[Federal Register Volume 87, Number 156 (Monday, August 15, 2022)]
[Notices]
[Pages 50137-50140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95459; File No. SR-CboeEDGX-2022-035]


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

August 9, 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 August 1, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission

[[Page 50138]]

(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.
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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 Options'') 
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 to (1) eliminate 
the Step Up Mechanism (``SUM'') Auction Pricing Tier and (2) modify the 
Automated Improvement Mechanism (``AIM'') Tier 2, effective August 1, 
2022.
    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 17% of the market share and 
currently the Exchange represents only approximately 7% of the market 
share.\3\ Thus, in such a low-concentrated and highly competitive 
market, no single options 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.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (July 27, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
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    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 Customer orders 
in both Penny and Non-Penny Securities. Additionally, in response to 
the competitive environment, the Exchange also offers tiered pricing, 
which provides Members with 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.
    For example, the Exchange currently offers two tiers related to 
Customer volume under proposed footnote 9 (Automated Improvement 
Mechanism (``AIM'') Tier) applicable to orders yielding fee code 
``BC'', which fee code is appended to Customer Agency orders executed 
in AIM. Orders yielding fee code BC are currently provided a standard 
rebate of $0.06 per contract. The AIM Tiers currently provide enhanced 
rebates between $0.11 and $0.14 per contract for qualifying orders that 
yield fee code BC where a Member meets the respective tier's volume 
threshold. Under AIM Tier 2, a Member will receive an enhanced rebate 
of $0.14 per contract on such orders where it has an ADV \4\ in 
Customer orders greater than or equal to 0.50% of average OCV.\5\ The 
Exchange now proposes to reduce the enhanced rebate amount under AIM 
Tier 2 from $0.14 per contract to $0.12 per contract.
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    \4\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day. ADV is calculated 
on a monthly basis. See Cboe EDGX Options Exchange Fee Schedule.
    \5\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close. See 
Cboe EDGX Options Exchange Fee Schedule.
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    The Exchange also offers Members an opportunity to receive an 
additional rebate under footnote 3 of the Fee Schedule (Step Up 
Mechanism (``SUM'') Auction Pricing Tier). Under the SUM Response Tier, 
the Exchange provides an additional rebate of $0.05 per contract for 
any order submitted in response to, and executed against, an order 
subject to the SUM Auction.\6\ The Exchange no longer wishes to 
maintain this rebate and proposes to eliminate the SUM Auction Pricing 
Tier from the Fee Schedule (and eliminate corresponding references to 
footnote 3 in the Fee Codes and Associated Fees table). Further, the 
Exchange would rather redirect future resources and funding into other 
programs and tiers intended to incentivize increased order flow.
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    \6\ Applicable to orders yielding fee codes: NB, NC, NF, NM, NN, 
NO, NP, NT, PB, PC, PF, PM, PN, PO, PP and PT.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    As described above, the Exchange operates in a highly competitive 
market in which market participants can

[[Page 50139]]

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 change reflects 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.
    The Exchange believes the proposed reduction in rebate amount under 
AIM Tier 2 for orders yielding fee code BC is reasonable, equitable, 
and not unfairly discriminatory. The Exchange believes that the 
proposed change to AIM Tier 2 is reasonable because it continues to 
provide an enhanced rebate (albeit at a lower amount), which the 
Exchange believes is still commensurate with the current criteria. The 
proposed rule change is equitable and unfairly discriminatory as the 
amended rebate amount applies uniformly to all Members' respective 
qualifying Customer orders. The Exchange believes that AIM Tier 2 
continues to benefit all Members by contributing towards a robust and 
well-balanced market ecosystem. Indeed, the Exchange believes AIM Tier 
2 will continue to incentivize increased Customer order flow and 
overall order flow to the Exchange's Book, which creates more trading 
opportunities, which, in turn attracts Market-Makers. A resulting 
increase in Market-Maker activity may facilitate tighter spreads, which 
may lead to an additional increase of order flow from other market 
participants. Increased overall order flow benefits all investors by 
deepening the Exchange's liquidity pool, potentially providing even 
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 Exchange believes that eliminating the SUM Auction Pricing Tier 
under Footnote 3 is reasonable because the Exchange is not required to 
maintain this program or provide additional rebates. Members may still 
have other opportunities to obtain enhanced rebates, such as via the 
Customer Volume Tiers or Market-Maker Volume Tiers.\10\ The Exchange 
believes that eliminating the SUM Auction Pricing Tier is equitable and 
not unfairly discriminatory because it applies uniformly to all 
Members. The Exchange also notes that the proposed changes will not 
adversely impact any Member's ability to otherwise qualify for reduced 
fees or enhanced rebates offered under other tiers.
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    \10\ See Cboe EDGX Options Fees Schedule, Footnotes 1 and 2.
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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. In particular, 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. Indeed, the Exchange notes the 
proposed change to AIM Tier 2 will apply to all Members equally in that 
all Members will continue to be eligible for AIM Tier 2, have a 
reasonable opportunity to meet the tier's criteria and receive the 
enhanced rebate (albeit at a slightly lower amount) on their qualifying 
orders if such criteria is met. Also, as stated above, the proposal to 
eliminate the SUM Auction Pricing Tier will also apply to all Members, 
in that, such Tier will not be available for any Member. The Exchange 
does not believe the proposed changes burden competition as all Members 
will continue to have an opportunity receive enhanced rebates or 
reduced fees offered under various tiers, including AIM Tier 2, which 
tiers are generally designed to increase the competitiveness of EDGX 
and 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 benefit 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.
    The Exchange also 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 they may participate on and 
direct their order flow, including 15 other options exchanges. 
Additionally, the Exchange represents a small percentage of the overall 
market. Based on publicly available information, no single options 
exchange has more than 17% of the market share. Therefore, no exchange 
possesses significant pricing power in the execution of order flow. 
Indeed, participants can readily choose to send their orders to other 
exchanges if they deem fee levels at those other venues to be more 
favorable. As noted above, the Exchange believes that the proposed fee 
changes are comparable to that of other exchanges offering similar 
functionality. 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.'' 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' . . . .''. 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.

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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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

[[Page 50140]]

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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2022-035 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-2022-035. 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. 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-2022-035, and 
should be submitted on or before September 6, 2022.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17434 Filed 8-12-22; 8:45 am]
BILLING CODE 8011-01-P