[Federal Register Volume 88, Number 59 (Tuesday, March 28, 2023)]
[Notices]
[Pages 18353-18356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06323]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97186; File No. SR-CboeEDGX-2023-019]


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

March 22, 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 March 9, 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'') 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.\3\ Specifically, 
the Exchange proposes to eliminate the rebate currently provided for 
the liquidity adding side of Customer-to-Customer orders in Penny and 
Non-Penny Securities (currently yielding fee codes PC and NC, 
respectively) and to amend the Fee Schedule so that such orders will be 
free.
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    \3\ The Exchange initially filed the proposed fee changes on 
February 1, 2023 (SR-CboeEDGX-2023-008). On March 9, 2023, the 
Exchange withdrew that filing and submitting this proposal.
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    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 6% of the market 
share.\4\ 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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    \4\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (March 6, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fee Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange currently provides a 
standard rebate of $0.01 per contract for Customer orders that add or 
remove liquidity, in both Penny and Non-Penny Securities. The Fee Codes 
and Associated Fees section of the Fee Schedule also provides for

[[Page 18354]]

certain fee codes associated with certain order types and market 
participants that provide for various other fees or rebates.
    The Exchange no longer wishes to provide a rebate for the liquidity 
adding side of Customer-to-Customer orders in Penny and Non-Penny 
Securities and now proposes to amend its Fee Schedule so that such 
orders will be free. As such, the Exchange also proposes to adopt new 
fee codes TP and TN, which will apply to the liquidity adding side of 
Customer-to-Customer (i.e., ``Customer (contra Customer)'') orders in 
Penny and Non-Penny Securities, respectively; the proposed fee codes 
assess no fee for such transactions. The Exchange notes that it 
currently assesses no charge or a marginal charge on other types of 
Customer transactions. For example, the Exchange does not charge a 
transaction fee for Complex Customer-to-Customer orders (yielding fee 
code ZC). The liquidity removing side of Customer-to-Customer orders in 
Penny and Non-Penny Securities, as well as Customer orders that execute 
against any Non-Customer as the contra-party in Penny and Non-Penny 
Securities will still be eligible for the current rebate (i.e., the 
standard rebate of $0.01 per contract). Accordingly, the Exchange 
proposes to amend the definition of fee code PC to clarify that such 
fee code (and corresponding standard rebate) applies to Customer contra 
Non-Customer orders in Penny Securities, as well as the liquidity 
removing side of Customer contra Customer orders in Penny Securities. 
Similarly, the Exchange proposes to amend the definition of fee code NC 
to clarify that such fee code (and related standard rebate) applies to 
Customer contra Non-Customer orders in Non-Penny Securities, as well as 
the liquidity removing side of Customer contra Customer orders in Non-
Penny Securities.
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 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. The proposed rule change 
reflects a competitive pricing structure that is 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 market participants. While the Exchange is 
eliminating a rebate for the liquidity adding side of Customer-to-
Customer orders in Penny and Non-Penny Securities, the Exchange 
believes that providing that the liquidity adding side of the order 
will instead be free will still continue to incentivize Customer order 
flow in Penny and Non-Penny Securities as such Customer orders will 
still not be subject to any transaction fees, which may lead to an 
increase in liquidity on the Exchange. An overall increase in liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Market Makers. An increase in Market 
Maker activity in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants.
    The Exchange also believes the proposed change to assess no charge 
for the liquidity adding side of Customer-to-Customer orders executed 
in Penny and Non-Penny Securities is consistent with Section 6(b)(4) of 
the Act in that the proposal is reasonable, equitable and not unfairly 
discriminatory. The Exchange believes that eliminating the rebate for 
the liquidity adding side of Customer-to-Customer orders in Penny and 
Non-Penny Securities is reasonable because Customers will continue to 
not be subject to any fees for such transactions. Additionally, the 
Exchange is not required to maintain this rebate.
    Moreover, it is in line with other types of Customer orders for 
which the Exchange does not assess a fee or provide a rebate. As 
described above, the Exchange currently does not charge a transaction 
fee or provide a rebate for various other Customer orders, including 
Complex Customer-to-Customer orders. Further, Customers executing an 
order in Penny and Non-Penny Securities with a Non-Customer or 
Customers on the liquidity removing side of orders executed in Penny 
and Non-Penny Securities will still be eligible for the current rebate, 
i.e., a standard rebate of $0.01 per contract.
    The Exchange further believes that continuing to not assess any fee 
to any side of a Customer order regardless of whether they are removing 
or adding liquidity (as compared to other market participants that must 
always pay a fee) is equitable and not unfairly discriminatory because, 
as stated above, the Exchange wishes to incentivize (and at least not 
discourage) Customer order flow, which can attract liquidity on the 
Exchange, in turn providing more trading opportunities and attracting 
Market-Makers to facilitate tighter spreads to the benefit of all 
market participants. Further, the options industry has a long history 
of providing preferential pricing to Customers, and the Exchange's 
current Fee Schedule currently does so in many places, as do the fees 
structures of multiple other exchanges.\8\ Customers executing an order 
in Penny and Non-Penny Securities will continue to either receive the 
benefit of a rebate or free transaction, depending on if the order is 
removing or adding liquidity and whether they are transacting against a 
Customer or Non-Customer.
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    \8\ See, e.g., EDGX Options Fee Schedule, ``Fee Codes and 
Associated Fees'', which, for example, provides Customer AIM Agency 
orders (i.e., orders yielding fee code BC) a rebate and also which 
assesses no fee (nor provides any rebate) for QCC Agency and Contra 
Customer orders (i.e., yielding fee codes QA and QC, respectively). 
See also Cboe Options Fees Schedule, Rate Table--All Products 
Excluding Underlying Symbol List A, which, for example, assesses no 
fee (nor provides any rebate) for Customer orders in equity options.
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    The Exchange also believes the proposed changes are reasonable, 
equitably allocated and not unreasonably discriminatory despite a 
proposed distinction between fees for Customer orders that add 
liquidity and those that remove liquidity, regardless of the capacity 
of the contra party. Particularly, the Exchange believes providing 
rebates for the liquidity removing side of an order is reasonable, 
equitable and not unfairly discriminatory because it provides an 
incentive to bring additional liquidity to the Exchange, thereby 
promoting price discovery and enhancing order

