[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16296-16299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05986]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94437; File No. SR-CboeEDGX-2022-013]


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

March 16, 2022.
    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 March 9, 2022, 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'' or ``EDGX 
Equities'') proposes 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 applicable to its 
equities trading platform (``EDGX Equities'') as follows: (1) Amend fee 
code ZM so that it applies to applicable orders with a time-in-force of 
Good `til Extended Day (``GTX''); and (2) modify the criteria of Growth 
Tier 2. The Exchange proposes to implement these changes effective 
March 1, 2022.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed fee changes on 
March 1, 2022 (SR-CboeEDGX-2022-009). On March 9, 2022, the Exchange 
withdrew that filing and submitted this proposal.
---------------------------------------------------------------------------

    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 registered 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,\4\ no single registered 
equities exchange has more than 17% 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. The Exchange in particular operates a ``Maker-Taker'' model 
whereby it pays rebates to members that add liquidity and assesses fees 
to those that remove liquidity. The Exchange's Fee Schedule sets forth 
the standard rebates and rates applied per share for orders that 
provide and remove liquidity, respectively. Currently, for orders in 
securities priced at or above $1.00, the Exchange provides a standard 
rebate of $0.00160 per share for orders that add liquidity and assesses 
a fee of $0.0030 per share for orders that remove liquidity. For orders 
in securities priced below $1.00, the Exchange provides a standard 
rebate of $0.00009 per share for orders that add liquidity and assesses 
a fee of 0.30% of total dollar value for orders that remove liquidity. 
Additionally, in response to the competitive environment, the Exchange 
also offers tiered pricing which provides Members opportunities to 
qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. Tiered pricing provides an incremental 
incentive for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
---------------------------------------------------------------------------

    \4\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (February 27, 2022), available at https://markets.cboe.com/us/equities/market_statistics/.
---------------------------------------------------------------------------

    As noted under the Fee Codes and Associated Fees section of the Fee 
Schedule, fee code ZM is appended to retail orders with a time-in-force 
of Day \5\/Regular Hours Only (``RHO'') \6\ that remove liquidity on 
arrival and provides a fee/rebate of free. Now the Exchange proposes to 
amend fee code ZM so that is appended to retail with a time-in-force of 
Day/RHO or GTX \7\ that remove liquidity on arrival. Currently, retail 
orders with a time-in-force of GTX that remove liquidity upon arrival 
are appended fee code ZR which are assessed a fee of $0.00300 per share 
in securities at or above $1.00 and 0.30% of dollar value to securities 
below $1.00. Therefore, the proposal would decrease the fee associated 
with retail orders with a time-in-force of GTX that remove liquidity 
upon arrival by $0.00300.
---------------------------------------------------------------------------

    \5\ See Exchange Rule 11.6(q)(2)
    \6\ See Exchange Rule 11.6(q)(6).
    \7\ See Exchange Rule 11.6(q)(5).
---------------------------------------------------------------------------

    Further, the Growth Volume Tiers Volume Tiers set forth in footnote 
1 of the Fee Schedule (Add/Remove Volume Tiers) provide Members an 
opportunity for qualifying orders (i.e., orders yielding fee code B,\8\ 
V,\9\ Y,\10\ 3 \11\ or 4 \12\) to receive an enhanced rebate and are 
designed to encourage growth in order flow by providing specific 
criteria in which Members must increase their relative liquidity each 
month over a predetermined baseline. Growth Tier 2, for example, 
provides an opportunity for qualifying orders (i.e., orders yielding 
fee code B, V, Y, 3 or 4) to receive an enhanced rebate of $0.0027 per 
share to Members that (1) add a Step-Up ADAV \13\ from June 2021 
greater than or equal to 0.10% of the TCV \14\ or Members that add a 
Step-Up

[[Page 16297]]

ADAV from June 2021 equal to or greater than 8 million shares; and (2) 
Members that have a total remove ADV equal to or greater than 0.70% of 
TCV. The Exchange now proposes to modify the criteria in the second 
prong of Growth Tier 2 to require that Members (i) have a total remove 
ADV equal to or greater than 0.70% of TCV, or alternatively, (ii) have 
a total remove ADV equal to or greater than 60,000,000 shares.
---------------------------------------------------------------------------

    \8\ Orders yielding Fee Code ``B'' are orders adding liquidity 
to EDGX (Tape B).
    \9\ Orders yielding Fee Code ``V'' are orders adding liquidity 
to EDGX (Tape A).
    \10\ Orders yielding Fee Code ``Y'' are orders adding liquidity 
to EDGX (Tape C).
    \11\ Orders yielding Fee Code ``3'' are orders adding liquidity 
to EDGX in the pre and post market (Tapes A or C).
    \12\ Orders yielding Fee Code ``4'' are orders adding liquidity 
to EDGX in the pre and post market (Tape B).
    \13\ ``Step-Up ADAV'' means ADAV in the relevant baseline month 
subtracted from current ADAV.
    \14\ ``TCV'' means total 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.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Securities and Exchange Act of 
1933 (the ``Act''),\15\ in general, and furthers the objectives of 
Section 6(b)(4),\16\ in particular, as it is designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its Members and issuers and other persons using its facilities. 
The Exchange also believes that the proposed rule change is consistent 
with the objectives of Section 6(b)(5) \17\ 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. As described above, 
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. The proposed rule changes reflect a competitive 
pricing structure designed to incentivize market participants to direct 
their order flow to the Exchange, which the Exchange believes would 
enhance market quality to the benefit of all Members.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 15 U.S.C. 78f.(b)(5).
---------------------------------------------------------------------------

