[Federal Register Volume 85, Number 70 (Friday, April 10, 2020)]
[Notices]
[Pages 20328-20331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07553]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88569; File No. SR-CboeEDGX-2020-015]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule
April 6, 2020.
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 April 1, 2020, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'' or ``EDGX
Equities'') is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend its fee schedule. The
text of the proposed rule change is provided in 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 to add an
additional Retail Volume Tier. Additionally, the Exchange proposes to
eliminate fee code ``PR'' \3\ from the Standard Rates table as all
other references to fee code PR were removed from the Exchange's fee
schedule on February 3, 2020.\4\ The Exchange proposes to implement the
proposed changes to its fee schedule on April 1, 2020.
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\3\ Prior to February 3, 2020, fee code PR represented orders
that removed liquidity from EDGX using the ROUQ routing strategy.
\4\ See Securities Exchange Act Release No. 88154 (February 7,
2020) 85 FR 8327 (February 13, 2020) (SR-CboeEDGX-2020-006).
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The Exchange first notes that it operates in a highly-competitive
market
[[Page 20329]]
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 13 registered and operational equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\5\ no single registered
equities exchange has more than 20% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow.
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\5\ See Cboe Global Markets, U.S. Equities Market Volume Summary
(March 26, 2020), available at https://markets.cboe.com/us/equities/market_statistics/. This market share percentage is based on a
Month-to-Date volume summary.
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The Exchange operates a ``Maker-Taker'' model whereby it pays
credits to Members that add liquidity and assesses fees to those that
remove liquidity. The Exchange's fee schedule sets forth the standard
rebates and fees applied per share for orders that provide and remove
liquidity, respectively. Particularly, for securities at or above
$1.00, the Exchange provides a standard rebate of $0.00170 per share
for orders that add liquidity and assesses a fee of $0.00270 per share
for orders that remove liquidity. 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 or 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 the competitive environment, the Exchange offers
tiered pricing that provides Members opportunities to qualify for
higher rebates or reduced fees where certain volume criteria and
thresholds are met. Tiered pricing provides incremental incentives for
Members to strive for higher or different tier levels by offering
increasingly higher discounts or enhanced benefits for satisfying
increasingly more stringent criteria or different criteria. For
example, pursuant to footnote 3 of the fee schedule, the Exchange
currently offers a Retail Volume Tier that provides Members with an
enhanced rebate of $0.0037 for liquidity adding orders that yield fee
code ``ZA'',\6\ which generally has a rebate of $0.00320. To qualify
for the Retail Volume Tier, a Member must add retail order ADV \7\
(i.e., yielding fee code ZA) of greater than or equal to 0.50% of the
TCV.\8\ Therefore, the Retail Volume Tier is designed to encourage
Members that provide liquidity adding retail orders on the Exchange to
increase their order flow, thereby contributing to a deeper and more
liquid market to the benefit of all market participants.
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\6\ Fee code ``ZA'' is associated with retail orders that remove
[sic] liquidity.
\7\ ``Average Daily Volume'' or ``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.
\8\ ``Total Consolidated Volume'' or ``TCV'' means 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.
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The Exchange now proposes to add an additional Retail Volume Tier,
Tier 1, and to rename the existing Retail Volume Tier to Tier 2.
Proposed Tier 1 would provide an enhanced rebate of $0.0034 for
liquidity adding orders that yield fee code ``ZA''. To qualify for
proposed Tier 1, a Member must (1) have retail Step-Up Add TCV \9\ from
February 2020 of equal to or greater than 0.05%, and (2) add retail
order ADV (i.e., yielding fee code ZA) of equal to or greater than
0.20% of the TCV. In contrast to the existing Retail Volume Tier, under
the proposed Tier 1 Members must satisfy a lower retail order ADV as a
percentage of TCV and must also satisfy the Step-Up Add TCV threshold,
which is designed to encourage growth (i.e., Members must increase
their relative liquidity each month over a predetermined baseline (in
this case the month being February 2020)). Overall, the proposed
criteria are designed to encourage Members to increase their order
flow, thereby contributing to a deeper and more liquid market, which
benefits all market participants and provides greater execution
opportunities on the Exchange. The Exchange believes that this benefits
all Members by enhancing overall market quality and contributing
towards a robust and well-balanced market ecosystem. The Exchange notes
that the proposed tier is available to all Retail Member Organizations
(``RMOs'') and is competitively achievable for all RMOs that submit
liquidity adding retail order flow, in that, all firms that submit the
requisite liquidity adding retail order flow could compete to meet the
tier.
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\9\ ``Step-Up Add TCV'' means Average Daily Add Volume
(``ADAV'') as a percentage of TCB [sic] in the relevant baseline
month subtracted from current ADAV as a percentage of TCV.
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Additionally, the Exchange proposes to eliminate fee code ``PR''
from the Standard Rates table of the Exchange's fee schedule. The PR
fee code was eliminated in all other places from the Exchange's fee
schedule effective February 2, 2020; \10\ however, fee code PR was
inadvertently not removed from the Standard Rates table. As such, the
Exchange is now seeking to eliminate fee code PR from the Standard
Rates table.
