[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30777-30779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10819]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88876; File No. SR-CboeEDGX-2020-020]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fees Schedule

May 14, 2020.
    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 May 1, 2020, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') is 
filing with the Securities and Exchange Commission (``Commission'') a 
proposed rule change to amend its Fees 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule for its equity 
options platform (EDGX Options), effective May 1, 2020.
    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 and 
currently the Exchange represents only 4% of the market share.\3\ Thus, 
in such a low-concentrated and highly competitive market, no single 
options

[[Page 30778]]

exchange, including the 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
(April 27, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides standard 
rebates ranging from $0.01 up to $0.21 per contract for orders that add 
liquidity in both Penny and Non-Penny Securities and assesses fees 
ranging from $0.01 up to $0.75 per contract for orders that remove 
liquidity in both Penny and Non-Penny Securities. The Exchange also 
offers tiered pricing which provides Members \4\ opportunities to 
qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. Footnote 5 of the Fees Schedule 
provides that when orders are submitted with a Designated Give Up,\5\ 
the applicable rebates (i.e., any standard rebate or applicable tier 
rebates) for orders yielding fee code BC,\6\ NC,\7\ PC,\8\ SC,\9\ 
QA\10\ and QM \11\ are provided to the Member who routed the order to 
the Exchange. Now, the Exchange proposes to amend footnote 5 to include 
fee codes ZA\12\ and ZB \13\ in the aforementioned list of fee codes.
---------------------------------------------------------------------------

    \4\ See Exchange Rule 1.5(n).
    \5\ A Designated Give Up of a User refers to a Clearing Member 
identified to the Exchange by that User as a Clearing Member the 
User requests the ability to give up and that has been processed by 
the Exchange as a Designated Give Up. See Exchange Rule 21.12(b).
    \6\ Orders yielding fee code BC represent AIM Agency (Customer) 
orders.
    \7\ Orders yielding fee code NC represent Customer, Non-Penny 
orders.
    \8\ Orders yielding fee code PC represent Customer, Penny Pilot 
orders.
    \9\ Orders yielding fee code SC represent SAM Agency (Customer) 
orders.
    \10\ Orders yielding fee code QA represent QCC Agency (Customer) 
orders.
    \11\ Orders yielding fee code QM represent QCC Agency (Non-
Customer) orders.
    \12\ Orders yielding fee code ZA represent Complex, Customer 
(contra Non-Customer), Penny orders.
    \13\ Orders yielding fee code ZB represent Complex, Customer 
(contra Non-Customer), Non-Penny orders.
---------------------------------------------------------------------------

    Under Rule 21.12 a Member acting as an options routing firm on 
behalf of one or more other Exchange Members (a ``Routing Firm'') is 
able to route orders to the Exchange and to immediately give up the 
party (a party other than the Routing Firm itself or the Routing Firm's 
own clearing firm) who will accept and clear any resulting transaction. 
Because the Routing Firm is responsible for the decision to route the 
order to the Exchange, the Exchange provides the rebate to the Routing 
Firm when the orders yield fee codes BC, NC, PC, SC, QA and QM. The 
Exchange believes that the Routing Firm should also be provided the 
rebate when the orders yield fee codes ZA and ZB as those orders also 
represent liquidity adding customer orders for which the Routing Firm 
is responsible for the decision to route the order to the Exchange. In 
connection with this change, the Exchange proposes to append footnote 5 
to fee codes ZA and ZB in the Fee Codes and Associated Fees table of 
the Fees Schedule.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange notes that the U.S. options markets are highly 
competitive, and the proposed fee structure is intended to provide an 
incentive for Members to direct orders to the Exchange. The proposal 
would apply to fee codes ZA and ZB related to customer liquidity adding 
orders, because these, along with the fee codes already included in 
Footnote 5, are the primary rebates in place on the Exchange and 
reflect the primary liquidity that the Exchange is seeking to attract 
from Routing Firms that are able to identify Designated Give Ups.\16\ 
The Exchange believes the proposed amendment is reasonable because the 
Exchange already provides such rebates to the Routing Firm for orders 
yielding similar fee codes for customer liquidity adding orders (i.e., 
orders yielding fee codes BC, NC, PC, QA, and SC). Additionally, the 
Exchange believes that the proposed amendments to its Fees Schedule 
will enhance the Exchange's competitive position and will result in 
increased liquidity on the Exchange, to the benefit of all Exchange 
participants. Therefore, the Exchange believes that providing rebates 
is equitable and reasonable and not unfairly discriminatory as it would 
allow the Exchange, in the context of the give up procedure described 
above, to provide a rebate directly to the party making the routing 
decision to direct certain orders to the Exchange (i.e., the Routing 
Firm), which is consistent with both the Exchange's historic practice 
and the purpose behind a rebate (i.e., to incentivize the order being 
directed to the Exchange).
---------------------------------------------------------------------------

    \16\ The Exchange notes that Market-Makers may only give up its 
respective Guarantor, as defined by Rule 21.12(b)(2). See Exchange 
Rule 21.12(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments to its Fees Schedule 
would not 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 change represents a significant 
departure from previous pricing offered by the Exchange or its 
competitors. Additionally, Members may opt to disfavor the Exchange's 
pricing if they believe that alternatives offer them better value. The 
Exchange believes that its proposal will incentivize Routing Firms that 
are utilizing the give up procedure to direct orders yielding fee code 
ZA and ZB to the Exchange, and will enhance the Exchange's competitive 
position by resulting in increased liquidity on the Exchange, thereby 
providing more opportunities for customers to receive best executions.

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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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

[[Page 30779]]

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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2020-020 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-2020-020. 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 tomake available publicly. All submissions 
should refer to File Number SR-CboeEDGX-2020-020 and should be 
submitted on or before June 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10819 Filed 5-19-20; 8:45 am]
 BILLING CODE 8011-01-P