[Federal Register Volume 84, Number 232 (Tuesday, December 3, 2019)]
[Notices]
[Pages 66257-66259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26057]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87634; File No. SR-CboeEDGA-2019-015]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.;
Suspension of and Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Introduce a Small
Retail Broker Distribution Program
November 26, 2019.
I. Introduction
On October 1, 2019, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the EDGA fee schedule to introduce a
Small Retail Broker Distribution Program (the ``Program''). The
proposed rule change was immediately effective upon filing with the
Commission pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed
rule change was published for comment in the Federal Register on
October 17, 2019.\4\ The Commission received no comment letters
regarding the proposed rule change. Under Section 19(b)(3)(C) of the
Act,\5\ the Commission is hereby: (i) Temporarily suspending the
proposed rule change; and (ii) instituting proceedings to determine
whether to approve or disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ See Securities Exchange Act Release No. 87294 (October 11,
2019), 84 FR 55638 (``Notice'').
\5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change
The Exchange proposes to amend its fee schedule to introduce a
pricing program that would allow certain Distributors \6\ to purchase
the Cboe One Summary Feed \7\ from the Exchange at discounted fees.
Currently, the Exchange charges $5,000 per month for external
distribution of Cboe One Summary Feed, and a Data Consolidation Fee of
$1,000 per month. The Exchange also charges a fee $10 per month for
each Professional User and $0.25 for each Non-Professional User.\8\
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\6\ A Distributor of an Exchange market data product is any
entity that receives the Exchange market data product directly from
the Exchange or indirectly through another entity and then
distributes it internally or externally to a third party. See EDGA
Fee Schedule.
\7\ Cboe One Summary Feed is a data feed that offers top of book
quotations and execution information based on equity orders
submitted to the Exchange and its affiliated equities exchanges,
i.e., Cboe EDGX Exchange, Inc., Cboe BZX Exchange, Inc., and Cboe
BYX Exchange, Inc. See Notice, supra note 4, 84 FR at 55638.
\8\ A ``Professional User'' of an Exchange market data product
is any user other than a Non-Professional User. See EDGA Fee
Schedule. A ``Non-Professional User'' of an Exchange market data
product is a natural person or qualifying trust that uses data only
for personal purposes and not for any commercial purpose and, for a
natural person who works in the United States, is not: (i)
Registered or qualified in any capacity with the Commission, the
Commodities Futures Trading Commission, any state securities agency,
any securities exchange or association, or any commodities or
futures contract market or association; (ii) engaged as an
``investment adviser'' as that term is defined in Section 202(a)(11)
of the Investment Advisors Act of 1940 (whether or not registered or
qualified under that Act); or (iii) employed by a bank or other
organization exempt from registration under federal or state
securities laws to perform functions that would require registration
or qualification if such functions were performed for an
organization not so exempt; or, for a natural person who works
outside of the United States, does not perform the same functions as
would disqualify such person as a Non-Professional User if he or she
worked in the United States. Id.
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Under the Exchange's proposal, Distributors that qualify for the
Program would be charged a discounted fee of $3,500 per month for the
distribution of Cboe One Summary Feed. Distributors that qualify for
the Program would also be charged a discounted Data Consolidation Fee
of $350 for Cboe One Summary Feed. The Exchange would continue to
charge the current Professional and Non-Professional User fees for Cboe
One Summary Feed.
In order to qualify for the Program, a Distributor must meet the
following criteria: (i) Distributor is a broker-dealer distributing
Cboe One Summary Feed Data to Non-Professional Data Users with whom the
broker-dealer has a brokerage relationship; (ii) more than 50% of the
Distributor's total subscriber population must consist of Non-
Professional subscribers, inclusive of any subscribers not receiving
Cboe One Summary Feed; and (iii) Distributor distributes Cboe One
Summary Feed to no more than 5,000 Non-Professional Data Users.
III. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within
60 days of the date of filing of a proposed rule change pursuant to
Section 19(b)(1) of the Act,\10\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization (''SRO'') 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.
As discussed below, the Commission believes a temporary suspension of
the proposed rule change is necessary and appropriate to allow for
additional analysis of the proposed rule change's consistency with the
Act and the rules thereunder.
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\9\ 15 U.S.C. 78s(b)(3)(C).
\10\ 15 U.S.C. 78s(b)(1).
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A fee change to introduce the Program was originally filed on
August 1, 2019. That proposal, CboeEDGA-2019-013, was published for
comment in the Federal Register on August 20, 2019.\11\ The Commission
received no comment letters regarding the proposed rule change. On
September 30, 2019, the Division of Trading and Markets (the
``Division''), acting on behalf of the Commission by delegated
authority, issued an order temporarily suspending CboeEDGA-2019-013
pursuant to Section 19(b)(3)(C) of the Act \12\ and simultaneously
instituting proceedings under Section 19(b)(2)(B) of the Act \13\ to
determine whether to approve or disapprove that proposal.\14\
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\11\ See Securities Exchange Act Release No. 86678 (August 14,
2019), 84 FR 43218.
\12\ 15 U.S.C. 78s(b)(3)(C).
\13\ 15 U.S.C. 78s(b)(2)(B).
