[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58209-58212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15667]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100496; File No. SR-CboeEDGX-2024-041]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Introduce New Transaction Fee Tiers
July 11, 2024.
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 July 1, 2024, 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'') by: (1) introducing a new
Add Volume Tier and (2) introducing a new Market Quality Tier. The
Exchange proposes to implement these changes effective July 1, 2024.
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
17% 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 of $0.00003
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 (May 22, 2024), available at https://www.cboe.com/us/equities/market_statistics/.
\4\ See EDGX Equities Fee Schedule, Standard Rates.
\5\ Id.
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Market Quality Tier
Under footnote 1 of the Fee Schedule, the Exchange currently offers
various Add/Remove Volume Tiers that provide enhanced rebates for
orders yielding fee codes B,\6\ V,\7\ Y,\8\ 3,\9\ and 4.\10\ In
particular, the Exchange offers one Market Quality Tier that provides
an enhanced rebate where a Member
[[Page 58210]]
reaches certain add and remove volume-based criteria. The Exchange now
proposes to introduce a new Market Quality Tier. In conjunction with
the introduction of a new Market Quality Tier 1, the Exchange also
proposes to renumber the current Market Quality Tier 1 as Market
Quality Tier 2. The proposed criteria for proposed Market Quality Tier
1 is as follows:
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\6\ Fee code B is appended to orders that add liquidity to EDGX
in Tape B securities.
\7\ Fee code V is appended to orders that add liquidity to EDGX
in Tape A securities.
\8\ Fee code Y is appended to orders that add liquidity to EDGX
in Tape C securities.
\9\ Fee code 3 is appended to orders that add liquidity to EDGX
in Tape A or Tape C securities during the pre and post market.
\10\ Fee code 4 is appended to orders that add liquidity to EDGX
in Tape B securities during the pre and post market.
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Proposed Market Quality Tier 1 provides a rebate of
$0.0025 per share for securities priced above $1.00 for qualifying
orders (i.e., orders yielding fee codes B, V, Y, 3, or 4) where (1)
Member adds or removes an ADV \11\ >=0.36% of the TCV; \12\ and (2)
Member has a retail remove ADV (yielding fee codes ZM \13\ or ZR \14\)
>=800,000; and (3) Member has a non-retail remove ADV (excluding fee
codes ZM and ZR) >=0.08% of the TCV.
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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\ TCV means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
\13\ Fee code ZM is appended to Retail Orders entered with a
time-in-force of Day/RHO or GTX that remove liquidity from EDGX upon
arrival.
\14\ Fee code ZR is appended to Retail Orders that remove
liquidity from EDGX.
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Add/Remove Volume Tiers
Also under footnote 1, the Exchange offers various Add/Remove
Volume Tiers that provide enhanced rebates for orders yielding fee
codes B, V, Y, 3, and 4, where a Member reaches certain add or remove
volume-based criteria. The Exchange now proposes to introduce a new
Tier 6. In conjunction with the introduction of a new Tier 6, the
Exchange also proposes to renumber the current Tiers 6-8. The proposed
criteria for proposed Tier 6 is as follows:
Proposed Tier 6 provides a rebate of $0.0031 per share for
securities priced above $1.00 for qualifying orders (i.e., orders
yielding fee codes B, V, Y, 3, or 4) where (1) MPID adds an ADV
(excluding fee codes ZA \15\ and ZO \16\) >=20,000,000; and (2) MPID
has a QDP ADV (i.e., yielding fee codes DQ \17\ or DX \18\)
>=3,500,000.
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\15\ Fee code ZA is appended to Retail Orders that add liquidity
to EDGX.
\16\ Fee code ZO is appended to Retail Orders that add liquidity
to EDGX in the pre- and post-market.
\17\ Fee code DQ is appended to QDP orders that add liquidity to
EDGX.
\18\ Fee code DX is appended to QDP orders that remove liquidity
to EDGX.
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The proposed introductions of proposed Market Quality Tier 1 and
proposed Tier 6 are intended to provide Members an opportunity to earn
an enhanced rebate by increasing their order flow to the Exchange,
which further contributes to a deeper, more liquid market and provides
even more execution opportunities for active market participants.
Incentivizing an increase in liquidity adding and removing volume
through enhanced rebate opportunities encourages Members on the
Exchange to contribute to a deeper, more liquid market, providing for
overall enhanced price discovery and price improvement opportunities on
the Exchange. As such, increased overall order flow benefits all
Members by contributing towards a robust and well-balanced market
ecosystem.
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.\19\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \20\ 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) \21\ 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) \22\
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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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
\22\ 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 introduce a new Market Quality Tier 1 and a new 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. Specifically, the Exchange's proposal to introduce a new
Market Quality Tier 1 and a new Tier 6 is not a significant departure
from existing criteria, is reasonably correlated to the enhanced
rebates offered by the Exchange and other competing exchanges,\23\ and
will continue to incentivize Members to submit order flow to the
Exchange. 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 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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\23\ See Nasdaq Price List, Add and Remove Rates, Rebate to Add
Displayed Liquidity, Shares executed at or Above $1.00, available at
https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also
MEMX Equities Fee Schedule, Liquidity Provision Tiers, available at
https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/.
\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 introduce a
new Market Quality Tier 1 and a new Tier 6 is reasonable because the
revised tiers will be available to all Members and provide all Members
with an opportunity to receive an enhanced rebate. The Exchange further
believes its proposal to introduce a new Market Quality Tier 1 and a
new 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 and
liquidity removing volume to the Exchange by offering them an
opportunity to receive an enhanced rebate on qualifying orders. An
overall increase in activity would deepen the Exchange's liquidity
pool, offer additional cost savings, support the quality of price
discovery, promote market transparency and
[[Page 58211]]
improve market quality, for all investors.
The Exchange believes that its proposed introduction of proposed
Market Quality Tier 1 and proposed Tier 6 is reasonable as it does 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
proposed new tier and have the opportunity to meet the tier's criteria
and receive the corresponding enhanced rebate 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 Market Quality Tier 1 and at
least one Member will be able to satisfy proposed Tier 6. The Exchange
also notes that proposed changes will not adversely impact any Member's
ability to qualify for enhanced rebates offered under other tiers.
Should a Member not meet the proposed new criteria, the Member will
merely not receive that corresponding enhanced rebate.
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
introduction of proposed Market Quality Tier 1 and proposed Tier 6 will
apply to all Members equally in that all Members are eligible for the
tiers, have a reasonable opportunity to meet the tiers' criteria and
will receive the enhanced rebate on their qualifying orders if such
criteria is met. The Exchange does not believe the proposed change
burdens competition, but rather, enhances competition as it is intended
to increase the competitiveness of EDGX by amending existing 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 17% 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 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 3.
\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:
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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-2024-041 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-2024-041. 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-2024-041 and should
be submitted on or before August 7, 2024.
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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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15667 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P