Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule, 36899-36903 [2020-13124]
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Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 / Notices
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 61 and
subparagraph (f)(6) of Rule 19b–4
thereunder.62
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 63 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 64
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange states that the
requested waiver will provide for fair
competition among options exchanges,
given that the proposed rules are
‘‘substantively the same’’ as those of at
least one other national securities
exchange. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposed rule change does
not present any unique or novel
regulatory issues and is substantively
identical to the rules of Cboe.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.65
61 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
63 17 CFR 240.19b–4(f)(6).
64 17 CFR 240.19b–4(f)(6)(iii).
65 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
62 17
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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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2020–006 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–C2–2020–006. 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
10:00 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.
Persons submitting comments are
cautioned that we do not redact or edit
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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–C2–2020–006 and should
be submitted on or before July 9, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.66
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–13116 Filed 6–17–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89064; File No. SR–
CboeEDGX–2020–025]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fee Schedule
June 12, 2020.
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 June 2,
2020, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend the fee
schedule applicable to Members and
non-Members 3 of the Exchange
pursuant to EDGX Rules 15.1(a) and (c).
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
66 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 A Member is defined as ‘‘any registered broker
or dealer that has been admitted to membership in
the Exchange.’’ See Exchange Rule 1.5(n).
1 15
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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 in connection with its Add
Volume Tiers.4
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
13 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 Exchange Act,
to which market participants may direct
their order flow. Based on publicly
available information,5 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
credits to members that add liquidity
and assesses fees to those that remove
liquidity. The Exchange’s Fees Schedule
sets forth the standard rebates and rates
applied per share for orders that provide
and remove liquidity, respectively.
Particularly, for securities at or above
$1.00, the Exchange provides a standard
rebate of $0.0017 per share for orders
4 The Exchange initially filed the proposed fee
changes on June 1, 2020 (SR–CboeEDGX–2020–
024). On June 2, 2020, the Exchange withdrew that
filing and submitted this filing.
5 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (May 27, 2020),
available at https://markets.cboe.com/us/equities/
market_statistics/.
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that add liquidity and assesses a fee of
$0.0027 per share for orders that remove
liquidity, and for securities below $1.00,
the Exchange provides a standard rebate
of $0.00003 per share for orders that add
liquidity and assesses a standard fee of
30% of dollar value per share for orders
that remove liquidity. 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. 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 incremental
incentives for Members to strive for
higher or different tier levels by offering
increasingly higher discounts or
enhanced benefits for satisfying
increasingly more stringent criteria or
different criteria. Pursuant to footnote 1
of the Fees Schedule, the Exchange
currently offers Add Volume Tiers (tiers
1 through 4, plus five various additional
tiers) that provide Members an
opportunity to receive an enhanced
rebate from the standard fee assessment
for liquidity adding orders that yield fee
codes ‘‘B’’,6 ‘‘V’’,7 ‘‘Y’’,8 ‘‘3’’,9 and
‘‘4’’.10 The Add Volume Tiers currently
offer nine different tiers that vary in
levels of criteria difficulty and incentive
opportunities in which Members may
qualify for enhanced rebates for such
orders. For example, Tier 4 currently
provides an enhanced rebate of $0.0029
for qualifying, liquidity adding orders
(i.e. yielding fee codes B, V, Y, 3, or 4)
for Members who have an ADV 11 of
6 Appended to orders that add liquidity to EDGX
(Tape B) and offered a rebate of $0.0017 per share.
7 Appended to orders that add liquidity to EDGX
(Tape A) and offered a rebate of $0.0017 per share.
8 Appended to orders that add liquidity to EDGX
(Tape C) and offered a rebate of $0.0017 per share.
9 Appended to orders that add liquidity to EDGX
pre and post market (Tape A or C) and offered a
rebate of $0.0017 per share.
10 Appended to orders that add liquidity to EDGX
pre and post market (Tape B) and offered a rebate
of $0.0017 per share.
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.