\14\ See Securities Exchange Act Release No. 87163 (September
30, 2019), 84 FR 53203.
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The Exchange continues to assert that the proposed fees for the
Program ``are reasonable as they represent a significant cost reduction
for smaller, primarily regional, retail brokers that provide top of
book data from EDGA and its affiliated exchanges to their retail
investor clients.'' \15\ The Exchange also asserts that the ``proposed
fees are equitable and not unfairly discriminatory as the proposed fee
[[Page 66258]]
structure is designed to decrease the price and increase the
availability of U.S. equities market data to retail investors.'' \16\
Finally, the Exchange states that while the proposed fees are limited
to smaller firms that distribute data to no more than 5,000 Non-
Professional data users, it does not believe that the proposed fees for
the Program are inequitable or unfairly discriminatory.\17\
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\15\ See Notice, supra note 4, 84 FR at 55641.
\16\ Id.
\17\ See id. at 55641-42.
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When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\18\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \19\
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\18\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\19\ See id.
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Among other things, exchange proposed rule changes are subject to
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which
requires the rules of an exchange to: (1) Provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \20\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \21\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\22\
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\20\ 15 U.S.C. 78f(b)(4).
\21\ 15 U.S.C. 78f(b)(5).
\22\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending the Exchange's fee change, the Commission
intends to further consider whether the establishment of the Program is
consistent with the statutory requirements applicable to a national
securities exchange under the Act. In particular, the Commission will
consider whether the proposed rule change satisfies the standards under
the Act and the rules thereunder requiring, among other things, that an
exchange's rules provide for the equitable allocation of reasonable
fees among members, issuers, and other persons using its facilities;
not permit unfair discrimination between customers, issuers, brokers or
dealers; and do not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\23\
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\23\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule changes.\24\
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\24\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
The Commission is instituting proceedings pursuant to Sections
19(b)(3)(C) \25\ and 19(b)(2)(B) of the Act \26\ to determine whether
the proposed rule change should be approved or disapproved. Institution
of proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to disapprove the proposed rule
change.
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\25\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\26\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\27\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\27\ 15 U.S.C. 78s(b)(2)(B).
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Section 6(b)(4) of the Act, which requires that the rules
of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities,'' \28\
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\28\ 15 U.S.C. 78f(b)(4).
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Section 6(b)(5) of the Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to perfect the operation of a free and open market and a national
market system'' and ``protect investors and the public interest,'' and
not be ``designed to permit unfair discrimination between customers,
issuers, brokers, or dealers,'' \29\ and
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\29\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(8) of the Act, which requires that the rules
of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \30\
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\30\ 15 U.S.C. 78f(b)(8).
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As noted above, the proposal establishes new discounted fees for
Distributors of the Exchange's Cboe One Summary data feed. The
Commission notes that the Exchange's statements in support of the
proposed rule change are general in nature and lack detail and
specificity. The Exchange states that it operates in a highly
competitive environment, and its ability to price these products is
constrained by (i) competition among other national securities
exchanges that offer similar data products to their customers; and (ii)
real-time consolidated data disseminated by the securities information
processors.\31\ The Exchange also states that the proposed Program
would reduce fees charged to small retail brokers that provide access
to the Cboe One Summary Feed.\32\ The Exchange notes that it has one
distributor that qualifies and is taking advantage of the Program's
pricing,\33\ and notes that Program's fees are often lower than
Nasdaq's fees.\34\ The Exchange also notes that ``[w]hile there is no
`exact science' to choosing one eligibility threshold compared to
another, the Exchange believes that having more Non-Professional Data
Users across a firm's entire business . . . is indicative of a broker-
dealer that is primarily engaged in the business of serving retail
investors.'' \35\ The Exchange states that larger broker-dealers and/or
vendors benefit from lower subscriber fees and enterprise licenses,
that Distributors that provide data to more than 5,000 Non-Professional
data users ``enjoy cost savings compared to competitor products,'' and
that the proposed fees would ``ensure that small retail brokers that
distribute top of book data to their retail investor customers could
also benefit from reduced pricing . . .'' \36\
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\31\ See Notice, supra note 4, 84 FR at 55639.
\32\ See id.
\33\ See id. at 55639-41.
\34\ See id. at 55642-43.
\35\ See id. at 55641.
\36\ See id. at 55642.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \37\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis
[[Page 66259]]
of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\38\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\39\
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\37\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\38\ See id.
\39\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with its requirements that exchange fees be reasonable
and equitably allocated; be designed to perfect the mechanism of a free
and open market and the national market system, protect investors and
the public interest, and not be unfairly discriminatory; or not impose
an unnecessary or inappropriate burden on competition.\40\
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\40\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by December 24, 2019.
Rebuttal comments should be submitted by January 7, 2020. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\41\
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\41\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding-either
oral or notice and opportunity for written comments-is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule change, 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-CboeEDGA-2019-015 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-CboeEDGA-2019-015. 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-CboeEDGA-2019-015 and should be
submitted on or before December 24, 2019. Rebuttal comments should be
submitted by January 7, 2020.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\42\ that File No. SR-CboeEDGA-2019-015 be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\42\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(57) and (58).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26057 Filed 12-2-19; 8:45 am]
BILLING CODE 8011-01-P