choose to use Dedicated Cores in
lieu of, or in addition to, shared CPU Cores (or as noted, not use
Dedicated Cores at all). The Exchange believes the proposal to operate
across a mix of shared and dedicated CPU Cores may further provide
additional risk and capacity management. If a User finds little benefit
in having Dedicated Cores however, or determines Dedicated Cores
[[Page 30420]]
are not cost-efficient for its needs or does not provide sufficient
value to the firm, such User may continue its use of the shared CPU
Cores, unchanged or determine not to purchase additional Dedicated
Cores. Indeed, the Exchange has no plans to eliminate shared CPU Cores
nor to require Users to purchase Dedicated Cores.
The Exchange also believes that the proposed Dedicated Core fees
are equitable and not unfairly discriminatory because they continue to
be assessed uniformly to similarly situated users in that all Users who
choose to purchase Dedicated Cores will be subject to the same proposed
tiered fee schedule. Further all Users are entitled to up to 2
Dedicated Cores at no additional cost. The Exchange believes the
proposed ascending fee structure is also reasonable, equitable and not
unfairly discriminatory as it is designed so that firms that use a
higher allotment of the Exchange's finite number of Dedicated Cores pay
higher rates, rather than placing that burden on market participants
that have more modest needs who will have the flexibility of obtaining
Dedicated Cores at lower price points in the lower tiers. As such, the
proposed fees do not favor certain categories of market participants in
a manner that would impose a burden on competition; rather, the
ascending fee structure reflects the resources consumed by the various
needs of market participants--that is, the lowest Dedicated Core
consuming Users pay the least, and highest Dedicated Core consuming
Users pay the most. Other exchanges similarly assess higher fees to
those that consume more Exchange resources.\16\ It's also designed to
encourage firms to manage their needs in a fair manner and to prevent
the Exchange from being required to expend large amounts of resources
in order to provide an additional number of Dedicated Cores.
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\16\ See also Cboe U.S. Options Fees Schedule, BZX Options,
Options Logical Port Fees, Ports with Bulk Quoting Capabilities.
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The Exchange also believes it's reasonable, equitable and not
unfairly discriminatory to increase the maximum number of Dedicated
Cores permitted because Users will be able to avail themselves of
additional Dedicated Cores should they so choose. As noted above, the
Exchange continually monitors market participant demand and resource
availability with the goal to increase the Dedicated Cores limits to
meet Users' needs if and when the Exchange is able to do so. The
Exchange proposes to increase the limits for Dedicated Cores based on
recent market participant demand and the ability to accommodate
additional Dedicated Cores as compared to when the Exchange first
launched Dedicated Cores. The Exchange notes that it's reasonable to
still maintain a maximum number of Dedicated Cores Users can purchase
because the Exchange continues to have a finite amount of space in its
data centers. The proposed limits also apply uniformly to similarly
situated market participants (i.e. all Members are subject to the same
Exchange-prescribed limit and all Sponsored Participants are subject to
the same Exchange-prescribed limit, respectively). The Exchange
believes it's not unfairly discriminatory to provide for different
limits for different types of users. For example, the Exchange believes
it's not unfairly discriminatory to provide for an initial lower limit
to be allocated for Sponsored Participants because unlike Members,
Sponsored Participants are able to access the Exchange without paying a
Membership Fee. Members also have more regulatory obligations and risk
that Sponsored Participants do not. For example, while Sponsored
Participants must agree to comply with the Rules of the Exchange, it is
the Sponsoring Member of that Sponsored Participant that remains
ultimately responsible for all orders entered on or through the
Exchange by that Sponsored Participant. The industry also has a history
of applying fees differently to Members as compared to Sponsored
Participants.
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 intramarket competition that is not necessary in
furtherance of the purposes of the Act because the proposed tiered fee
structure will apply equally to all similarly situated Users that
choose to use Dedicated Cores. As discussed above, Dedicated Cores are
optional and Users may choose to utilize Dedicated Cores, or not, based
on their views of the additional benefits and added value provided by
utilizing a Dedicated Core. The Exchange believes the proposed fee will
be assessed proportionately to the potential value or benefit received
by Users with a greater number of Dedicated Cores and notes that Users
may determine at any time to cease using Dedicated Cores. As discussed,
Users can also continue to access the Exchange through shared CPU Cores
at no additional cost. Finally, all Users will be entitled to two
Dedicated Cores at no additional cost.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market,
including competition for exchange memberships. Market Participants
have numerous alternative venues that they may participate on,
including 15 other equities exchanges, as well as off-exchange venues,
where competitive products are available for trading. Indeed,
participants can readily choose to submit their order flow 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.'' \17\ 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'. . . .''.\18\ Accordingly, the Exchange does not believe its
proposed change imposes any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act.
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\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\18\ 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)).
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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.
[[Page 30421]]
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 \19\ and paragraph (f) of Rule 19b-4 \20\
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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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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#493b3c252c642a2624242c273d3a093a2c2a672e263f"><span class="__cf_email__" data-cfemail="0270776e672f616d6f6f676c7671427167612c656d74">[email protected]</span></a>. Please include
file number SR-CboeEDGA-2024-014 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-2024-014. 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-2024-014 and should
be submitted on or before May 14, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-08575 Filed 4-22-24; 8:45 am]
BILLING CODE 8011-01-P
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