Notice2024-21492
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Relating to Volume Tiers
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Published
September 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 183 (Friday, September 20, 2024)</title>
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[Federal Register Volume 89, Number 183 (Friday, September 20, 2024)]
[Notices]
[Pages 77214-77218]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21492]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101034; File No. SR-CboeEDGX-2024-058]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule Relating to Volume Tiers
September 16, 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 September 3, 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
[[Page 77215]]
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: (1) introducing a new
Market Quality Tier and (2) revising the criteria of Non-Displayed Add
Volume Tier 3. The Exchange proposes to implement these changes
effective September 3, 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 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 [sic] responsibilities under
the Securities Exchange Act of 1934 (the ``Act''), to which market
participants may direct their order flow. Based on publicly available
information,\3\ no single registered equities exchange has more than
16% 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.\4\ 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.\5\
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.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (August 22, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\4\ See EDGX Equities Fee Schedule, Standard Rates.
\5\ Id.
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Market Quality Tier
Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers that provide enhanced rebates for
orders yielding fee codes B,\6\ V,\7\ Y,\8\ 3,\9\ and 4.\10\ In
particular, the Exchange offers two Market Quality Tiers that provide
an enhanced rebate where a Member reaches certain add and remove
volume-based criteria. The Exchange now proposes to introduce a new
Market Quality Tier. The proposed criteria for proposed Market Quality
Tier 3 is as follows:
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\6\ Fee code B is appended to orders that add liquidity to EDGX
in Tape B securities.
\7\ Fee code V is appended to orders that add liquidity to EDGX
in Tape A securities.
\8\ Fee code Y is appended to orders that add liquidity to EDGX
in Tape C securities.
\9\ Fee code 3 is appended to orders that add liquidity to EDGX
in Tape A or Tape C securities during the pre and post market.
\10\ Fee code 4 is appended to orders that add liquidity to EDGX
in Tape B securities during the pre and post market.
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<bullet> Proposed Market Quality Tier 3 provides a rebate of
$0.0030 per share for securities priced above $1.00 for qualifying
orders (i.e., orders yielding fee codes B, V, Y, 3, or 4) where (1)
Member adds an ADV \11\ (excluding fee codes ZA \12\ and ZO \13\) >=
0.30% of the TCV; \14\ and (2) Member adds an ADV >= 0.11% of the TCV
as Non-Displayed orders that yield fee codes DM,\15\ HA,\16\ HI,\17\
MM,\18\ or RP; \19\ and (3) Member adds a Tape B ADV >= 0.40% of the
Tape B TCV.
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\11\ 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.
\12\ Fee code ZA is appended to Retail Orders that add liquidity
to EDGX.
\13\ Fee code ZO is appended to Retail Orders that add liquidity
to EDGX in the pre- and post-market.
\14\ 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.
\15\ Fee code DM is appended to orders that add liquidity to
EDGX using MidPoint Discretionary orders and execute within the
discretionary range.
\16\ Fee code HA is appended to non-displayed orders that add
liquidity to EDGX.
\17\ Fee code HI is appended to non-displayed orders that add
liquidity to EDGX and receive price improvement.
\18\ Fee code MM is appended to non-displayed orders that add
liquidity to EDGX using Mid-Point Peg.
\19\ Fee code RP is appended to non-displayed orders that add
liquidity to EDGX using Supplemental Peg.
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Non-Displayed Add/Remove Volume Tiers
Also under footnote 1, the Exchange offers various Non-Displayed
Add/Remove Volume Tiers. In particular, the Exchange offers five Non-
Displayed Add Volume Tiers that provide enhanced rebates for orders
yielding fee codes DM, HA, MM and RP, where a Member reaches certain
add or remove volume-based criteria. The Exchange now proposes to
revise the criteria of Non-Displayed Add Volume Tier 3. The current
criteria for Non-Displayed Add Volume Tier 3 is as follows:
<bullet> Non-Displayed Add Volume Tier 3 provides a rebate of
$0.0025 per share for securities priced above $1.00 for qualifying
orders (i.e., orders yielding fee codes DM, HA, MM, or RP) where a
Member has an ADAV \20\ >= 0.12% of TCV for Non-Displayed orders that
yield fee codes DM, HA, HI, MM or RP.
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\20\ ADAV means average daily added volume calculated as the
number of shares added per day, calculated on a monthly basis.
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The proposed criteria for Non-Displayed Add Volume Tier 3 is as
follows:
<bullet> Non-Displayed Add Volume Tier 3 provides a rebate of
$0.0025 per share for securities priced above $1.00 for qualifying
orders (i.e., orders yielding fee codes DM, HA, MM, or RP) where a
Member has an ADAV >= 0.11% of TCV for Non-Displayed orders that yield
fee codes DM, HA, HI, MM or RP.
The proposed introduction of proposed Market Quality Tier 3 and
[[Page 77216]]
proposed modification to Non-Displayed Add Volume Tier 3 are intended
to provide Members an opportunity to earn an enhanced rebate by
increasing their order flow to the Exchange in both displayed and non-
displayed orders, which further contributes to a deeper, more liquid
market and provides even more execution opportunities for active market
participants. Incentivizing an increase in liquidity adding and
removing volume through enhanced rebate opportunities encourages
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.\21\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \22\ 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) \23\ 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) \24\
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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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ Id.
\24\ 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 introduce a new Market Quality Tier 3 and revise the
criteria of Non-Displayed Add Volume Tier 3 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 a new Market Quality Tier 3 and revise
the criteria of Non-Displayed Add Volume Tier 3 is not a significant
departure from existing criteria, is reasonably correlated to the
enhanced rebates offered by the Exchange and other competing
exchanges,\25\ and will continue to incentivize 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,\26\ including the Exchange,\27\ 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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\25\ 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, Liquidity Provision Tiers, 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>.
\26\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\27\ 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 introduce a
new Market Quality Tier 3 and revise the criteria of Non-Displayed Add
Volume Tier 3 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
introduce a new Market Quality Tier 3 and revise the criteria of Non-
Displayed Add Volume Tier 3 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.
The Exchange believes that its proposed introduction of proposed
Market Quality Tier 3 and proposed revision of Non-Displayed Add Volume
Tier 3 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
Market Quality Tier 3 and at least one Member will be able to satisfy
proposed Non-Displayed Add Volume Tier 3. 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
[[Page 77217]]
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
introduction of proposed Market Quality Tier 3 and the revised criteria
of Non-Displayed Add Volume Tier 3 will apply to all Members equally in
that all Members are eligible for the tiers, have a reasonable
opportunity to meet the tiers' 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 16% of the market share.\28\ 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.'' \29\ 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' . . . .'' \30\ 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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\28\ Supra note 3.
\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\30\ 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 \31\ and paragraph (f) of Rule 19b-4 \32\
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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\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 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#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="3b494e575e16585456565e554f487b485e58155c544d">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2024-058 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-2024-058. 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-2024-058 and should
be submitted on or before October 11, 2024.
[[Page 77218]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21492 Filed 9-19-24; 8:45 am]
BILLING CODE 8011-01-P
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