[Federal Register Volume 84, Number 137 (Wednesday, July 17, 2019)]
[Notices]
[Pages 34247-34250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15134]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86352; File No. SR-CboeEDGX-2019-044]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend the Fee Schedule Applicable to Members and Non-
Members of the Exchange Pursuant to EDGX Rules 15.1(a) and (c)
July 11, 2019.
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 July 1, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule applicable to Members and non-
Members \3\ of the Exchange pursuant to EDGX Rules 15.1(a) and (c). The
text of the proposed rule change is provided in Exhibit 5.
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\3\ A Member is defined as ``any registered broker or dealer
that has been admitted to membership in the Exchange.'' See Exchange
Rule 1.5(n).
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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
options trading platform (``EDGX Options'') in connection with the fee
assessed for Customer orders in Mini-SPX Index (``XSP'') options
(yielding fee code XC), as well as add certain XSP-related fee codes to
the Automated Improvement Mechanism (``AIM'') Pricing table, effective
July 1, 2019.
The Exchange currently provides a standard rebate of $0.05 for
Customer orders in XSP (an Exchange proprietary product). The Exchange
no longer wishes to provide a rebate for Customer XSP transactions and
now proposes to remove the current rebate and amend the fee schedule so
that Customer orders in XSP will be free. The Exchange notes that it
currently assesses no charge or a marginal charge on other Customer
transactions. For example, the Exchange does not charge a transaction
fee for Customer Agency orders in an AIM auction (including Customer-
to-Customer orders and AIM Agency orders in XSP), for certain Customer
complex orders (including complex orders leg into the Simple Book and
Customer-to-Customer complex orders), and Qualified Contingent Cross
(``QCC'') orders (both Agency and Contra QCC orders).
In addition to this, the Exchange also proposes to add the fee
codes for AIM-related orders in XSP to Footnote 6 and add references to
the fee codes in the AIM Pricing table under Footnote 6. This includes
fee code XD, appended to Customer AIM orders in XSP, and fee code XB,
appended to Customer-to-Customer Immediate Cross AIM orders in XSP. The
AIM Pricing table summarizes AIM fees and rebates for orders that
transact in an AIM Auction (specifically, orders that yield fee codes,
[[Page 34248]]
BA, \4\ BB, \5\ BC, \6\ BD, \7\ BE, \8\ and CC, \9\ already provided
for in the Fee Codes and Associated Fees section of the fee schedule,
in a table form and includes a provision regarding AIM Break-Up Credits
for such orders (as described below). By way of background, AIM
includes functionality in which a Member (an ``Initiating Member'') may
electronically submit for execution an order it represents as agent on
behalf of a Priority Customer,\10\ broker dealer, or any other person
or entity (``Agency Order'') against principal interest or against any
other order it represents as agent (an ``Initiating Order'') provided
it submits the Agency Order for electronic execution into the AIM
Auction pursuant Rule 21.19. All options traded on EDGX Options are
eligible for AIM. The Exchange notes that any person or entity other
than the Initiating Member may submit responses to an Auction. An AIM
Auction takes into account responses to the Auction as well as interest
resting on the Exchange's order book at the conclusion of the auction
(``unrelated orders''), regardless of whether such unrelated orders
were already present on the Exchange's order book when the Agency Order
was received by the Exchange or were received after the Exchange
commenced the applicable Auction. If contracts remain from one or more
unrelated orders at the time the Auction ends, they will be considered
for participation in the AIM order allocation process. The Exchange
also applies an AIM Break-Up Credit to the Member that submits an AIM
Agency Order, including a Member who routes an order to the Exchange
with a Designated Give Up, when the AIM Agency Order trades with an AIM
Responder Order. Currently, the AIM Break-Up Credit provided with
respect to an AIM Auction in a Penny Pilot Security is $0.25 per
contract and the AIM Break-Up Credit provided with respect to an AIM
Auction in a Non-Penny Pilot Security is $0.60 per contract.
