[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56891-56894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17862]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98137; File No. SR-CboeEDGX-2023-051]


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

August 15, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 1, 2023, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
filed with the Securities and Exchange Commission (``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 applicable to its 
equities trading platform (``EDGX Equities'') as follows: (1) by 
modifying the criteria of Add Volume Tier 6; and (4) modifying the 
rates associated with Remove Volume Tier 1. The Exchange proposes to 
implement these changes effective August 1, 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 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 
Securities Exchange Act of 1934 (the ``Act''), to which market 
participants may direct their order flow. Based on publicly available 
information,\3\ no single registered equities exchange has more than 
14% 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.\4\ For orders in securities 
priced below $1.00, the Exchange provides a standard rebate

[[Page 56892]]

of $0.00009 per share for orders that add liquidity and assesses a fee 
of 0.30% of the total dollar value for orders that remove liquidity.\5\ 
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.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (July 24, 2023), available at https://www.cboe.com/us/equities/_statistics/.
    \4\ See EDGX Equities Fee Schedule, Standard Rates.
    \5\ Id.
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Add Volume Tiers
    Under footnote 1 of the Fee Schedule, the Exchange currently offers 
various Add/Remove Volume Tiers. In particular, the Exchange offers six 
Add Volume Tiers that each provide an enhanced rebate for Members' 
qualifying orders yielding fee codes B,\6\ V,\7\ Y,\8\ 3,\9\ and 4,\10\ 
where a Member reaches certain add volume-based criteria. The Exchange 
is proposing to modify the criteria associated with Add Volume Tier 6. 
Currently, the criteria for Add Volume Tier 6 is as follows:
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    \6\ Fee code B is appended to orders adding liquidity to EDGX in 
Tape B securities.
    \7\ Fee code V is appended to orders adding liquidity to EDGX in 
Tape A securities.
    \8\ Fee code Y is appended to orders adding liquidity to EDGX in 
Tape C securities.
    \9\ Fee code 3 is appended to orders adding liquidity to EDGX in 
the pre and post market in Tapes A or C securities.
    \10\ Fee code 4 is appended to orders adding liquidity to EDGX 
in the pre and post market in Tape B securities.
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     Add Volume Tier 6 provides a rebate of $0.0034 per share 
for securities priced above $1.00 to qualifying orders (i.e., orders 
yielding fee B, V, Y, 3, or 4) where (1) MPID adds an ADV \11\ 
(excluding fee codes ZA \12\ or ZO \13\) >= 37,500,000; and (2) MPID 
has a QDP ADV (i.e., yielding fee codes DQ \14\ and DX \15\) 
>=8,000,000.
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    \11\ ``ADV'' means average daily volume calculated as the number 
of shares added to, removed from, or routed by, the Exchange, or any 
combination or subset thereof, per day. ADV is calculated on a 
monthly basis.
    \12\ Fee code ZA is appended to Retail Orders that add 
liquidity.
    \13\ Fee code ZO is appended to Retail orders that adds 
liquidity during the pre- and post-market.
    \14\ Fee code DQ is appended to orders using the QDP order type 
that add liquidity to EDGX.
    \15\ Fee code DX is appended to orders using the QDP order type 
that remove liquidity from EDGX.
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    The proposed criteria for Add Volume Tier 6 is as follows:
     Add Volume Tier 6 provides a rebate of $0.0033 per share 
for securities priced above $1.00 to qualifying orders (i.e., orders 
yielding fee B, V, Y, 3, or 4) where (1) MPID adds an ADV (excluding 
fee codes ZA or ZO) >= 27,500,000; and (2) MPID has a QDP ADV (i.e., 
yielding fee codes DQ and DX) >= 3,500,000.
    The Exchange believes that the proposed modifications to Add Volume 
Tier 6 continue to incentivize Members to add volume on the Exchange, 
thereby contributing to a deeper and more liquid market, which benefits 
all market participants and provides greater execution opportunities on 
the Exchange. The Exchange further believes the lower proposed rebate 
associated with Add Volume Tier 6 provides a rebate commensurate with 
the difficulty of meeting the revised criteria associated with the 
tier.
Remove Volume Tiers
    In addition to the Add/Remove Volume Tiers offered under footnote 
1, the Exchange also offers three Remove Volume Tiers that each assess 
a reduced fee for Members' qualifying orders yielding fee codes BB,\16\ 
N \17\ and W,\18\ where a Member reaches certain add volume-based 
criteria. Currently, Members who satisfy the criteria of Remove Volume 
Tier 1 are assessed a reduced fee of $0.00285 for securities priced 
above $1.00 and a reduced fee of 0.28% of total dollar value for 
securities priced at or below $1.00. The Exchange now proposes to 
revise the fees associated with Remove Volume Tier 1. As proposed, 
Members who satisfy the criteria of Remove Volume Tier 1 will be 
assessed a reduced fee of $0.0029 for securities priced above $1.00 and 
a reduced fee of 0.29% of total dollar value for securities priced at 
or below $1.00. The Exchange does not propose to revise the fees 
associated with Remove Volume Tiers 2 or 3. The purpose of increasing 
the reduced fee associated with Remove Volume Tier 1 is for business 
and competitive reasons, as the Exchange believes that increasing such 
fee as proposed would decrease the Exchange's expenditures with respect 
to transaction pricing in a manner that is still consistent with the 
Exchange's overall pricing philosophy of encouraging added liquidity. 
The Exchange notes that despite the modest increase of the fee 
associated with Remove Volume Tier 1, the reduced fee remains 
competitive and continues to be in-line with the reduced fee assessed 
under Remove Volume Tiers 2 and 3.\19\
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    \16\ Fee code BB is appended to orders that remove liquidity 
from EDGX in Tape B securities.
    \17\ Fee code N is appended to orders that remove liquidity from 
EDGX in Tape C securities.
    \18\ Fee code W is appended to orders that remove liquidity from 
EDGX in Tape A securities.
    \19\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\20\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \21\ 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) \22\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers as well as Section 6(b)(4) \23\ 
as it is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ Id.
    \23\ 15 U.S.C. 78f(b)(4).
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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 Exchange believes that 
its proposal to modify the criteria of Add Volume Tier 6 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. Additionally, the Exchange notes that relative volume-based 
incentives and discounts have been widely adopted by exchanges,\24\ 
including the Exchange,\25\ and are reasonable, equitable and non-
discriminatory because they are open to all Members on an equal basis 
and

