[Federal Register Volume 84, Number 168 (Thursday, August 29, 2019)]
[Notices]
[Pages 45606-45608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18634]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86743; File No. SR-CboeEDGX-2019-052]
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)
August 23, 2019.
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 August 16, 2019, Cboe EDGX Exchange, Inc. (the ``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. (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).
Changes to the fee schedule pursuant to this proposal are effective
upon filing. The text of the proposed rule change is attached [sic] as
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'') to adopt a fee for the
equity leg of a stock-option order, which orders would yield fee code
``EQ'', effective August 16, 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 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 20% of the market share.\4\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange possesses significant pricing power in the
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow, or
discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\4\ See Cboe Global Markets U.S. Options Market Volume Summary
(August 15, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
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Pursuant to rule filing SR-2019-CboeEDGX-039,\5\ the Exchange will
implement stock-option order functionality on August 16, 2019. Stock-
option orders are complex instruments that constitute the purchase or
sale of a stated number of units of an underlying stock or a security
convertible into the underlying stock coupled with the purchase or sale
of an option contract(s) on the opposite side of the market and execute
in the same manner as complex orders. Through this new functionality,
the stock portions of stock-option strategy orders will be
electronically communicated by the Exchange to a designated broker-
dealer, who will then manage the execution of such stock portions. In
connection with the new functionality, the Exchange proposes to adopt a
stock handling fee of $0.0010 per share for the processing and routing
by the Exchange of the stock portion of stock-option strategy orders
executed through those mechanisms. The purpose of the proposed stock
handling fee is to cover the fees charges by the outside venue that
prints the trade, as well as assist in covering the Exchange's costs in
matching these stock-option orders against other stock option orders on
the complex book. Additionally, the Exchange will also largely pass
through to Members the fees assessed to the Exchange by the designated
broker that will be managing the execution of these stock portions of
stock-option strategy orders. The Exchange notes that other exchanges
have likewise implemented fees for stock portions of stock-option
strategy order in response to their respective implementations of
stock-option strategy order functionality.\6\ Moreover, the proposed
fee is identical to fees assessed by other options exchanges, including
that of its affiliated exchange, Cboe Options, for stock legs executed
as a part of stock-option strategy orders.\7\
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\5\ See Securities Exchange Act Release No. 86353 (July 11,
2019), 84 FR 34230 (July 17, 2019) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Add Stock-Option Order
Functionality and Complex Qualified Contingent Cross (``QCC'') Order
With Stock Functionality, and To Make Other Changes to its Rules)
(SR-CboeEDGX-2019-039).
\6\ See Securities Exchange Act Release No. 85909 (May 21,
2019), 84 FR 24587 (May 28, 2019) (SR-EMERALD-2019-21); Securities
Exchange Act Release No. 83788 (August 7, 2018), 83 FR 40110 (August
13, 2018) (SR-MIAX-2018-18); and Securities Exchange Act Release No.
67383 (July 10, 2012), 77 FR 41841 (July 16, 2012) (SR-CBOE-2012-
063).
\7\ See NASDAQ ISE Options Pricing Schedule, Section 4.12;
NASDAQ MRX Options Pricing Schedule, Section 4(1); MIAX Emerald Fee
Schedule, Section 1(a)(vi); MIAX Options Fee Schedule, Section
1(a)(x); and Cboe Options Fees Schedule, Stock Portion of Stock-
Option Strategy Orders (each exchange charges the same fee of
$0.0010 per share and capped at $50 per order). The Exchange notes
that at this time it does not have the functionality available to
impose a cap per order. The Exchange intends to have this
functionality in place by Quarter 1 of 2020. The Exchange also does
not believe that the absence of a cap prior to this timeframe will
impact market participants as the stock-option strategy
functionality will be new, thus large trades and large volume
executed through such orders will take some time to gain traction on
the Exchange, and, the Exchange notes that a majority of large
complex orders executed on the Exchange are currently executed
through its complex order auctions and QCC (including QCC with
stock). The fee codes appended to these order types do not impose a
cap.
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[[Page 45607]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\8\ in general, and furthers the requirements
of Section 6(b)(4),\9\ 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 also believes that
the proposed rule change is consistent with the objectives of Section
6(b)(5) 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, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposed change to assess a charge
for stock portions of stock-option strategy orders processed and routed
through the Exchange transactions is consistent with Section 6(b)(4) of
the Act in that the proposal is reasonable, equitable and not unfairly
discriminatory. The Exchange believes the proposed stock handling fee
for stock-option orders is reasonable and equitable as the proposed fee
will cover the costs of developing and maintaining the systems that
allow for the matching and processing of the stock legs of stock-option
orders executed in the complex order book, as well as all fees charged
by the outside venue that prints the trade. The Exchange also believes
it is reasonable and equitable to largely pass through to the Member
any fees assessed by the routing broker-dealer utilized by the Exchange
with respect to the execution of the stock leg of any such order. The
Exchange notes that other exchanges assess the same fee for stock
components of stock option strategies for the purposes of covering
similar costs.\10\
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\10\ See supra note 6.
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The Exchange also believes that the proposed fee for the stock legs
of a stock-option strategy order is equitable and not unfairly
discriminatory because it will be uniformly applied to all Members that
execute stock-option orders in the complex order book on the Exchange.
As noted, the proposed fee is identical to fees assessed by other
options exchanges for stock legs executed as a part of stock-option
strategy orders.\11\ As such, stock-option strategy orders are
available on other options exchanges and participants can readily
direct order flow to another exchange if they deem other exchanges'
fees to be more favorable.
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\11\ See supra note 7.
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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 the stock
portions of all market participants' stock-option strategy 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. 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 15 other options exchanges.
Based on publicly available information, no single options exchange has
more than 20% of the market share.\12\ Therefore, no exchange possesses
significant pricing power in the execution of option order flow. In
such an environment, the Exchange must continually adjust its fees to
remain competitive with other exchanges and to attract order flow to
the Exchange. The proposed fee is substantially similar to fees charged
for stock components of stock-option strategy orders by the Exchange's
affiliate, Cboe Options, and other competing exchanges,\13\ therefore,
the Exchange believes that the proposed rule change appropriately
reflects this competitive environment. Indeed, participants can readily
choose to send their orders to other exchanges, and, additionally 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.'' \14\ 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'. . ..''.\15\
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 supra note 4.
\13\ See supra note 6.
\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\15\ 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) (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
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)
[[Page 45608]]
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-2019-052 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-2019-052. 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 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. 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-2019-052 and should be submitted on or before September 19,
2019.
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18634 Filed 8-28-19; 8:45 am]
BILLING CODE 8011-01-P