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\4\ Fee code BA is appended to Non-Customer AIM orders and is
assessed a fee of $0.20 per share.
\5\ Fee code BB is appended to AIM Contra orders and is assessed
a fee of $0.05 per share.
\6\ Fee code BC is appended to AIM Agency Customer orders and is
provided a rebate of $0.14 per share.
\7\ Fee code BD is appended to AIM Responder Penny Pilot orders
and is assessed a fee of $0.50 per share.
\8\ Fee code BE is appended to AIM Responder Non-Penny Pilot
orders and is assessed a fee of $1.05 per share.
\9\ Fee code CC is appended to AIM Customer-to-Customer
Immediate Cross orders and is free.
\10\ The term ``Priority Customer'' means any person or entity
that is not: (A) A broker or dealer in securities; or (B) a
Professional. The term ``Priority Customer Order'' means an order
for the account of a Priority Customer. See Rule 16.1.
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In April 2019, the Exchange added to its fee schedule certain fee
codes related to orders in XSP, including for Customer AIM orders in
XSP (yielding fee code XD) and AIM Customer-to-Customer Immediate Cross
orders in XSP (orders yielding fee code XB). At this time, however, the
Exchange inadvertently neglected to add such AIM-related Customer XSP
fee codes to the AIM Pricing table and adopt AIM Break-Up Credits for
orders yielding XB and XD. The Exchange now proposes to add these fee
codes to Footnote 6, including adding references in the AIM Pricing
table in order to provide additional clarity to Members regarding AIM-
related Customer orders in XSP, as well as apply the AIM Break-Up
Credit to orders yielding fee codes XD and XB. As stated, the AIM
Pricing table merely summarizes AIM fees and rebates for orders
yielding certain fee codes, that are already provided for in the Fee
Codes and Associated Fees section of the fee schedule, and the AIM
Break-Up Credit already applies to the other AIM-related orders found
within the Fee Codes and Associated Fees section.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\11\ in general, and furthers the
requirements of Section 6(b)(4),\12\ 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.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposed change to assess no charge
for Customer transactions in XSP is consistent with Section 6(b)(4) of
the Act in that the proposal is reasonable, equitable and not unfairly
discriminatory. The Exchange believes that it is reasonable and
equitable to assess no charge for Customer transactions in XSP because
Customers won't have to pay any fee for XSP transactions. Moreover, it
is in line with multiple other types of Customer orders for which the
Exchange does not assess a fee. As described above, the Exchange
currently does not charge a transaction fee for various other Customer
orders in an AIM auction, various Customer complex orders, nor for
Customer QCC orders. The Exchange believes that, although it is
eliminating the rebate for Customer XSP orders, the proposal to not
assess any fees for such transactions will continue to incentivize
Customer order flow in XSP, which enhances liquidity on the Exchange.
This enhanced Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Market Makers. An
increase in Market Maker activity in turn facilitates tighter spreads,
which may cause an additional corresponding increase in order flow from
other market participants.
The Exchange also believes that the proposed Customer transaction
fee is equitable and not unfairly discriminatory because the proposed
fee assessment (of no charge) will apply equally to all Customer
transactions in XSP, i.e., all Customers will be assessed the same
amount. Moreover, the Exchange notes that while Customer's will not be
assessed any fees, as compared to other market participants,\13\ the
Exchange believes that the proposal to not assess any fee is equitable
and not unfairly discriminatory because, as stated above, Customer
order flow enhances liquidity on the Exchange, in turn providing more
trading opportunities and attracting Marker-Makers to facilitate
tighter spreads to the benefit of all market participants. Moreover,
the options industry has a long history of providing preferential
pricing to Customers, and the Exchange's current Fee Schedule currently
does so in many places, as do the fees structures of multiple other
exchanges.\14\
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\13\ See EDGX Options Fee Schedule, ``Fee Codes and Associated
Fees'', which assesses a fee of $0.45 for all Firm orders in XSP,
$0.20 for all Market Maker liquidity adding orders in XSP, and $0.48
for all Non-Market Maker/Non-Customer orders in XSP.
