Notice2024-15671
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
July 17, 2024
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 89 Issue 137 (Wednesday, July 17, 2024)</title>
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[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58218-58221]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15671]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100501; File No. SR-CboeEDGX-2024-042]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fees Schedule
July 11, 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 July 1, 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 and II below, which Items
have been prepared by the self-regulatory organization. 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 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/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 Fees Schedule, effective July 1,
2024. 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 17 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 15% of the market share.\3\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange, including the Exchange, possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable.
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\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (June 26, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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The Exchange's Fees Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides standard
rebates ranging from $0.01 up to $0.22 per contract for Customer orders
in Penny and Non-Penny Securities. The Fee Codes and Associated Fees
section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates. For example, the Exchange
provides a rebate of $0.01 per contract for Customer orders that remove
liquidity, in Non-Penny Securities, yielding fee code NC; provides a
rebate of $0.01 per contract for Customer orders that remove liquidity,
in Penny Securities, yielding fee code PC; and provides a rebate of
$0.01 per contract for Customer (contra Non-Customer) orders that add
liquidity, yielding fee code CA.
Customer Volume Tiers
The Exchange proposes to amend Footnote 1 (Customer Volume Tiers),
applicable to orders yielding fee codes PC, NC, and CA.\4\ Pursuant to
Footnote 1 of the Fee Schedule, the Exchange currently offers five
Customer Volume Tiers that provide rebates between $0.10 and $0.22 per
contract for qualifying customer orders yielding fee codes PC, NC and
CA where a Member meets required criteria. The Exchange proposes to
amend this Customer Volume Tier program to add a new Customer Volume
Tier, specifically a Customer Cross-Asset Tier, which requires
participation on the Exchange's equities platform (``EDGX Equities'').
Under the proposed tier, the Exchange would provide a rebate of $0.18
per contract if a Member has (1) an ADV in Customer orders of >=1.75%
of average OCV; (2) an ADAV in Simple Customer Non-Crossing orders
yielding fee code CA >=0.55% of average OCV; (3) an ADV in Firm orders
>=0.20% of average OCV; and (4) has on EDGX Equities an ADAV >=0.45% of
average TCV.\5\
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\4\ As part of the proposed rule change, the Exchange proposes
to amend ``Required Criteria'' language in Tiers 3, 4, and 5 to
conform to new proposed language in Tier 6 and list ``yielding fee
code CA'' directly within the requirements (rather than in a
parenthetical).
\5\ The Exchange notes that the Fee Codes and Associated Fees
table already includes a reference to a rebate of $0.18 for fee
codes PC and NC (as such amount is also offered under Tier 4 of the
Customer Volume Tiers) and as such, no further updates are required
with respect to the Fee Codes and Associated Fees table.
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The Exchange believes that the proposed changes to the Customer
Volume Tier program are designed overall to incentivize more Customer
order flow and to direct an increase of order flow to the EDGX Options
Order Book. The Exchange believes that an increase in Customer order
flow and overall order flow to the Exchange's Book creates more trading
opportunities, which, in turn attracts Market Makers. A resulting
increase in Market Maker activity may facilitate tighter spreads, which
may lead to an additional increase of order flow from
[[Page 58219]]
other market participants, further contributing to a deeper, more
liquid market to the benefit of all market participants by creating a
more robust and well-balanced market ecosystem.
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) of the Act,\9\ 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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In particular, the Exchange believes the proposed change to the
Customer Volume Tier program is reasonable because it provides an
additional opportunity for Members to receive a rebate by providing
alternative criteria for which they can reach. The Exchange notes that
volume-based incentives and discounts have been widely adopted by
exchanges,\10\ including the Exchange,\11\ 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. Additionally, as noted
above, the Exchange operates in a highly competitive market. The
Exchange is only one of several options venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. Competing options exchanges offer
similar tiered pricing structures to that of the Exchange, including
schedules of rebates and fees that apply based upon Members achieving
certain volume and/or growth thresholds. These competing pricing
schedules, moreover, are presently comparable to those that the
Exchange provides.
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\10\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule,
Footnote 1, Customer Penny Add Volume Tiers, which provide enhanced
rebates between $0.35 and $0.53 per contract for certain Customer
Penny orders where Members meet certain volume thresholds.
\11\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule,
Footnote 2, Market Maker Volume Tiers which provide enhanced rebates
for certain Market Maker Penny and Non-Penny orders where Members
meet certain volume thresholds.
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Moreover, the Exchange believes the proposed Customer Cross-Asset
Tier is a reasonable means to encourage Members to increase their
liquidity on the Exchange and also their participation on EDGX
Equities. The Exchange believes that adopting tiers with alternative
criteria to the existing Customer Volume Tiers may encourage those
Members who could not previously achieve the criteria under existing
Customer Volume Tiers to increase their order flow on EDGX Options and
Equities.
For example, the proposed Customer Cross-Asset Tier would provide
an opportunity for Members who have an ADAV in Simple Customer Non-
Crossing orders yielding fee code CA of at least 0.55% of average OCV,
but less than the more stringent 0.65% of average OCV (the requirement
under current Tier 4) or the more stringent 1.25% of average OCV (the
requirement under current Tier 5) orders of at least 0.20% of average
OCV and have an ADV in Customer orders of at least 1.75% of average
OCV, but less than the more stringent 2.00% of average OCV (the
requirement under current Tier 5), to receive a higher rebate than they
may currently receive but equal or slightly lower than the rebate they
would receive for reaching the more stringent criteria under current
Tiers 4 and 5, if they also meet the other threshold requirements,
including the threshold requirement based on EDGX Equities
participation. Similarly, for Members that participate on both EDGX
Options and Equities, and do not currently meet the thresholds under
current tiers, but can or do meet the proposed equities thresholds, the
proposed tier may incentivize those participants to grow their options
volume in order to receive enhanced rebates. Increased liquidity
benefits all investors by deepening the Exchange's liquidity pool,
offering additional flexibility for all investors to enjoy cost
savings, supporting the quality of price discovery, promoting market
transparency and improving investor protection. The Exchange also
believes that proposed enhanced rebate is reasonable based on the
difficulty of satisfying the tier's criteria and ensures the proposed
rebate and thresholds appropriately reflect the incremental difficulty
to achieve the existing Customer Volume Tiers.