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greater than or equal to 0.70% of the
TCV.12
Moreover, the Exchange notes that the
competition for Retail Order flow is
particularly intense, especially as it
relates to exchange versus off-exchange
venues, as prominent retail brokerages
tend to route a majority of their limit
orders to off-exchange venues.13 This
competition is particularly acute for
non-marketable Retail Orders, i.e., Retail
Orders that provide liquidity, and even
more fiercely for non-marketable Retail
Orders that provide displayed liquidity
on an exchange. Accordingly,
competitive forces compel the Exchange
to use exchange transaction fees and
credits, particularly as they relate to
competing for Retail Order flow,
because market participants can readily
trade on competing venues if they deem
pricing levels at those other venues to
be more favorable. Pursuant to footnote
3 of the Fees Schedule, the Exchange
currently offers Retail Volume Tiers
which provide Members an opportunity
to receive an enhanced rebate from the
standard fee assessment for Retail
Orders 14 that add liquidity (i.e.,
yielding fee code ‘‘ZA’’ 15). Currently,
the Retail Volume Tiers offer two levels
of criteria difficulty and incentive
opportunities in which Members may
qualify for enhanced rebates for Retail
Orders.
The tier structures described above
are designed to encourage Members to
increase their order flow (adding and
removing or Retail) in order to receive
an enhanced rebate on their liquidity
adding orders, and the Exchange now
proposes to amend Add Volume Tier 4,
as well as add an additional Add
Volume Tier (Growth Tier 3) in footnote
1 and an additional Retail Volume Tier
(Retail Volume Tier 3) in footnote 3 of
the Fees Schedule.
First, the proposed rule change
amends Add Volume Tier 4 (as
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 See Securities Exchange Release No. 86375
(July 15, 2019), 84 FR 34960 (SR–CboeEDGX–2019–
045).
14 See EDGX Rule 11.21(a)(1). A ‘‘Retail Order’’ is
an agency or riskless principal order that meets the
criteria of FINRA Rule 5320.03 that originates from
a natural person and is submitted to the Exchange
by a Retail Member Organization, provided that no
change is made to the terms of the order with
respect to price or side of market and the order does
not originate from a trading algorithm or any other
computerized methodology. See EDGX Rule
11.21(a)(2). Retail Orders are submitted by a ‘‘Retail
Member Organization’’ or ‘‘RMO’’, which is a
member (or a division thereof) that has been
approved by the Exchange to submit such orders.
15 Appended to Retail Orders that add liquidity to
EDGX and offered a rebate of $0.0032 per share.
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described in the example above) so that
a Member may receive the current
enhanced rebate of $0.0029 for
qualifying, liquidity adding orders if
that Member has an ADV that is greater
than or equal to 0.65% of the TCV. The
proposed criteria change is designed to
incentivize Members to continue to
submit order flow to the Exchange in
order to receive an enhanced rebate on
their liquidity adding orders, by making
Tier 4 criteria easier to achieve. Instead
of meeting a 0.70% ADV threshold of
the TCV, the proposed change eases the
threshold five basis points to 0.65% of
the TCV. As a result of the proposed
ease in criteria, Members will be further
incentivized to submit order flow to
receive the enhanced rebate provided
under Tier 4 for their qualifying orders.
The Exchange notes that Tier 4, as
amended, will continue to be available
to all Members and is competitively
achievable for all Members that submit
an overall ADV as the requisite
threshold of TCV (both adding and
removing order flow), in that, all firms
that submit the requisite order flow will
continue to be able to compete to meet
the tier.
Second, the Exchange proposes to add
Growth Tier 3 to the Add Volume Tiers
and Retail Volume Tier 3 to the Retail
Volume Tiers. Pursuant to both
additional proposed tiers, Members will
be able to receive an enhanced rebate if
they have a Retail Step-Up Add (i.e.,
yielding fee code ZA 16) TCV 17 from
May 2020 that is greater or equal to
0.10%. A Member that meets such
criteria will receive an enhanced rebate
of $0.0027 on qualifying orders (B, V, Y,
3, and 4) pursuant to proposed Growth
Tier 3 and/or an enhanced rebate of
$0.0037 on qualifying orders (ZA)
pursuant to proposed Retail Volume
Tier 3. The proposed criteria under the
additional tiers is designed to encourage
growth in retail order flow (i.e.,
Members must increase their relative
liquidity each month over a
predetermined baseline (in this case the
month being May 2020)). The Exchange
notes that the proposed tier is available
to all Retail Member Organizations
(‘‘RMOs’’) and is competitively
achievable for all RMOs that submit
liquidity adding retail order flow, in
that, all firms that submit the requisite
16 Appended to Retail Orders that add liquidity to
EDGX and offered a rebate of $0.0032 per share.