[[Page 18355]]

execution opportunities for Members. The Exchange believes that not 
providing a rebate for orders that add liquidity is reasonable, 
equitable and not unfairly discriminatory because the Exchange must 
balance the cost of credits for orders that remove liquidity. Further, 
the Exchange is not proposing to adopt any fee for the liquidity adding 
side of Customer orders, but rather merely removing the current rebate, 
which as noted it's not required to maintain.
    The Exchange lastly believes that the proposal to make the 
liquidity adding side of Customer-to-Customer orders free is equitable 
and not unfairly discriminatory because it will apply equally to all 
liquidity adding sides of Customer-to-Customer transactions in Penny 
and Non-Penny Securities, i.e., all Customers will be assessed the same 
amount (no fee) for these transactions.

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. Particularly, the proposal to 
eliminate the rebate for the liquidity adding side of Customer-to-
Customer orders executed in Penny and Non-Penny Securities will apply 
uniformly to all Customers transacting in Penny and Non-Penny 
Securities. As described above, while no fee will continue to be 
assessed for Customers, different market participants have different 
circumstances, such as the fact that preferential pricing to Customers 
is a long-standing options industry practice which serves to enhance 
Customer order flow, thereby attracting Market-Makers to facilitate 
tighter spreads and trading opportunities to the benefit of all market 
participants. In addition to this, the Exchange notes that it currently 
assesses no charge and provides no rebate for various other types of 
Customer orders that execute against another Customer as a contra 
party.
    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. 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)(ii) of the Act \9\ and Rule 19b-4(f)(2) \10\ thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    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 shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-2023-019 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-2023-019. 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.

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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-2023-019 and should 
be submitted on or before April 18, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06323 Filed 3-27-23; 8:45 am]
BILLING CODE 8011-01-P