\14\ See MIAX Options Fee Schedule, Transaction Fees, SPIKES,
which gives preferential Customer [sic] treatment for transaction in
MIAX Option's proprietary product, SPIKES. The Exchange notes XSP is
an Exchange proprietary product.
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That Exchange also believes that its proposed change to add fee
codes XD and XB to the AIM Pricing table is consistent with Section
6(b)(4) of the Act in that the proposal is reasonable, equitable and
not unfairly discriminatory. The Exchange believes that the proposed
change is reasonable because it serves to update the AIM Pricing chart
as a result of an inadvertent oversight. As stated, in April 2019, the
Exchange added to its fee schedule certain fee codes related to orders
in XSP, including for Customer AIM orders in XSP (yielding fee code XD)
and AIM Customer-to-Customer Immediate Cross orders in XSP (orders
yielding fee code XB), yet inadvertently failed to add such AIM-related
Customer XSP fee codes to Footnote 6
[[Page 34249]]
at that time (which includes the applicability of the AIM Break-Up
Credit under Footnote 6). In addition to this, the Exchange notes that
the AIM Pricing table merely summarizes in table form AIM fees and
rebates for orders yielding certain AIM-related fee codes, that are
already provided for in the Fee Codes and Associated Fees section of
the fee schedule (which currently includes fee codes XD and XB).
Therefore, the Exchange believes that the proposed change to add these
fee codes to the AIM Pricing table will provide additional clarity to
Members by summarizing in table form the rates for their AIM-related
orders in XSP, which already exist within the fee schedule. Moreover,
the Exchange notes that the proposed AIM Break-Up Credits currently
apply to the other AIM-related orders provided for in the Fee Codes and
Associated Fees section.
The Exchange believes that the proposed change to add fee codes XD
and XB to the AIM Pricing chart is equitable and not unfairly
discriminatory because the rates for such orders yielding these fee
codes are already in place, and the proposed change will not alter
those rates or descriptions for such orders for any type of market
participant. Instead, this change serves to provide additional clarity
for all Members by adding these AIM-related fee codes to the summary
table for AIM Pricing.
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. 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. Specifically, the Exchange does not believe that
the proposed change will impose any burden on intramarket competitions
that is not necessary or appropriate in furtherance of the purposes of
the Act because the proposed change will apply uniformly to all
Customers transacting in XSP. As described above, while no fee will be
assessed for Customers, different market participants have different
circumstances, such as the fact that preferential pricing to Customers
is a long-standing options industry practice which serves to enhance
Customer order flow, thereby attracting Marker-Makers to facilitate
tighter spreads and trading opportunities to the benefit of all market
participants. In addition to this, the Exchange notes that it currently
assesses no charge for various other types of Customer orders.
In addition to this, the Exchange does not believe that the
proposed change to add fee codes appended to AIM-related orders in XSP,
which currently exist in the fee schedule, to Footnote 6 will impose a
burden on intramarket competition. The AIM Pricing table merely
summarizes the fees and rebates for AIM-related orders that are
currently found in the fee schedule and the proposed change serves to
provide additional clarity regarding existing AIM-related orders in XSP
by adding them to this table. Additionally, the AIM Break-Up Credits
currently apply to the other AIM-related orders found within the fee
schedule and the proposal to adopt AIM Break-Up Credits for orders
yielding XD and XB will result in such orders being treated the same as
all other AIM-related orders.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the rule
change affects a proprietary product, which is traded exclusively on
the Exchange and the Exchange's affiliate, Cboe Exchange, Inc.\15\
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\15\ See Cboe Exchange, Inc. Fees Schedule.
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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 \16\ and paragraph (f) of Rule 19b-4 \17\
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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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-2019-044 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-2019-044. 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-2019-044 and should be
submitted on or before August 7, 2019.
[[Page 34250]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-15134 Filed 7-16-19; 8:45 am]
BILLING CODE 8011-01-P