17 ‘‘Step-Up Add TCV’’ means ADAV as a
percentage of TCV in the relevant baseline month
subtracted from current ADAV as a percentage of
TCV. ‘‘ADAV’’ means ADAV means average daily
added volume calculated as the number of shares
added per day. ADAV is calculated on a monthly
basis.
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liquidity adding retail order flow could
compete to meet the tier.
The Exchange believes the proposed
opportunity to receive an enhanced
rebate on qualifying orders for (1)
liquidity adding and removing orders
and (2) Retail Orders incentivizes an
increase in overall order flow to the
Book. It provides liquidity adding
Members on the Exchange a further
incentive to contribute to a deeper, more
liquid market, and liquidity executing
Members on the Exchange a further
incentive to increase transactions and
take execution opportunities provided
by such increased liquidity, together
providing for overall enhanced price
discovery and price improvement
opportunities on the Exchange. As such,
this benefits all Members by
contributing towards a robust and wellbalanced market ecosystem.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,18
in general, and furthers the objectives of
Section 6(b)(4),19 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its Members and
issuers and other persons using its
facilities. The Exchange also believes
that the proposed rule change is
consistent with the objectives of 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, and,
particularly, is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
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
18 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
20 15 U.S.C. 78f.(b)(5).
19 15
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enhance market quality to the benefit of
all Members.
In particular, the Exchange believes
the proposed tiers are reasonable
because they either amend an existing
opportunity to make it easier to reach or
provide an additional opportunity for
Members to receive an enhanced rebate
on qualifying orders by means of
liquidity adding orders and removing or
Retail Orders. The Exchange notes that
relative volume-based incentives and
discounts have been widely adopted by
exchanges,21 including the Exchange,22
and are reasonable, equitable and nondiscriminatory 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. Additionally, as noted above,
the Exchange operates in a highly
competitive market. The Exchange is
only one of several equity venues to
which market participants may direct
their order flow, and it represents a
small percentage of the overall market.
It is also only one of several maker-taker
exchanges. Competing equity exchanges
offer similar tiered pricing structures to
that of the Exchange, including
schedules of rebates and fees that apply
based upon members achieving certain
volume and/or growth thresholds. These
competing pricing schedules, moreover,
are presently comparable to those that
the Exchange provides, including the
pricing of comparable tiers.23
The Exchange believes the proposed
modification to ease the criteria under
Add Volume Tier 4, by decreasing the
threshold of ADV to TCV is a reasonable
means to further incentivize Members to
increase their total order flow to the
Exchange by encouraging those
21 See e.g., Nasdaq PSX Price List, Rebate to Add
Displayed Liquidity (Per Share Executed), which
provides rebates to members for adding displayed
liquidity over certain thresholds of TCV ranging
between $0.0020 and $0.0026; Cboe BZX U.S.
Equities Exchange Fee Schedule, Footnote 1, Add
Volume Tiers, which provides similar incentives for
liquidity adding orders and offers rebates ranging
between $0.0018 and $0.0032; Nasdaq Price List,
Rebate to Add Displayed Designated Retail
Liquidity, which offer rebates of $0.00325 and
$0.0033 for Add Displayed Designated Retail
Liquidity.
22 See generally, Cboe EDGX U.S. Equities
Exchange Fee Schedule, Footnote 1, Add Volume
Tiers, which provides incentives for ADV/ADAV
order flow as a percentage of TCV and for criteria
based on certain other threshold components (i.e.
Step-Up Add TCV, average OCV, and AIM and
Customer orders); and Footnote 3, Retail Volume
Tiers, which provides incentives for Retail Step-Up
Add TCV and Retail Order ADV as a percentage of
TCV.
23 See supra note 20.
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Members who could not previously
achieve Tier 4 to strive, instead, for the
proposed lower ADV percentage of the
TCV to receive the same rebate.
Likewise, the Exchange believes that the
proposed criteria for the new Growth
Tier 3 and Retail Volume Tier 3 is a
reasonable means to encourage
Members to grow their overall liquidity
adding Retail Orders as it provides an
additional opportunity for Members to
receive an enhanced rebate on various
qualifying orders (B,V,Y, 3, and 4 under
Growth Tier 3 and ZA under Retail
Volume Tier 3) based on increases in
their add retail volume by a modest
amount since May 2020. Moreover, the
Exchange believes the proposed tiers are
reasonable because they are designed to
encourage overall order flow, that is,
both adding and removing orders as a
result of proposed Add Volume Tier 4
and Retail Orders as a result of proposed
Growth Tier 3 and Retail Volume Tier
3. Indeed, the Exchange notes that
greater add volume order flow provides
for deeper, more liquid markets and
execution opportunities, and greater
remove volume order flow increases
transactions on the Exchange, which
incentivizes liquidity providers to
submit additional liquidity and
execution opportunities, thus, providing
an overall increase in price discovery
and transparency on the Exchange.
