[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80369-80371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25381]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98910; File No. SR-CboeEDGX-2023-068]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
November 13, 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 November 1, 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 (https://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, effective November
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 17 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.\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 (October 30, 2023), 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. The Fee Codes and Associated
Fees section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates. For example, the Exchange
assesses a fee of $0.05 per contract for AIM \4\ Contra orders,
yielding fee code BB; assesses a fee of $1.05 per contract for AIM
Responder orders in Non-Penny Securities, yielding fee code BE; and
provides a rebate of $0.06 for AIM Agency Customer orders, yielding fee
code BC.
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\4\ The term ``AIM'' refers to Automated Improvement Mechanism.
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The Exchange proposes to amend the Fee Codes and Associated Fees
table of the Fee Schedule to adopt new fee codes for AIM Contra and AIM
Agency Customer orders in Non-Penny Securities. Specifically, the
Exchange proposes to adopt new fee codes, BF and BG, to apply to AIM
Contra \5\ orders in Non-Penny Securities and AIM Agency \6\ Customer
orders in Non-Penny Securities, respectively. The Exchange proposes to
assess a fee of $0.02 per contract for AIM Contra orders in Non-Penny
Securities yielding fee code BF and to assess no fee per contract for
AIM Agency Customer orders in Non-Penny Securities yielding fee code
BG.
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\5\ The term ``AIM Contra Order'' refers to an order submitted
by a Member entering a AIM Agency Order for execution within AIM
that will potentially execute against the AIM Agency Order pursuant
to Rules 21.19 and 21.22.
\6\ The term ``AIM Agency Order'' refers to an order represented
as agent by a Member on behalf of another party and submitted to AIM
for potential price improvement pursuant to Rules 21.19 and 21.22.
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The Exchange also proposes to amend the description of current fee
code BB to provide it applies to AIM Contra orders in Penny Securities,
and to amend the current description of current fee code BC to provide
it applies to AIM Agency Customer orders in Penny Securities. The
Exchange also proposes to increase the standard fee for AIM Responder
orders in Non-Penny Securities (i.e., yield fee code BE) from $1.05 per
contract to $1.15 per contract.
The proposed rule change also amends Footnote 6 of the Fee Schedule
to include new fee codes BF and BG, and to reflect the proposed change
in fees for orders yielding fee code BE.\7\ Further, AIM Agency
Customer order in Non-Penny Securities yielding fee code BG will not be
eligible for rebates under the Automated Improvement ``AIM'' Tiers set
forth in Footnote 9 of the Fee Schedule. As such, the Exchange proposes
to rename Footnote 9 as Automated Improvement Mechanism (``AIM'') Penny
Tiers, and revise the definition of Interaction Rate set forth in
Footnote 9 to state that the Interaction Rate is the percentage of the
Penny Agency Order that trades against the Initiating Order.
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\7\ As part of the proposed rule change, the Exchange proposes
to delete duplicative information in the chart in Footnote 6 related
to Customer AIM and SAM Auction fees. Further, the Exchange proposes
to delete headers in the table referring to issues and consolidate
all fee code and rate information on an order type basis. The
Exchange also proposes to amend Footnote 6 to remove an inadvertent
reference to XB, as such fee code was previously removed from the
Exchange Fee Schedule.
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[[Page 80370]]
In addition, the Exchange also proposes to amend certain Break-Up
Credits located under the AIM and SAM Pricing table in Footnote 6. The
Break-Up Credits provision applies to agency orders submitted in either
the AIM or SAM auction that trades with a response order in the
respective auction. Specifically, the Exchange will apply a Break-Up
Credit to the Member that submitted an Agency Order (i.e., either an
AIM or SAM Agency Order), including a Member who routed an order to the
Exchange with a Designated Give Up, when the Agency Order trades with a
Response Order (i.e., an AIM or SAM Response Order, as applicable). The
Exchange proposes to amend the Break-Up Credit for qualifying AIM
Agency Orders in Non-Penny Securities, from $0.60 per contract to $1.06
per contract.
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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) of the Act,\11\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Trading Permit
Holders and other persons using its facilities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
\11\ 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 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
market participants. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The proposed fee
changes reflect a competitive pricing structure designed to incentivize
market participants to direct their order flow, which the Exchange
believes would enhance market quality to the benefit of all Members.
