Notice2024-13708
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
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Published
June 24, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 121 (Monday, June 24, 2024)</title>
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[Federal Register Volume 89, Number 121 (Monday, June 24, 2024)]
[Notices]
[Pages 52518-52521]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13708]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100357; File No. SR-CboeEDGX-2024-037]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
June 17, 2024.
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 June 12, 2024, 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.
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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 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'') by modifying Retail
Volume Tier 2. The Exchange proposes to implement these changes
effective June 3, 2024.\3\
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\3\ The Exchange initially filed the proposed fee changes on
June 3, 2024 (SR-CboeEDGX-2024-032). On June 12, 2024, the Exchange
withdrew that filing and submitted this proposal.
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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,\4\ no single registered equities exchange has more than
15% 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.\5\ For orders in securities
priced below $1.00, the Exchange provides a standard rebate of $0.00003
per share for orders that add liquidity and assesses a fee of 0.30% of
the total dollar value for orders that remove liquidity.\6\
Additionally, in response to the competitive environment, the Exchange
also offers tiered pricing which provides Members opportunities to
qualify for higher
[[Page 52519]]
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.
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\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (May 22, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\5\ See EDGX Equities Fee Schedule, Standard Rates.
\6\ Id.
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Retail Volume Tier
Under footnote 2 of the Fee Schedule, the Exchange currently offers
various Retail Volume Tiers which provide an enhanced rebate for Retail
Member Organizations (``RMOs'') \7\ an opportunity to receive an
enhanced rebate from the standard rebate for Retail Orders \8\ that add
liquidity (i.e., yielding fee code ZA or ZO). Currently, the Exchange
offers three Retail Volume Tiers where an RMO is eligible for an
enhanced rebate for qualifying orders (i.e., yielding fee code ZA or
ZO) meeting certain add volume-based criteria. The Exchange now
proposes to modify the criteria of Retail Volume Tier 2. Currently, the
criteria is as follows:
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\7\ See EDGX Rule 11.21(a)(1). A ``Retail Member Organization''
or ``RMO'' is a Member (or a division thereof) that has been
approved by the Exchange under this Rule to submit Retail Orders.
\8\ See EDGX Rule 11.21(a)(2). A ``Retail Order'' is an agency
or riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by a Retail Member Organization, provided that no
change is made to the terms of the order with respect to price or
side of the market and the order does not originate from a trading
algorithm or any other computerized methodology.
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<bullet> Retail Volume Tier 2 provides a rebate of $0.0037 for
securities priced at or above $1.00 for qualifying orders (i.e., orders
yielding fee codes ZA or ZO) where a Member adds a Retail Order ADV
(i.e., yielding fee codes ZA or ZO) >=0.45% of the TCV.
The proposed criteria is as follows:
<bullet> Retail Volume Tier 2 provides a rebate of $0.0037 for
securities priced at or above $1.00 for qualifying orders (i.e., orders
yielding fee codes ZA or ZO) where a Member adds a Retail Order ADV
(i.e., yielding fee codes ZA or ZO) >=0.40% of the TCV.
The proposed modifications to Retail Volume Tier 2 are intended to
provide Members an opportunity to earn an enhanced rebate by increasing
their order flow to the Exchange, which further contributes to a
deeper, more liquid market and provides even more execution
opportunities for active market participants. While the proposed
criteria is slightly easier to achieve than the current criteria, the
Exchange believes lowering the TCV requirement reflects current market
trends and will incentivize Members who may not currently qualify for
this tier to increase their order flow to the Exchange in an attempt to
achieve this tier. Incentivizing an increase in liquidity adding volume
through enhanced rebate opportunities encourages liquidity adding
Members on the Exchange to contribute to a deeper, more liquid market,
providing for overall enhanced price discovery and price improvement
opportunities on the Exchange. As such, increased overall order flow
benefits all Members by contributing towards a robust and well-balanced
market ecosystem.
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.\9\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \10\ 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) \11\ 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) \12\
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.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
\12\ 15 U.S.C. 78f(b)(4).
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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 Retail Volume Tier 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. Specifically, the
Exchange's proposal to introduce slightly lower criteria to Retail
Volume Tier 2 is not a significant departure from existing criteria, is
reasonably correlated to the enhanced rebate offered by the Exchange
and other competing exchanges,\13\ and will continue to incentivize
Members to submit order flow to the Exchange. The lower criteria
proposed by the Exchange is intended to reflect current market trends
while encouraging Members to submit order flow to the Exchange.
Additionally, the Exchange notes that relative volume-based incentives
and discounts have been widely adopted by exchanges,\14\ including the
Exchange,\15\ 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.
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\13\ See Nasdaq Price List, Add and Remove Rates, Rebate to Add
Displayed Liquidity, Shares executed at or Above $1.00, available at
<a href="https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2">https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2</a>. See also
MEMX Equities Fee Schedule, Retail Tier, available at <a href="https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/">https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/</a>.
\14\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\15\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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In particular, the Exchange believes its proposal to modify Retail
Volume Tier 2 is reasonable because the revised tiers will be available
to all Members and provide all Members with an opportunity to receive
an enhanced rebate. The Exchange further believes its proposal to
modify Retail Volume Tier 2 will provide a reasonable means to
encourage liquidity adding displayed and non-displayed orders in
Members' order flow to the Exchange and to incentivize Members to
continue to provide liquidity adding and liquidity removing volume to
the Exchange by offering them an opportunity to receive an enhanced
rebate on qualifying orders. An overall increase in activity would
deepen the Exchange's liquidity pool, offer additional cost savings,
support the quality of price discovery, promote market transparency and
improve market quality, for all investors.
[[Page 52520]]
The Exchange believes that its proposed modification to Retail
Volume Tier 2 is reasonable as it does 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 proposed new tier and have
the opportunity to meet the tier's criteria and receive the
corresponding enhanced rebate 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 Retail Volume Tier 2. The Exchange also notes that
proposed changes will not adversely impact any Member's ability to
qualify for 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
change to Retail Volume Tier 2 will apply to all Members equally in
that all Members are eligible for the tier, have a reasonable
opportunity to meet the tier's criteria and will receive the enhanced
rebate on their qualifying orders if such criteria is met. The Exchange
does not believe the proposed change burdens competition, but rather,
enhances competition as it is intended to increase the competitiveness
of EDGX by 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.
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 15% of the market share.\16\ 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.'' \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 fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\16\ Supra note 3.
\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.
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#552720393078363a3838303b2126152630367b323a23"><span class="__cf_email__" data-cfemail="bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9">[email protected]</span></a>. Please include
file number SR-
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CboeEDGX-2024-037 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-2024-037. 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-2024-037 and should
be submitted on or before July 15, 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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13708 Filed 6-21-24; 8:45 am]
BILLING CODE 8011-01-P
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