Notice2024-24471
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Remove Volume Tier 2 of the Fee Schedule
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Published
October 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 205 (Wednesday, October 23, 2024)</title>
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[Federal Register Volume 89, Number 205 (Wednesday, October 23, 2024)]
[Notices]
[Pages 84657-84660]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24471]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101377; File No. SR-CboeEDGX-2024-063]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Remove Volume Tier 2 of the Fee Schedule
October 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 October 9, 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. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change 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 changing the required
criteria applicable to Remove Volume Tier 2.\3\ The Exchange proposes
to implement these changes effective October 1, 2024.
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\3\ The Exchange initially filed the proposed fee change on
October 1, 2024 (SR-CboeEDGX-2024-062). On October 9, 2024, the
Exchange withdrew that filing and submitted this filing.
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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
Act, to which market participants may direct their order flow. Based on
publicly available information,\4\ 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.\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 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 (September 23, 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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Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers. In particular, the Exchange offers two
Remove Volume Tiers that each assess a reduced fee for Members'
qualifying orders yielding fee codes BB,\7\ N,\8\ and W \9\ where a
Member reaches certain add volume-based criteria. The Exchange now
proposes to amend the criteria of Remove Volume Tier 2. Currently, the
criteria for Remove Volume Tier 2 is as follows:
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\7\ Fee code BB is appended to orders that remove liquidity from
EDGX (Tape B).
\8\ Fee code N is appended to orders that remove liquidity from
EDGX (Tape C).
\9\ Fee code W is appended to orders that remove liquidity from
EDGX (Tape A).
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<bullet> Remove Volume Tier 2 provides a reduced fee of $0.00285
per share for securities priced at or above $1.00 to qualifying orders
(i.e., orders yielding fee codes BB, N, or W) and a reduced fee of
0.28% of total dollar value for securities priced below $1.00 where:
(1) Member has an ADAV \10\ of greater than or equal to 0.30% of the
TCV; \11\ (2) Member has a total remove ADV \12\
[[Page 84658]]
greater than or equal to 0.40% of the TCV; and (3) Member adds a Retail
Pre Market Order ADV (i.e., yielding fee code ZO) greater than or equal
to 3 million shares.
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\10\ ADAV means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
\11\ 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. The Exchange excludes from its calculation of TCV volume
on any day that the Exchange experiences an Exchange System
Disruption, on any day with a scheduled early market close, and the
Russell Reconstitution Day.
\12\ 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.
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Now, the Exchange proposes to amend the second and third prongs of
the criteria in Remove Volume Tier 2 by adding alternative criteria to
prong 2 and reducing the Retail Pre Market Order ADV requirement to
prong 3. The proposed criteria is as follows:
<bullet> Proposed Remove Volume Tier 2 provides a reduced fee of
$0.00285 per share for securities priced at or above $1.00 to
qualifying orders (i.e., orders yielding fee codes BB, N, or W) and a
reduced fee of 0.28% of total dollar value for securities priced below
$1.00 where: (1) Member has an ADAV of greater than or equal to 0.30%
of the TCV; (2) Member has a total remove ADV greater than or equal to
0.40% of the TCV or Member has a total remove ADV greater than or equal
to 40 million shares; and (3) Member adds a Retail Pre Market Order ADV
(i.e., yielding fee code ZO) greater than or equal to 1.5 million
shares.
The proposed amendment to Remove Volume Tier 2 is intended to
slightly decrease the difficulty of achieving an existing opportunity
to earn a reduced fee by providing an alternative for Members to
increase their order flow to the Exchange (as provided under proposed
prong 2) and reducing the volume requirement provided under proposed
prong 3. Submitting increased order flow to the Exchange will further
contribute to a deeper, more liquid market and provide even more
execution opportunities for active market participants. Incentivizing
an increase in liquidity removing volume, through reduced fee
opportunities, encourages liquidity removing Members on the Exchange to
increase transactions and take execution opportunities, and liquidity
adding Members to contribute to a deeper, more liquid market, on the
Exchange, together 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.\13\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \14\ 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) \15\ 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) \16\
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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
\16\ 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 remove [sic] Retail [sic] 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 proposed criteria for Remove Volume
Tier 2 is not a significant departure from existing criteria, continues
to be reasonably correlated to the reduced fee offered by the Exchange
and other competing exchanges,\17\ 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,\18\ including the Exchange,\19\ 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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\17\ See e.g., MIAX Pearl Equities Exchange Fee Schedule, Remove
Volume Tier, available at
MIAX_Pearl_Equities_Fee_Schedule_12012023.pdf (<a href="http://miaxglobal.com">miaxglobal.com</a>); MEMX
Equities Fee Schedule, Liquidity Removal Tier, available at MEMX
Equities Fee Schedule--MEMX Exchanges (<a href="http://memxtrading.com">memxtrading.com</a>).
\18\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\19\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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The Exchange further believes the proposed modifications to Remove
Volume Tier 2 will provide a reasonable means to encourage liquidity
removing orders in Members' order flow to the Exchange and to
incentivize Members to continue to provide liquidity removing volume to
the Exchange by offering them an opportunity to receive a reduced fee
on qualifying orders. Not only is the proposed criteria in proposed
Remove Volume Tier 2 slightly less difficult than the current criteria
found in that tier, the proposed criteria is not a significant
departure from existing criteria, is reasonably correlated to the
reduced fee offered by the Exchange, and will continue to incentivize
Members to submit order flow to the Exchange. An overall increase in
activity would deepen the Exchange's liquidity pool, offers additional
cost savings, support the quality of price discovery, promote market
transparency and improve market quality, for all investors.
The Exchange 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 revised tier and
have the opportunity to meet the revised tier's criteria and receive
the corresponding reduced fee 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 Remove Volume Tier 2. The
[[Page 84659]]
Exchange also notes that proposed changes will not adversely impact any
Member's ability to qualify for reduced fees offered under other tiers.
Should a Member not meet the proposed new criteria, the Member will
merely not receive that corresponding reduced fee.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, as discussed above,
the Exchange believes that the proposed changes would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes that the proposed changes
further the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
The Exchange believes the proposed rule changes do not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes to the Remove Volume Tier 2 will apply to all Members equally
in that all Members are eligible for the proposed revised tier, have a
reasonable opportunity to meet the proposed tier's criteria and will
receive the reduced fee on their qualifying orders if such criteria is
met. The Exchange does not believe the proposed changes burden
competition, but rather, enhances competition as they are intended to
increase the competitiveness of EDGX by amending an existing pricing
incentive 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.\20\ 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.'' \21\ 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' . . .''.\22\ 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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\20\ Supra note 3.
\21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\22\ 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) (SRNYSEArca-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 \23\ and paragraph (f) of Rule 19b-4 \24\
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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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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#b4c6c1d8d199d7dbd9d9d1dac0c7f4c7d1d79ad3dbc2"><span class="__cf_email__" data-cfemail="8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb">[email protected]</span></a>. Please include
file number SR-CboeEDGX-2024-063 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-2024-063. 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
[[Page 84660]]
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-2024-063 and should be
submitted on or before November 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24471 Filed 10-22-24; 8:45 am]
BILLING CODE 8011-01-P
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