[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3453-3455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00906]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96645; File No. SR-CboeEDGX-2023-002]


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

January 12, 2023.
    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 January 3, 2023, 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.
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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 amend three 
Market Maker Volume Tiers and increase the Market Maker Add Liquidity 
Fee, effective January 3, 2023.
    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 18% of the market share and 
currently the Exchange represents only approximately 6% 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 (December 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 assesses a standard fee 
of $0.20 per contract for Market Maker orders that add liquidity in 
both Penny and Non-Penny Securities and $0.23 per contract for Market 
Maker orders that remove liquidity in both Penny and Non-Penny 
securities. The Fee Codes and Associated Fees section of the Fees 
Schedule also provide for certain fee codes associated with certain 
order types and market participants that provide for various other fees 
or rebates. Additionally, the Fee Schedule offers tiered pricing which 
provides Members \4\ opportunities to qualify for higher rebates or 
reduced fees where certain volume criteria and thresholds are met. 
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.
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    \4\ See Exchange Rule 1.5(n).
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    For example, pursuant to Footnote 2 of the Fees Schedule, the 
Exchange currently offers eight [sic] Market Maker Volume Tiers which 
provide reduced fees between $0.01 and $0.17 per contract for 
qualifying Market Makers orders that yield fee code PM or NM where a 
Member meets the respective tiers' volume thresholds.\5\ The Exchange 
proposes to amend the reduced fees that correspond to Market Maker 
Volume Tiers 4, 5 and 6. Currently, Market Maker Volume Tier 4 provides 
a reduced fee of $0.07 per contract for a Member's qualifying orders 
(i.e., yielding fee code PM or NM) if a Member has an ADV \6\ in 
Customer

[[Page 3454]]

orders greater than or equal to 0.50% of average OCV \7\; Market Maker 
Volume Tier 5 provides a reduced fee of $0.03 per contract for a 
Member's qualifying orders (i.e., yielding fee code PM or NM) if a 
Member has an ADV in Customer orders greater than or equal to 0.95% of 
average OCV; and Market Maker Volume Tier 6 provides a reduced fee of 
$0.01 per contract for a Member's qualifying orders (i.e., yielding fee 
code PM or NM) if a Member has an ADV in Customer orders greater than 
or equal to 1.45% of average OCV. The Exchange proposes to increase 
each of the offered reduced fees for each of these tiers by $0.01 per 
contract. More specifically, the Exchange proposes to increase the 
reduced fees as follows: under Tier 4 from $0.07 per contract to $0.08 
per contract; under Tier 5 from $0.03 per contract to $0.04 per 
contract; and under Tier 6 from $0.01 per contract to $0.02 per 
contract. The Exchange also proposes to amend the criteria under Tier 
5.\8\ Particularly, the Exchange proposes to require that Members have 
an ADV in Market Maker orders of greater than or equal to 1.20% 
(instead of 0.95%) of average OCV.
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    \5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote 
2, Market Maker Volume Tiers.
    \6\ ``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.
    \7\ ``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.
    \8\ In connection with the proposed fee changes, the Exchange 
also proposes to update the corresponding listed fees of ``$0.07'', 
``$0.03'' and ``$0.01'' for fee codes PM and NM in the Standard 
Rates table to the proposed new rates of ``$0.08'', ``$0.04'' and 
``$0.02'', respectively.
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    The Exchange lastly proposes to increase the standard fee for 
Market Maker orders that remove liquidity in both Penny and Non-Penny 
Securities (i.e., yield fee codes PT and NT, respectively) from $0.23 
per contract to $0.024 per contract.
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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    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. Additionally, the Exchange 
notes that relative volume-based incentives and discounts have been 
widely adopted by exchanges,\12\ including the Exchange,\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 to an exchange's 
market quality and (ii) associated higher levels of market activity, 
such as higher levels of liquidity provision and/or growth patterns. 
Competing exchanges offer similar tiered pricing structures, including 
schedules of rebates and fees that apply based upon members achieving 
certain volume and/or growth thresholds, as well as assess similar fees 
or rebates for similar types of orders, to that of the Exchange.
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    \12\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \13\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
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    The Exchange believes that increasing the reduced fees offered 
under Market Maker Volume Tiers 4, 5 and 6 under Footnote 2 are 
reasonable because Members are still eligible to receive reduced fees 
for meeting the corresponding criteria, albeit at less of a discount 
than before. While Market Maker Volume Tiers 4, 5 and 6 will provide a 
lower fee reduction than that currently offered and while the proposed 
change to the criteria under Tier 5 will make it more difficult to 
attain, the Exchange still believes that the changes are reasonable as 
the tiers, even as amended, will continue to incentivize Members to 
send additional Market Maker orders to the Exchange. An overall 
increase in activity would deepen the Exchange's liquidity pool, offers 
additional cost savings, support the quality of price discovery, 
promote market transparency and improve market quality, for all 
investors. Moreover, the Exchange is not required to maintain these 
tiers nor provide reduced fees. The Exchange believes the proposed 
changes to the reduced fees offered under these tiers still remain 
commensurate with the corresponding criteria under the respective 
tiers, including the proposed change to the criteria under Tier 5. 
Further, Members still have other opportunities to obtain reduced fees 
that are not being modified such as via Market Maker Volume Tiers 1 
through 3.\14\
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    \14\ See Cboe EDGX Options Fees Schedule, Footnote 2.
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    The Exchange believes the proposed change is also equitable and not 
unfairly discriminatory because it applies uniformly to all Members. 
Without having a view of activity on other markets and off-exchange 
venues, the Exchange has no way of knowing whether these proposed 
changes would definitely result in any Members qualifying for Tiers 4, 
5 and 6. While the Exchange has no way of predicting with certainty how 
the proposed changes will impact Member activity, based on trading 
activity from the prior months, the Exchange anticipates that at least 
3 Members will achieve Tier 4, 1 Member will achieve Tier 5, and 1 
Member will achieve Tier 6. The Exchange also believes 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.
    The Exchange believes the proposed change to increase the standard 
fee for Market Maker orders that remove liquidity in both Penny and 
Non-Penny Securities (i.e., yield fee codes PT and NT, respectively) is 
reasonable because it is a modest increase and is still in line with 
(and in fact lower than) fees assessed for similar transactions at 
other exchanges.\15\ The Exchange believes the proposed change is 
equitable and not unfairly discriminatory because it applies uniformly 
to all Members.
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    \15\ See, e.g., NYSE Arca Fee Schedule, Transaction Fee for 
Electronic Executions--Per Contract, which provides Market Makers 
that remove liquidity are assessed $0.50 per contract in Penny 
Issues and $1.10 per contract in Non-Penny Issues. See also Cboe BZX 
Options Fees Schedule, which provides Market Makers that remove 
liquidity are assessed $0.50 per contract in Penny Program 
Securities and $1.10 per contract in Non-Penny Program Securities.
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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

[[Page 3455]]

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. Particularly, the proposal to 
amend the Market Maker Volume Tiers and Market Maker fees for orders 
that remove liquidity applies to all Members. All Members will continue 
to have an opportunity to receive reduced fees under various tiers, 
including Market Maker Volume Tiers 1 through 6, 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 18% 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. 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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2023-002 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-2023-002. 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-2023-002, and 
should be submitted on or before February 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00906 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P