The proposed enhanced rebate amounts also do not represent a
significant departure from the enhanced rebates currently offered under
the Exchange's existing Customer Volume Tiers. Indeed, the proposed
enhanced rebate amount under the proposed Customer Cross-Asset Tier
($0.18) is incrementally higher than current Tiers 1, 2, and 3 ($0.10,
$0.13, and $0.17, respectively), which the Exchange believes offer
slightly less stringent criteria than the proposed Customer Cross-Asset
Tier, but is incrementally lower than the rebate offered under existing
Tier 5 ($0.22), which the Exchange believes is more stringent than the
proposed criteria under the proposed Customer Cross-Asset Tier.
Similarly, the proposed enhanced rebate amount under the proposed
Customer Cross-Asset Tier ($0.18) is the same as current Tier 4
($0.18), which the Exchange believes reflects a similar level of
difficulty but using alternative types of criteria. The Exchange also
notes that the proposed rebate remains within the range of the enhanced
rebates offered under the current Customer Volume Tiers (i.e., $0.10-
$0.22).
As noted above, the Exchange believes that the proposed changes to
the Customer Volume Tier program will incentivize more Customer order
flow and direct an increase of order flow to the EDGX Options Order
Book. The Exchange believes that an increase in Customer order flow and
overall order flow to the Exchange's Book creates more trading
opportunities, which, in turn attracts Market Makers. The Exchange
notes that increased Market Maker activity, particularly, facilitates
tighter spreads and an increase in overall liquidity provider activity,
both of which signal additional corresponding increase in order flow
from other market participants, contributing towards a robust, well-
balanced market ecosystem. Indeed, increased overall order flow
benefits investors across both the Exchange's options and equities
platforms by
[[Page 58220]]
continuing to deepen the Exchange's liquidity pool, potentially
providing even greater execution incentives and opportunities, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because it
applies uniformly to all Members. While the Exchange has no way of
knowing whether this proposed rule change would definitively result in
any particular Market Maker qualifying for the proposed tiers, the
Exchange anticipates that approximately one Market Maker will be able
to compete for and achieve the proposed criteria of the Customer Cross-
Asset Tier; however, the proposed tier is open to any Market Maker that
satisfies the tier's criteria. The Exchange believes the proposed tier
could provide an incentive for other Members to submit additional
liquidity on EDGX Options and Equities to qualify for the proposed
enhanced rebates. To the extent a Member participates on the Exchange
but not on EDGX Equities, the Exchange does believe that the proposal
is still reasonable, equitably allocated and non-discriminatory with
respect to such Member based on the overall benefit to the Exchange
resulting from the success of EDGX Equities. Particularly, the Exchange
believes such success allows the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on EDGX
Equities or not. The proposed pricing program is also fair and
equitable in that membership in EDGX Equities is available to all
market participants, which would provide them with access to the
benefits on EDGX Equities provided by the proposed change, even where a
member of EDGX Equities is not necessarily eligible for the proposed
enhanced rebates on the Exchange.
The Exchange also notes that it does not believe the proposed tier
will adversely impact any Member's pricing or ability to qualify for
other tiers. Rather, should a Member not meet the proposed criteria,
the Member will merely not receive the proposed enhanced rebate, and
has five alternative choices to aim to achieve under the Customer
Volume Tiers. Furthermore, the proposed enhanced rebate would apply to
all Members that meet the required criteria under proposed tier.
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 Exchange does not
believe the proposed changes to the Customer Volume Tiers will impose
any burden on intramarket competition. Particularly, the proposed
change applies uniformly to all Members. As discussed above, to the
extent a Member participates on the Exchange but not on EDGX Equities,
the Exchange notes that the proposed changes can provide an overall
benefit to the Exchange resulting from the success of EDGX Equities.
Such success enables the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on EDGX
Equities or not. The proposed pricing program is also fair and
equitable in that membership in EDGX Equities is available to all
market participants. Additionally, the proposed change is designed to
attract additional order flow to the Exchange and EDGX Equities.
Greater liquidity benefits all market participants on the Exchange by
providing more trading opportunities and encourages Members to send
orders, thereby contributing to robust levels of liquidity, which
benefits all market participant. As a result, the Exchange believes
that the proposed change furthers 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.'' \12\
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\12\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange does not believe that the proposed rule changes will
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 16 other options exchanges and
off-exchange venues. Additionally, the Exchange represents a small
percentage of the overall market. Based on publicly available
information, no single options exchange has more than 15% of the market
share.\13\ Therefore, no exchange possesses significant pricing power
in the execution of option 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.'' \14\ 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'. . . .''.\15\
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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\13\ See supra note 3.
\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\15\ 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 \16\ and paragraph (f) of Rule 19b-4 \17\
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
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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.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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#3f4d4a535a125c5052525a514b4c7f4c5a5c11585049"><span class="__cf_email__" data-cfemail="e597908980c8868a8888808b9196a5968086cb828a93">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2024-042 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-2024-042. 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-2024-042 and should
be submitted on or before August 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15671 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P
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