[[Page 56893]]

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 equity 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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    \24\ See e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \25\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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    In particular, the Exchange believes its proposal to modify the 
criteria of Add Volume Tier 6 is reasonable because the revised tier 
will be available to all Members and provide all Members with an 
additional opportunity to receive an enhanced rebate or a reduced fee. 
The Exchange further believes the proposed modifications to Add Volume 
Tier 6 will provide a reasonable means to encourage liquidity adding 
displayed orders in Members' order flow to the Exchange and to 
incentivize Members to continue to provide liquidity adding volume to 
the Exchange by offering them an additional opportunity to receive an 
enhanced rebate on qualifying orders. 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.
    In addition, the Exchange believes that its proposal to increase 
the reduced fee assessed to Members that satisfy the criteria of Remove 
Volume Tier 1 is reasonable, equitable, and consistent with the Act 
because such change is designed to decrease the Exchange's expenditures 
with respect to transaction pricing in order to offset some of the 
costs associated with the Exchange's current pricing structure, which 
provides various rebates for liquidity-adding orders, and the 
Exchange's operations generally, in a manner that is consistent with 
the Exchange's overall pricing philosophy of encouraging added 
liquidity. The proposed increased reduced fee ($0.0029 per share for 
securities priced above $1.00 and 0.29% of total dollar value for 
securities priced at or below $1.00) is reasonable and appropriate 
because it represents only a modest increase from the current reduced 
fee ($0.00285 per share for securities priced above $1.00 and 0.28% of 
total dollar value for securities priced at or below $1.00) and remains 
competitive with the reduced fees offered under Remove Volume Tiers 2 
and 3. The Exchange further believes that the proposed increase to the 
reduced fee associated with Remove Volume Tier 1 is not unfairly 
discriminatory because it applies to all Members equally, in that all 
Members will receive the reduced fee upon satisfying the criteria of 
Remove Volume Tier 1.
    The Exchange believes that the proposed changes to Add Volume Tier 
6 are reasonable as they do not represent a significant departure from 
the criteria currently offered in the Fee Schedule. The Exchange also 
believes that the proposal represents an equitable allocation of fees 
and rebates and is not unfairly discriminatory because all Members will 
be eligible for the revised tiers and have the opportunity to meet the 
tiers' criteria and receive the corresponding enhanced rebate or 
reduced fee 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 the new proposed tiers. While the Exchange has 
no way of predicting with certainty how the proposed changes will 
impact Member activity, based on the prior months volume, the Exchange 
anticipates that at least one Member will be able to satisfy proposed 
Add Volume Tier 6, and at least two Members will be able to satisfy 
Remove Volume Tier 1. The Exchange also notes that proposed changes 
will not adversely impact any Member's ability to qualify for enhanced 
rebates or reduced fees offered under other tiers. Should a Member not 
meet the proposed new criteria, the Member will merely not receive that 
corresponding enhanced rebate or reduced fee.

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. 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 
changes to the Exchange's Add Volume Tier 6 and Remove Volume Tier 1 
will apply to all Members equally in that all Members are eligible for 
each of the Tiers, have a reasonable opportunity to meet the Tiers' 
criteria and will receive the enhanced rebate or reduced fee on their 
qualifying orders if such criteria is met. The Exchange does not 
believe the proposed changes burden competition, but rather, enhances 
competition as it is intended to increase the competitiveness of EDGX 
by amending an existing pricing incentive and adopting pricing 
incentives 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 changes 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 14% of the market share.\26\ 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

[[Page 56894]]

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.'' \27\ 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'. . . .''.\28\ 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.
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    \26\ Supra note 4.
    \27\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \28\ 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)).
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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 \29\ and paragraph (f) of Rule 19b-4 \30\ 
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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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeEDGX-2023-051 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-2023-051. 
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 (https://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 a.m. and 3 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-CboeEDGX-2023-051 and 
should be submitted on or before September 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17862 Filed 8-18-23; 8:45 am]
BILLING CODE 8011-01-P