[Federal Register Volume 83, Number 245 (Friday, December 21, 2018)]
[Notices]
[Pages 65777-65779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27611]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84832; File No. SR-CboeEDGX-2018-059]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend the Exchange's Fee Schedule Applicable to Its
Equities Trading Platform
December 17, 2018.
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 December 3, 2018, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 (the ``Commission'') a
proposed rule change to amend the Exchange's fee schedule applicable to
its equities trading platform (``EDGX Equities'') to introduce: (1) A
``Retail Volume Tier'' for firms that execute a significant volume of
liquidity providing retail order flow on EDGX, and (2) a ``Step-Up
Tier'' based on growth in the member's liquidity provided on EDGX.
The text of the proposed changes to the fee schedule are attached
as Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatory
Home.aspx), 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 purpose of the proposed rule change is to amend the EDGX
Equities fee schedule to introduce: (1) A ``Retail Volume Tier'' for
firms that execute a significant volume of liquidity providing retail
order flow on EDGX, and (2) a ``Step-Up Tier'' based on growth in the
member's liquidity provided on EDGX. The Exchange believes that both of
the proposed changes would encourage more liquidity and opportunities
for investors to trade on the Exchange.
I. Retail Volume Tier
A ``Retail Member Organization'' or ``RMO'' is a member (or a
division thereof) that has been approved by the Exchange to submit
Retail Orders.\3\ Due to the intense competition for retail order flow,
the Exchange provides special pricing for Retail Orders as an incentive
for members to bring such orders to EDGX instead of another exchange or
off-exchange venue. Specifically, Retail Orders that add liquidity and
yield fee code ZA \4\ currently benefit from an enhanced rebate of
$0.0032 per share. The Exchange is interested in attracting additional
retail order flow, and therefore proposes to introduce a Retail Volume
Tier that is designed to encourage more retail participation. The
Retail Volume Tier would provide further enhanced rebates to liquidity
providing Retail Orders, provided that the member executes a specified
average daily volume (``ADV'') \5\ in such orders on EDGX. As proposed,
a Retail Order that adds liquidity under fee code ZA would be eligible
for a rebate of $0.0037 per share if the member's ADV in Retail Orders
that add liquidity (i.e., yielding fee code ZA) is greater than or
equal to 0.35% of Total Consolidated Volume (``TCV'').\6\
---------------------------------------------------------------------------
\3\ See EDGX Rule 11.21(a)(1). A ``Retail Order'' is an agency
or riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by a Retail Member Organization, provided that no
change is made to the terms of the order with respect to price or
side of market and the order does not originate from a trading
algorithm or any other computerized methodology. See EDGX Rule
11.21(a)(2).
\4\ ``ZA'' is associated with Retail Orders that add liquidity.
\5\ ADAV means average daily added volume calculated as the
number of shares added per day and 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.
ADAV and ADV is calculated on a monthly basis.
The Exchange excludes from its calculation of ADAV and ADV
shares added, removed, or routed on any day that the Exchange's
system experiences a disruption that lasts for more than 60 minutes
during Regular Trading Hours (``Exchange System Disruption''), on
any day with a scheduled early market close, and on the last Friday
in June (the ``Russell Reconstitution Day'').
With prior notice to the Exchange, a Member may aggregate ADAV
and ADV with other Members that control, are controlled by, or are
under common control with such Member (as evidenced on such Member's
Form BD).
\6\ 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.
---------------------------------------------------------------------------
II. Step-Up Tier
Currently, the EDGX Equities fee schedule contains six Add Volume
Tiers that provide enhanced rebates, ranging from of $0.0025 to $0.0032
per share, for displayed orders that add liquidity in Tapes A, B, and C
and yield fee codes B,\7\ V,\8\ Y,\9\ 3 \10\ and 4.\11\ To encourage
market participants to provide more liquidity on EDGX, the Exchange
proposes to introduce a seventh Add Volume Tier that is based on the
growth in liquidity providing orders that the member executes on EDGX--
i.e., the ``Step-Up Tier.'' As proposed, the Exchange would provide
rebate of $0.0033 per share for displayed orders that add liquidity to
members that execute a Step-Up Add TCV from October 2018 that is equal
to or greater
[[Page 65778]]
than 0.35%. As currently defined in the EDGX Equities fee schedule,
Step-Up Add TCV means ADAV as a percentage of TCV in the relevant
baseline month subtracted from current ADAV as a percentage of TCV.
Members that achieve the proposed Step-Up Tier must therefore increase
the amount of liquidity that they provide on EDGX, thereby contributing
to a deeper and more liquid market.
---------------------------------------------------------------------------
\7\ ``B'' is associated with displayed orders that add liquidity
on EDGX for Tape B.
\8\ ``V'' is associated with displayed orders that add liquidity
on EDGX for Tape A.
\9\ ``Y'' is associated with displayed orders that add liquidity
on EDGX for Tape C.
\10\ ``3'' is associated with displayed orders that add
liquidity on EDGX for Tape A or C during the post-market or pre-
market trading sessions.
\11\ ``4'' is associated with displayed orders that add
liquidity on EDGX for Tape B during the post-market or pre-market
trading sessions.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\12\ in general, and furthers the
requirements of Section 6(b)(4),\13\ in particular, 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.