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\10\ See supra note 3.
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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. 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.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
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In particular, the Exchange believes the proposed amendment to add
an additional Retail Volume Tier is reasonable because it provides an
additional opportunity for Members to receive an enhanced rebate by
means of liquidity-adding retail orders. The Exchange notes that
relative volume-based incentives and discounts have been widely adopted
by other exchanges,\13\ 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 of an exchange's market quality, and (ii)
associated higher levels of market activity, such as higher levels of
liquidity provision and/or growth patterns.
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\13\ See Nasdaq, Price List, Rebate to Add Displayed Designated
Retail Liquidity.
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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
[[Page 20330]]
Exchange provides, including the pricing of comparable tiers.\14\
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\14\ See id. Nasdaq offer rebates ranging from $0.00325 up to
$0.0033 for Add Displayed Designated Retail Liquidity.
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Moreover, the Exchange believes the proposed Retail Volume Tier is
a reasonable means to encourage Members to grow their overall liquidity
adding retail order flow to the Exchange based on increasing their
daily total added retail order ADV above a percentage of the TCV.
Particularly, the Exchange believes that adopting an additional Retail
Volume Tier based on a Member's liquidity adding retail orders will
encourage retail order liquidity providing Members to provide for a
deeper, more liquid market, and, as a result, increased execution
opportunities at improved price levels and, thus, overall order flow.
The Exchange believes that these increases will benefit all Members by
contributing towards a robust and well-balanced market ecosystem.
Increased overall order flow benefits all investors by deepening the
Exchange's liquidity pool, providing greater execution incentives and
opportunities, offering additional flexibility for all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection. The
proposed enhanced rebate per share amount also does not represent a
significant departure from the rebates currently offered, or required
criteria, under the Exchange's existing Retail Volume Tier. For
example, the rebate provided under the existing Retail Volume Tier, for
which, as stated, a Member must have a daily volume add retail order
ADV of 0.50% or greater than the TCV, is $0.0037 per share. In other
words, under this tier, Members receive an enhanced rebate from the
standard $0.0032 rebate for orders yielding fee code ``ZA''. Therefore,
the proposed enhanced rebate under Tier 1 ($0.0034) is comparable to
the enhanced rebate currently offered under the Retail Volume Tier.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because all RMOs
are eligible for the proposed Retail Volume Tier, and would have the
opportunity to meet the proposed Tier 1 criteria and receive the
proposed enhanced rebate if such criteria is met. The proposed tier is
designed as an incentive to any and all RMOs interested in meeting the
tier criteria to submit additional liquidity adding retail order flow
to achieve the proposed discount. Without having a view of 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 RMOs qualifying for this tier. While the proposed tier is only
applicable to RMOs, the Exchange does not believe it is discriminatory
as the Exchange offers similar rebates to non-RMO order flow.\15\ While
the Exchange has no way of predicting with certainty how the proposed
tier will impact RMO activity, the Exchange anticipates that at up to
three RMOs will be able to compete for and reach the proposed tier. The
Exchange also notes that the proposed tier will not adversely impact
any RMO's pricing or their ability to qualify for other rebate tiers.
Rather, should a RMO not meet the proposed criteria, the Member will
merely not receive an enhanced rebate. Furthermore, the proposed fee
would uniformly apply to all RMOs that meet the required criteria under
the proposed Retail Volume Tier.
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\15\ See e.g., the Add Volume Tiers in the Exchange's Fee
Schedule which provides an enhanced rebate to all Members that add
liquidity meeting certain criteria.
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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. Rather, as discussed above,
the Exchange believes that the proposed addition of another Retail
Volume Tier would encourage the submission of additional liquidity
adding retail order flow to a public exchange, thereby promoting market
depth, execution incentives and enhanced execution opportunities, as
well as price discovery and transparency 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.'' \16\
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\16\ 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 not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
Retail Volume Tier change applies to all RMOs equally in that all RMOs
are eligible for the proposed tier, have a reasonable opportunity to
meet the tier's criteria and will all receive the enhanced rebate if
such criteria is met. Additionally the proposed change is designed to
attract additional order flow to the Exchange. The Exchange believes
that the modified tier criteria would incentivize market participants
to direct liquidity adding retail orders and, as a result, executable
order flow and improved price transparency, to the Exchange. Greater
overall order flow and pricing transparency benefits all market
participants on the Exchange by providing more trading opportunities,
enhancing market quality, and continuing to encourage Members to send
orders, thereby contributing towards a robust and well-balanced market
ecosystem, which benefits all market participants.
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 purpose 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 12 other equities exchanges, and off-exchange venues
and 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 20% of the
market share.\17\ Therefore, no exchange possesses significant pricing
power in the execution of 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.'' \18\ 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.
[[Page 20331]]
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' . . . ''.\19\
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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\17\ See supra note 4.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ 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
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 \20\ and paragraph (f) of Rule 19b-4 \21\
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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 No. SR-CboeEDGX-2020-015 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 No. SR-CboeEDGX-2020-015. 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 No. SR-CboeEDGX-2020-015, and should be submitted
on or before May 1, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07553 Filed 4-9-20; 8:45 am]
BILLING CODE 8011-01-P