Notice2024-26414
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Add a New Member Program
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Published
November 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 220 (Thursday, November 14, 2024)</title>
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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90136-90139]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-26414]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101552; File No. SR-CboeEDGA-2024-047]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Add a New Member Program
November 7, 2024
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 1, 2024, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') 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/equities/regulation/rule_filings/edga/">http://markets.cboe.com/us/equities/regulation/rule_filings/edga/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule to introduce the
New Member Program (the ``Program''), which offers discounted
membership fees and logical port fees for up to 12 months, effective
beginning November 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 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, no single registered equities exchange has more than 16%
of the market share.\3\ Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (October 1, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
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The purpose of this filing is to broadly encourage new market
participants that are not currently members of the Exchange to become
members by discounting certain fixed costs associated with Exchange
membership. By way of background, the Exchange currently charges member
organizations certain fixed costs related to Exchange membership,
including for example membership fees and logical port fees, both of
which are filed with the Commission and set forth in the Exchange's Fee
Schedule. Also, by way of background, the Exchange recently adopted the
``Maker-Taker'' model whereby it pays rebates to members that add
liquidity and assesses fees to those that remove liquidity.\4\ The
Exchange's Fee Schedule sets forth the standard rebates and rates
applied per share for orders that provide and remove liquidity,
respectively.
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\4\ See SR-CboeEDGA-2024-045. The Exchange previously operated
under a ``Taker-Maker'' model, in which the Exchange paid credits to
members that removed liquidity and assessed fees to those that added
liquidity.
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As stated previously, the Exchange recently adopted the Maker-Taker
model. Both the proposal of the Program and the Exchange's adoption of
the Maker-Taker Model are intended to drive liquidity for the Exchange
for the benefit of market participants. Specifically, the Exchange
notes that the market share of taker-maker exchanges has been steadily
declining in recent years. The Exchange analyzed its internal data and
found that in particular, the market share of inverted markets has
dropped from approximately 8% in April 2020 to 2.6% in July 2024.
Similarly, the average monthly notional volume of taker-maker exchanges
has declined from approximately $528.0 billion in 2021 to an average
monthly notional volume of $267.4 billion in 2024 (year-to-date). The
Exchange believes that both the Program and the adoption of the Maker-
Taker Model will increase the Exchange's market share and bring
additional liquidity to the Exchange for the benefit all participants.
[[Page 90137]]
Therefore, in addition to the Exchange's adoption of the Maker-
Taker model, the Exchange proposes to introduce the Program, which
would offer discounts for up to 12 months following approval as a new
member on membership fees and logical port fees for new member
organizations, subject to specific restrictions. These discounts would
be available to all eligible new members for the duration of the
Program. The Exchange believes that the proposed Program would make
membership easier for a greater number of market participants and
provide increased incentives for firms that are not currently Exchange
members to apply for Exchange membership. The Exchange believes that
having more members trading on the Exchange would benefit investors
through the additional display of liquidity and increased execution
opportunities on the Exchange.
The Exchange proposes to codify the Program as a new paragraph
under the Membership Fees section of the Fee Schedule. The Exchange
also notes that the Program is similar to a program adopted by an
affiliated equities exchange that similarly provides discounts on
membership and for new members for the similar purpose of encouraging
new market participants to become members of the exchange.\5\
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\5\ See Securities Exchange Act Release No. 92493 (July 26,
2021), 86 FR 41129 (July 30, 2021) (SR-CboeEDGX-2021-034). See also
Cboe EDGX Equities Fee Schedules, Footnote 3, Retail Equities
Membership Programs. While the Retail Equities Membership Program
(the ``Affiliate Program'') does offer additional discounts, the
Affiliate Program only offers these benefits to a narrow scope of
participants with retail order flow to drive participation in a
specific customer segment. In the Exchange's case, it is offering
the Program broadly to new market participants (subject to the below
eligibility requirements) to work towards greater overall liquidity
on the Exchange.
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General Eligibility and Restrictions
To be eligible to participate in the Program, a new member
organization must not have been approved as an Exchange member
organization within the eighteen (18) months prior to approval of its
new membership (``New Member''). Eligibility for discounts begins in
the month that a new membership application is approved. A New Member
is only eligible to enroll in the Program once. A New Member that is,
or becomes, an ``affiliate'' of an existing member organization,
defined as having at least 75% common ownership between the two
entities as reflected on each entity's Form BD, is ineligible to
participate in the Program. The Program would automatically terminate
after the 12th month of membership in the Program and the discounted
fees discussed below will be charged to that member at the regular rate
set forth in the Exchange's fee schedule, as applicable, from that
point forward.