    Regarding the proposed amendment to fee code ZM, the Exchange notes 
that the competition for retail order flow is particularly intense, 
especially as it relates to exchange versus off-exchange venues, as 
prominent retail brokerages tend to route a majority of their limit 
orders to off-exchange venues.\18\ Accordingly, competitive forces 
compel the Exchange to use exchange transaction fees and credits, 
particularly as they relate to competing for retail order flow, because 
market participants can readily trade on competing venues if they deem 
pricing levels at those other venues to be more favorable.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Release No. 86375 (July 15, 2019), 
84 FR 34960 (SRCboeEDGX-2019-045).
---------------------------------------------------------------------------

    The Exchange believes that its proposed change to amend fee code ZM 
is reasonable, equitable and not unfairly discriminatory. First, the 
Exchange notes that the current fee applied to retail orders with a 
time-in-force of GTX that remove liquidity upon arrival is $0.00300 per 
share in securities at or above $1.00 and 0.30% of dollar value to 
securities below $1.00. Therefore, the proposal would decrease the fee 
associated with retail orders with a time-in-force of GTX that remove 
liquidity upon arrival. Second, while the proposed fee/rebate applies 
only to retail orders, the Exchange does not believe this application 
is discriminatory as the Exchange offers similar rebates or reduced 
fees to non-retail order flow. The Exchange notes that, like all other 
fee codes, ZM and the accompanying fee (which is free) will be 
automatically and uniformly applied to all Members' qualifying orders 
as applicable.
    The Exchange believes its proposal to amend the criteria of the 
Growth Tier 2 is reasonable because the tier is and will continue to be 
available to all Members and provides Members an alternative 
opportunity to meet the required criteria in order to receive an 
enhanced rebate. The Exchange notes that relative volume-based 
incentives and discounts have been widely adopted by exchanges, 
including the Exchange, and are reasonable, equitable, and non-
discriminatory because they are open to all Members on an equal basis 
and provide additional discounts that are reasonably related to (i) the 
value to an exchange's market quality and (ii) associated with higher 
levels of market activity, such as higher levels of liquidity provision 
and/or growth patterns. The proposed amendment to Growth Tier 2 is 
designed to give Members an alternative opportunity to meet the second 
prong of the required criteria, and therefore the tier may be more 
easily achieved by Members. The Exchange believes that the existing 
rebates under Growth Tier 2 continues to be commensurate with the 
proposed criteria. That is, the rebate reasonably reflects the 
difficulty in achieving the corresponding criteria as amended.
    The Exchange believes that the changes Growth Tier 2 will benefit 
all market participants by incentivizing continuous liquidity and, 
thus, deeper more liquid markets as well as increased execution 
opportunities. Particularly, the proposal is designed to incentivize 
liquidity, which further contributes to a deeper, more liquid market 
and provide even more execution opportunities for active market 
participants at improved prices. This overall increase in activity 
deepens the Exchange's liquidity pool, offers additional cost savings, 
supports the quality of price discovery, promotes market transparency 
and improves market quality, for all investors.
    The Exchange also believes that the proposed amendment to the 
Growth Tier 2 represents an equitable allocation of rebates and are not 
unfairly discriminatory because all Members are eligible for the tiers 
and would have the opportunity to meet the tier's criteria and would 
receive the proposed rebate if such criteria is met. 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 Members qualifying for the tier. While the 
Exchange has no way of predicting with certainty how the proposed tier 
will impact Member activity, based on trading activity on the Exchange 
during the prior month, the Exchange anticipates that at least one 
Member will be able to compete for and reach the proposed criteria in 
Growth Tier 2. The Exchange also notes that proposed change will not 
adversely impact any Member's ability to qualify for other reduced fee 
or enhanced rebate tiers. Should a Member not meet the proposed 
criteria under the tier, as amended, the Member will merely not receive 
the corresponding enhanced rebate.
    As noted above, the Exchange operates in a highly competitive 
market. The Exchange is only one of 16 equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. It is also only one of several maker-
taker exchanges. Competing equity exchanges offer similar rates and 
tiered pricing structures to that of the Exchange, including schedules 
of rebates and fees that apply based upon members achieving certain 
volume thresholds.

[[Page 16298]]

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, as discussed above, the 
Exchange believes that the proposed changes would encourage the 
submission of additional 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 changes 
further 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.''
    The Exchange believes the proposed rule changes do not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
tier change will apply to Members equally in that all Members are 
eligible for Growth Tier 2, have a reasonable opportunity to meet the 
tier's criteria and will receive the enhanced rebate on their 
qualifying orders if such criteria is met. Further, the fee code ZM is 
and will continue to be available to all Members equally. The Exchange 
does not believe the proposed changes burdens competition, but rather, 
enhances competition as it is intended to increase the competitiveness 
of EDGX by amending an existing pricing incentive in order to attract 
order flow and incentivize participants to increase their participation 
on the Exchange, providing for additional execution opportunities for 
market participants and improved price transparency. Greater overall 
order flow, trading opportunities, and pricing transparency benefits 
all market participants on the Exchange by enhancing market quality and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem.
    Next, 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 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 other equities exchanges, 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 17% of the market share.\19\ 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.'' \20\ 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'. . . .''.\21\ 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.
---------------------------------------------------------------------------

    \19\ Supra note 4.
    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \21\ 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)).
---------------------------------------------------------------------------

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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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-2022-013 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-2022-013. 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

[[Page 16299]]

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-2022-013 and should 
be submitted on or before April 12, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05986 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P