Specifically, the Exchange believes that the proposed changes to the
EDGX Equities fee schedule are appropriately designed to encourage
market participants to send additional liquidity providing orders to
the Exchange, and thereby contribute to a vibrant and competitive
market. Volume-based rebates such as those proposed herein have been
widely adopted by equities exchanges, and provide benefits to market
participants that are reasonably related to: (i) The value to an
exchange's market quality; (ii) associated higher levels of market
activity, such as higher levels of liquidity provision and/or growth
patterns; and (iii) introduction of higher volumes of orders into the
price and volume discovery processes. As described in more detail
below, the Exchange believes that the proposed tiers are reasonable,
equitable, and not unfairly discriminatory as they will continue to
provide members with an incentive to provide more liquidity on EDGX, to
the benefit of investors.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
I. Retail Volume Tier
The Exchange currently provides pricing incentives to Retail Member
Organizations that execute liquidity providing Retail Orders on EDGX,
and desires to further enhance those incentives in order to encourage
additional retail participation. The proposed Retail Volume Tier would
achieve that result by providing a higher rebate to Retail Orders that
provide liquidity if submitted by a member that executes a significant
volume of liquidity providing Retail Orders on EDGX. NYSE Arca, Inc.
(``Arca'') also operates a similar volume-based rebate program that
provides tiered rebates of up to $0.0035 [sic] per share to attract
retail order flow.\14\
---------------------------------------------------------------------------
\14\ See Arca Equities Fees and Charges, Trade Related Fees and
Credits, Retail Order Tier and Retail Order Step-Up Tiers.
---------------------------------------------------------------------------
The Exchange believes that the proposed Retail Volume Tier is
reasonable and equitable as it would allow EDGX to effectively compete
for retail order flow with Arca as well as other exchanges and the many
off-exchange venues that execute the majority of retail order flow
today. The Exchange previously offered volume based incentives for
Retail Orders. That program, which was discontinued in March 2016 when
the Exchange increased the base rebate for Retail Orders that add
liquidity,\15\ was substantially similar to the one proposed herein,
except that both the rebate amount and the volume required to achieve
that rebate were lower than proposed today. The Exchange believes that
the current proposal is appropriately designed to attract Retail Orders
to EDGX given the high degree of competition for such orders in today's
market. The Exchange believes that attracting liquidity in Retail
Orders would incentivize other members to send order flow to EDGX to
trade with such Retail Orders. In addition, the Exchange believes that
this increased liquidity would potentially stimulate further price
competition for Retail Orders, thereby deepening the Exchange's
liquidity pool in both and retail and other orders, supporting the
quality of price discovery, and promoting market transparency.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 77394 (March 17,
2016), 81 FR 15596 (March 23, 2016) (SR-BatsEDGX-2016-02).
---------------------------------------------------------------------------
The Exchange also believes that the proposed Retail Volume Tier is
not unfairly discriminatory because it applies equally to all members
that execute liquidity providing Retail Orders and meet the specified
volume threshold. Retail Member Organizations that do not meet the
proposed volume threshold would continue to earn the current rebate,
which already provides a significant incentive for executing retail
order flow on EDGX. The Exchange believes that it is appropriate to
limit the proposed enhanced rebates to Retail Orders as the Exchange is
attempting to increase retail participation. Retail participation is
more likely to reflect long-term investment intentions, and may
therefore positively impact market quality. Accordingly, the presence
of Retail Orders on EDGX has the potential to benefit all market
participants. As explained in the purpose section of this proposed rule
change, competition for retail order flow is particularly fierce, with
Arca also providing a high rebate to market participants that execute a
significant amount of such orders on that exchange. In that context,
the Exchange believes that it is appropriate to provide additional
incentives to Retail Orders in order to attract that order flow.
II. Step-Up Tier
The Exchange believes the proposed Step-Up Tier is a reasonable
means to encourage members to increase the liquidity that they provide
on EDGX based on increasing their volume above a predetermined
baseline. The Exchange has previously offered similar incentives that
were designed to encourage additional growth in liquidity provided on
EDGX,\16\ and believes that introducing such a tier again would be
helpful in attracting liquidity to the Exchange to the benefit of all
market participants. Deepening the Exchange's liquidity pool benefits
investors by encouraging more price competition and providing
additional opportunities to trade. The Exchange believes that the
proposed new tier represents an equitable allocation of reasonable
dues, fees, and other charges because the thresholds necessary to
achieve the tier encourages members to add increased liquidity to EDGX
each month. Furthermore, the Exchange believes that the proposed Step-
Up Tier is not unfairly discriminatory as it applies uniformly to all
members that increase the volume of liquidity that they provide on
EDGX.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 80034 (February 14,
2017), 82 FR 11275 (February 21, 2017) (SR-BatsEDGX-2017-09).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. Rather, the
proposed changes are designed to enhance competition by attracting
additional liquidity and increasing the competitiveness of the
Exchange. The proposed rebate tiers would apply to all members
uniformly based on the amount and type of order flow that they route to
EDGX. 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. The
proposed rule change reflects a competitive pricing structure designed
to encourage market participants to direct their order flow to the
Exchange.
[[Page 65779]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \17\ and paragraph (f) of Rule 19b-4 \18\
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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2018-059 on the subject line.
Paper Comments
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-2018-059. 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 (http://www.sec.gov/rules/sro.shtml).
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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2018-059 and should be
submitted on or before January 11, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27611 Filed 12-20-18; 8:45 am]
BILLING CODE 8011-01-P