[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Notices]
[Pages 33306-33309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14808]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86322; File No. SR-CboeEDGX-2019-042]


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 To Adopt a New Cross-Asset Volume Tier

    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 June 25, 2019, 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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[[Page 33307]]

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 adopt a new Cross-
Asset Volume Tier. The text of the proposed rule change is attached 
[sic] as Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), 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'') to adopt a new Cross-
Asset Tier, effective July 1, 2019.
    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 several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. The Exchange in particular operates a 
``Maker-Taker'' model whereby it pays credits to members that provide 
liquidity and assesses fees to those that remove liquidity. The 
Exchange's Fees Schedule sets forth the standard rebates and rates 
applied per share for orders that provide and remove liquidity, 
respectively. For example, for securities at or above $1.00 the 
Exchange provides a standard rebate of $0.00170 per share for displayed 
orders that add liquidity \3\ and assesses a fee of $0.00265 per share 
for displayed orders that remove liquidity. 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\ Displayed Orders which add liquidity in Tape B securities 
receive a standard rebate of $0.0025 per share.
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    For example, pursuant to Footnote 1 of the Fees Schedule, the 
Exchange offers eight Add Volume Tiers for displayed orders that 
provide enhanced rebates, ranging from of $0.0020 to $0.0029 per share, 
for orders yielding fee codes B,\4\ V,\5\ Y,\6\ 3 \7\ and 4.\8\ One 
such Add Volume Tier under Footnote 1 is a Cross-Asset Volume Tier, 
which is designed to incentivize members to achieve certain levels of 
participation on both the Exchange's equities and options platform 
(``EDGX Options''). More specifically, under the current Cross-Asset 
Volume Tier, a Member receives a rebate of $0.0027 per share if that 
Member (i) adds an ADV \9\ greater or equal to 0.20% of the TCV \10\ 
and (ii) has an ADV in Customer orders on EDGX Options greater or equal 
to 0.08% of average OCV.\11\
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    \4\ ``B'' is associated with displayed orders that add liquidity 
on EDGX for Tape B.
    \5\ ``V'' is associated with displayed orders that add liquidity 
on EDGX for Tape A.
    \6\ ``Y'' is associated with displayed orders that add liquidity 
on EDGX for Tape C.
    \7\ ``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.
    \8\ ``4'' is associated with displayed orders that add liquidity 
on EDGX for Tape B during the post-market or pre-market trading 
sessions.
    \9\ ``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.
    \10\ ``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.
    \11\ ``OCV'' means, for purposes of equities pricing, the total 
equity and ETF options volume that clears in the Customer range at 
the Options Clearing Corporation (``OCC'') for the month for which 
the fees apply, excluding volume on any day that the Exchange 
experiences an Exchange System Disruption and on any day with a 
scheduled early market close, using the definition of Customer as 
provided under the Exchange's fee schedule for EDGX Options.
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    The Exchange proposes to create an additional cross-asset tier 
(``Cross-Asset Volume Tier 2'') with a different criteria 
combination.\12\ As proposed, under the Cross-Asset Volume Tier 2, a 
Member would receive a rebate of $0.0027 per share if that Member (i) 
adds an ADV greater or equal to 0.05% of the TCV and (ii) has an ADV in 
AIM \13\ orders on EDGX Options greater than or equal to 25,000 
contracts. The purpose of the proposed tier is to incentivize both 
equities volume and participation on EDGX Options, particularly to 
encourage submission of AIM orders, and also to provide Members an 
additional opportunity to receive an enhanced rebate. Particularly, for 
Members who do not currently reach the current thresholds in the 
existing Add Volume Tiers, including the Cross-Asset Tier, the proposed 
tier would provide an opportunity to meet an alternative set of 
criteria to receive an enhanced rebate.
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    \12\ In connection with adopting Cross-Asset Tier 2, the 
Exchange also proposes to rename the current tier ``Cross-Asset 
Volume Tier 1''.
    \13\ ``AIM'' refers to the Automated Improvement Mechanism. See 
Exchange Rule 21.19 and Cboe EDGX Options Exchange Fee Schedule. The 
ADV in AIM orders includes all orders entered into or executed 
through AIM.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\14\ in general, and furthers the 
requirements of Section 6(b)(4),\15\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers. 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 
proposed rule change 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive an enhanced rebate by providing a different set of criteria 
they can reach for. The Exchange notes that volume-based incentives and 
discounts have been widely adopted by

[[Page 33308]]