Overall, the Exchange believes that its proposed adoption of new
fee codes for AIM Contra and AIM Agency Customer orders in Non-Penny
Securities (and related changes for AIM Contra and AIM Agency Customer
orders in Penny Securities) is consistent with Section 6(b)(4) of the
Act in that the proposed fees are reasonable, equitable and not
unfairly discriminatory. The Exchange believes that the proposed fees
are reasonable, equitable, and not unfairly discriminatory in that
competing options exchanges offer a similar distinction between order
types in connection with similar price improvement auctions,\12\ as the
Exchange now proposes. Further, competing exchanges charge different
rates for transactions in their price improvement mechanisms, for
orders in Penny or Non-Penny Securities, in a manner similar to the
proposal. The Exchange believes the fee and rebate schedule as proposed
continues to reflect differentiation among different product classes
typically found in options fee and rebate schedules.
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\12\ See Box Options Fee Schedule, Section IV(B), ``PIP and
COPIP Transactions'', which, for certain fees, provides varying
rates for orders in Penny Interval Classes and Non-Penny Interval
Classes submitted into its PIP and COPIP auction mechanism. See also
MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX Price Improvement
Mechanism (``PRIME'') Fees'', which, for certain fees, provides for
varying rates for orders in Non-Penny Classes and Penny Classes
submitted into its PRIME auctions.
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The proposed fees in relation to AIM orders are designed to promote
order flow through AIM and, in particular, to attract liquidity, which
benefits all market participants by providing additional trading
opportunities at improved prices. This, in turn, attracts increased
large-order flow from liquidity providers which facilitates tighter
spreads and potentially triggers a corresponding increase in order flow
originating from other market participants.
Also, the Exchange believes that the proposed fee for AIM Contra
and AIM Agency Customer orders in Non-Penny Securities ($0.02 per
contract and no charge, respectively) is reasonable because it
encourages participation in AIM by offering a rate that is equivalent
to or better than most other price improvement auctions offered by
other options exchanges as well as the Exchange itself.\13\
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\13\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX
Price Improvement Mechanism (``PRIME'') Fees'', which provides for a
fee of no charge to $0.30 per contract for PRIME Agency orders,
depending on market participant; and provides for a fee of no charge
to $0.05 per contract for PRIME Contra-side orders, depending on
market participant.
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Further, the Exchange believes the proposed change to the standard
fee for AIM Responder orders in Non-Penny Securities (i.e., yield fee
code BE) from $1.05 per contract to $1.15 per contract is reasonable as
the rate is equivalent to fees at competing exchanges.\14\
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\14\ See Box Options Fee Schedule, Section IV(B), ``PIP and
COPIP Transactions'', which provides for a fee of $1.15 for
Professional Customer or Broker Dealer or Market Maker Improvement
Orders in Non-Penny Interval Classes. Footnote 21 to the Fee
Schedule states that an Improvement Order is a response to a PIP or
COPIP auction.
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Finally, the Exchange believes its proposal to amend the AIM-
related Break-Up Credit for qualifying orders in Non-Penny Securities
is reasonable because it encourages use of AIM. Specifically, the
Exchange believes that the proposed Break-Up Credit for AIM Agency
Orders in Non-Penny Securities will encourage increased Agency Order
flow to AIM Auctions, thereby potentially increasing the initiation of
and volume executed through AIM Auctions. Additional auction order flow
provides market participants with additional trading opportunities at
improved prices. The Exchange also believes that the proposed AIM
Break-Up Credit of $1.06 for Non-Penny Securities is reasonable and
equitable as this credit is in-line with, albeit slightly higher than,
corresponding break-up fee for a price improvement auction offered by
other options exchanges.\15\ Also, the proposed AIM Break-Up Credits,
as amended, are not unreasonably discriminatory because such credits
are
[[Page 80371]]
equally available to all Members submitting AIM Agency Orders to the
Exchange.
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\15\ See Box Options Fee Schedule, Section IV(B), ``PIP and
COPIP Transactions'', which provides for PIP and COPIP Break-Up
Credits of $0.81 per contract for Non-Penny Interval Classes. See
also ``MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX Price
Improvement Mechanism (``PRIME'') Fees'', which provides for PRIME
Break-Up Credits ranging from $0.60 to $0.73 per contract for Non-
Penny Classes.
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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. First, the Exchange believes
that 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. The Exchange notes that the proposed changes apply
uniformly to similarly situated Members. The Exchange believes that the
proposed changes related to AIM transactions would not impose any
burden on intramarket competition, but rather, serves to increase
intramarket competition by incentivizing members to direct their AIM
orders to the Exchange, in turn providing for more opportunities to
compete at improved prices.
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 17 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) 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number
SR-CboeEDGX-2023-068 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-2023-068. 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-2023-068 and should
be submitted on or before December 8, 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. 2023-25381 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P