Membership Fee
The Exchange currently assesses a yearly Membership Fee of $2,500,
which is generally assessed at the end of each year for membership in
the following calendar year. For any month in which a firm is approved
for membership with the Exchange after the renewal period, the Firm
Membership Fee is pro-rated beginning on the date on which membership
is approved. The pro-rated fee is calculated based on the remaining
trading days in that year and assessed in the month following
membership approval. The fee is also non-refundable in the event that
the firm ceases to be a Member following the date on which fees are
assessed.\6\ The Exchange proposes to reduce the Membership Fee for a
New Member by waiving the annual Membership Fee in its entirety for any
New Member.
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\6\ However, if a Member is pending a voluntary termination of
rights as a Member pursuant to Exchange Rule 2.8 prior to the date
any Membership Fee for a given year will be assessed, and the Member
does not utilize the facilities of Exchange during such time, then
the Member is not obligated to pay the annual Membership Fee.
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Logical Ports
The Program would next provide discounts on its logical port fees.
Currently, EDGA market participants may utilize a variety of logical
connectivity ports. A logical port provides users with the ability
within the Exchange's system to accomplish a specific function through
a connection, such as order entry, data receipt, or access to
information. Currently, the Exchange assesses $550 per Logical Port per
month.\7\
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\7\ Excludes Purge Ports, Multicast PITCH Spin Server Ports, GRP
Ports, and Certification Logical Ports.
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The Exchange proposes to waive the cost of one order entry (FIX or
BOE) Logical Port (excluding Purge Port, Multicast PITCH Spin Server
Port, GRP Port, and Certification Logical Port) per month for New
Members for its first 12 months as a Member.
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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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The Exchange operates in a highly competitive market in which
market participants can and do move order flow or discontinue or reduce
use of certain categories of products, in response to fee changes. As
previously discussed, the overall market share of exchanges offering a
taker-maker pricing model has significantly declined and the Exchange
is seeking to bring back market share to the Exchange. Moreover, in the
current competitive market environment, market participants also have a
choice of where to become members. Accordingly, the Exchange believes
that it is reasonable to offer discounted membership and certain
logical port fees for up to 12 months for New Members in order to
provide an incentive for new firms to apply for Exchange membership.
The Exchange believes that providing an incentive for firms that are
not currently Exchange members to apply for membership would encourage
market participants to become members of the Exchange and bring
additional liquidity to a public market (along with the Exchange's
adoption of the Maker-Taker model).\11\ In addition, the Exchange
believes that the proposal could result in additional liquidity to a
public exchange, to the benefit of all market participants. The
Exchange believes creating incentives and opportunities for new members
on the Exchange protects investors and the public interest by
increasing the competition and liquidity on a transparent public
market.
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\11\ See SR-CboeEDGA-2024-045.
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The Exchange believes that the proposal is also equitable and not
unfairly discriminatory. In the prevailing competitive environment,
[[Page 90138]]
members, including retail-focused members, are free to disfavor
Exchange membership and the Exchange's pricing if they believe that
alternatives offer them better value. The proposed discounted access to
Exchange services for up to 12 months do not permit unfair
discrimination because the proposed changes would apply to all
similarly situated members, who would all benefit from the lower and
discounted fees on an equal basis. Indeed, the Exchange believes the
proposed Program is equitable and not unfairly discriminatory because
it's open to all eligible New Members. The Exchange also believes it's
equitable and not unfairly discriminatory to apply the Program only to
qualifying New Members because it is designed to encourage new market
participants to become members on the Exchange that may not otherwise
do so due in part to the costs associated with becoming members of an
exchange. The Exchange additionally notes that while the Program is
applicable only to New Members, the Exchange does not believe this
application is discriminatory as the Exchange believes that additional
members on the Exchange benefit all market participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on 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 increase
competition by reducing the cost of becoming an Exchange member. The
Exchange believes that additional members on the Exchange will enhance
market quality through the submission of additional liquidity to a
public exchange, thereby promoting market depth, price discovery and
transparency and enhancing order execution opportunities 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. The Exchange believes that
the proposed changes would continue to incentivize market participants
to become Exchange members and direct order flow to the Exchange. As
discussed above, greater liquidity benefits all market participants on
the Exchange by encouraging market participants to become Exchange
members and send orders to the Exchange, thereby providing more trading
opportunities and contributing to robust levels of liquidity on the
Exchange, which benefits all market participants. The proposed fee
waivers would be available to all similarly situated market
participants, and, as such, the proposed change would not impose a
disparate burden on competition among market participants on the
Exchange. As noted, the proposal would apply to all similarly situated
New Members on the same and equal terms, who would benefit from the
changes on the same basis. 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 do 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.\12\ 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.'' \13\ 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'. . . .''.\14\ 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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\12\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (October 1, 2024), available at <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\
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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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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
[[Page 90139]]
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#3b494e575e16585456565e554f487b485e58155c544d"><span class="__cf_email__" data-cfemail="0a787f666f27696567676f647e794a796f69246d657c">[email protected]</span></a>. Please include
file number SR-CboeEDGA-2024-047 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeEDGA-2024-047. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeEDGA-2024-047 and should
be submitted on or before December 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26414 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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