exchanges,\16\ including the Exchange,\17\ and are reasonable, 
equitable and non-discriminatory because they are open to all members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in highly competitive market. The Exchange 
is only one of several equity venues to which market participants may 
direct their order flow, and it represents a small percentage of the 
overall market. It is also only one of several maker-taker exchanges. 
Competing equity exchanges offer similar tiered pricing structures to 
that of the Exchange, including schedules of rebates and fees that 
apply based upon members achieving certain volume and/or growth 
thresholds. These competing pricing schedules, moreover, are presently 
comparable to those that the Exchange provides, including the pricing 
of comparable tiers.\18\
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    \16\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 1, Add Volume Tiers which provide enhanced rebates between 
$0.0025 and $0.0032 per share for displayed orders where Members 
meet certain volume thresholds.
    \17\ See e.g., Cboe EDGX U.S. Equities Exchange Fee Schedule, 
Footnote 1, Add Volume Tiers (including a Cross-Asset Volume Tier), 
which provide enhanced rebates between $0.0020 and $.0029 per share 
for displayed orders where Members meet certain volume thresholds.
    \18\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 1, Add Volume Tiers. Cross-Asset Add Volume Tiers which 
provide enhanced rebates between $0.0028-$0.0032 per share where 
Members meet a specified level of ADV as a percentage of TCV and a 
specified level of options add volume on BZX Options as a percentage 
of OCV. See also The Nasdaq Stock Market, LLC, Equity 7 Pricing 
Schedule, Section 118 Nasdaq Market Center Order Execution and 
Routing, which offers credits between $0.0027-$0.00305 per share if 
Member meets criteria requiring certain (1) volume thresholds on the 
Nasdaq Stock Market and (2) volume thresholds on the Nasdaq Options 
Market.
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    Moreover, the Exchange believes the proposed Cross-Asset Tier 2 is 
a reasonable means to encourage Members to increase their liquidity on 
the Exchange and also their participation on EDGX Options, and 
particularly in AIM. The Exchange believes that adopting a tier with 
alternative criteria to the existing Cross-Asset Volume Tier, will 
encourage those Members who could not previously achieve the existing 
Cross-Asset Volume Tier criteria, or other available Add Volume Tiers, 
to increase their order flow on EDGX equities and AIM order flow on 
EDGX Options. Increased liquidity benefits all investors by deepening 
the Exchange's liquidity pool, offering additional flexibility for all 
investors to enjoy cost savings, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection. Additionally, incentivizing the submission of AIM orders 
also benefits all market participants as AIM promotes price 
improvement. The Exchange also believes that proposed rebate is 
reasonable based on the difficulty of satisfying the tier's criteria 
and ensures the proposed rebate and threshold appropriately reflects 
the incremental difficulty to achieve the existing Add Volume Tiers. 
The proposed rebate amount also does not represent a significant 
departure from the rebates currently offered under the Exchange's 
existing Add Volume Tiers, including the existing Cross-Asset Volume 
Tier. Indeed, the rebate amount is the same offered as the existing 
Cross-Asset Volume Tier and Add Volume Tier 3 (i.e., $0.0027 per share) 
and within the range of the rebates offered under the remaining Add 
Volume Tiers for displayed orders (i.e., $0.0020-$0.0029 per share).
    The Exchange believes that the proposal represents an equitable 
allocation of rebates and is not unfairly discriminatory because it 
applies uniformly to all members. Additionally a number of members have 
a reasonable opportunity to satisfy the tier's criteria, which the 
Exchange believe is less stringent than some other existing Add Volume 
Tiers. Without having a view of Member's 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 
for this tier. However, the Exchange believes the proposed tier would 
provide an incentive for Members to submit additional adding liquidity 
on EDGX equities and AIM orders on EDGX options to qualify for the 
proposed rebate. To the extent a Member participates on the Exchange 
but not on EDGX Options, the Exchange does believe that the proposal is 
still reasonable, equitably allocated and non-discriminatory with 
respect to such Member based on the overall benefit to the Exchange 
resulting from the success of EDGX Options. Particularly, the Exchange 
believes such success allows the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on EDGX 
Options or not. The proposed pricing program is also fair and equitable 
in that membership in EDGX Options is available to all market 
participants, which would provide them with access to the benefits on 
EDGX Options provided by the proposed change, even where a member of 
EDGX Options is not necessarily eligible for the proposed increased 
rebate on the Exchange.
    The Exchange lastly notes that the proposal will not adversely 
impact any Member's pricing or their ability to qualify for other 
rebate tiers. Rather, should a Member not meet the proposed criteria, 
the Member will merely not receive an enhanced rebate. Furthermore, the 
proposed rebate would apply to all Members that meet the required 
criteria under proposed Cross-Asset Tier 2.

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 intramarket or intermarket 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 
change would encourage 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 change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \19\
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    \19\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange believes the proposed rule change does impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies uniformly to market participants. As discussed above, to 
the extent a Member participates on the Exchange but not on EDGX 
Options, the Exchange notes that the proposed change can provide an 
overall benefit to the Exchange resulting from the success of EDGX 
Options. Such success enables the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on EDGX 
Options or not. The proposed pricing program is also fair and equitable 
in that membership in EDGX Options is available to all market 
participants. Additionally the proposed

[[Page 33309]]

change is designed to attract additional order flow to the Exchange and 
EDGX Options. Specifically, the Exchange believes that the proposed 
tier would incentivize market participants to direct providing 
displayed order flow to the Exchange and encourage entry of AIM orders 
on EDGX Options. Greater liquidity benefits all market participants on 
the Exchange by providing more trading opportunities and encourages 
Members to send orders, thereby contributing to robust levels of 
liquidity, which benefits all market participant. Incentivizing the use 
of AIM also benefits all market participants as AIM promotes price 
improvement.
    Next, the Exchange believes the proposed rule change 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 director their order flow, including 12 other equities exchanges 
and off-exchange venues, including 32 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 18% of the market share.\20\ Therefore, no 
exchange possesses significant pricing power in the execution of option 
order flow. Indeed, participants can readily choose to send their 
orders to other exchange and off-exchange venues if they deem fee 
levels at those other venues to be more favorable. Moreover, the 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. Specifically, in Regulation NMS, the 
Commission highlighted the importance of market forces in determining 
prices and SRO revenues and, also, recognized that current regulation 
of the market system ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \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\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 25, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \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 (DC 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

    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 \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

     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-2019-042 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-2019-042. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-2019-042 and should be 
submitted on or before August 2, 2019.

    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).

    Dated: July 8, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14808 Filed 7-11-19; 8:45 am]
 BILLING CODE 8011-01-P