Also, an increase in Retail Order flow,
which generally are submitted in
smaller sizes, tends to attract MarketMakers, as smaller size orders are easier
to hedge. Increased Market-Maker
activity facilitates tighter spreads,
signaling additional corresponding
increase in order flow from other market
participants, which contributes towards
a robust, well-balanced market
ecosystem. Increased overall order flow
benefits all investors by deepening the
Exchange’s liquidity pool, potentially
providing even greater execution
incentives and opportunities, offering
additional flexibility for all investors to
enjoy cost savings, supporting the
quality of price discovery, promoting
market transparency and improving
investor protection.
Further, the Exchange believes that
the proposed rule changes are
reasonable as they do not represent a
significant departure from the current
criteria or enhanced rebates currently
offered in the Fees Schedule. The
proposed criteria under Add Volume
Tier 4 remains in line with the
incremental increases in ADV as a
percentage of TCV from Tier 1 through
Tier 3 (where Tier 1 provides for 20%,
Tier 2 for 30%, and Tier 3 for 40%).
Also, the proposed criteria in Growth
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Tier 3 poses an incremental increase in
difficulty from Growth Tier 2 (which
may be met if a Member adds an ADV
greater than or equal to 0.20% of the
TCV, and has a Step-Up Add TCV from
March 2019 of greater than or equal to
0.10%) as the sum of Retail Orders as a
Step-Up component present a more
narrow, thus more difficult, type of
order flow that must meet threshold in
total. As such, the Exchange believes the
enhanced rebate of $0.0027 offered
under proposed Growth Tier 3, over the
$0.0026 enhanced rebate offered under
Growth Tier 2, is a reasonable increase.
Likewise the proposed criteria under
Retail Tier 3 is of comparable difficulty
to the criteria under Retail Tier 2 (which
may be met if a Member adds a Retail
Order ADV greater than or equal to
0.50% of the TCV) therefore it is
reasonable to offer the same enhanced
rebate of $0.0037 across the two tiers.
The Exchange believes that the
proposal represents an equitable
allocation of rebates and is not unfairly
discriminatory because all Members
will continue to be eligible for Add
Volume Tier 4, as amended, and all
RMOs will be eligible for Growth Tier
3 and Retail Volume Tier 3. The
proposed tiers are designed as an
incentive to any and all Members or
RMOs, as applicable, interested in
meeting the tier criteria to submit
additional adding and removing, or
Retail, order flow to the Exchange. Each
will have the opportunity to submit the
requisite order flow and will receive the
applicable enhanced rebate if the tier
criteria is met. The Exchange
additionally notes that while the
proposed Growth and Retail Volume
tiers are applicable only to RMOs, the
Exchange does not believe this
application is discriminatory as the
Exchange offers similar rebates to nonRMO order flow.24
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 for the proposed tiers. While
the Exchange has no way of predicting
with certainty how the proposed tiers
will impact Member activity, the
Exchange anticipates that at least two
Members will be able to compete for
and reach each of the proposed tiers.
The Exchange anticipates that multiple
Member types will compete to reach the
proposed tiers, broker-dealers and
liquidity providers, each providing
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 intramarket or
intermarket 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 change 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 change furthers 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.’’ 25
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 proposed change applies to all
Members or RMOs, as applicable,
equally in that all Members or RMOs, as
applicable, are eligible for the proposed
tiers, have a reasonable opportunity to
meet the tiers’ criteria and will all
receive the proposed rebates if such
criteria is met. As indicated above, the
Exchange does not believe that offering
RMOs, specifically, opportunities to
meet certain tier criteria for enhanced
rebates imposes a burden on intramarket
competition as the Exchange offers
many similar rebate opportunities for
non-RMOs.26 Overall, the proposed
change is designed to attract additional
order flow to the Exchange. The
Exchange believes that the modified tier
24 Such as the nine other Add Volume Tiers and
the Tape B Volume Tier which provide
opportunities to all Members to submit the requisite
order flow to receive an enhanced rebate.
25 Securities Exchange Act Release No. 51808, 70
FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
26 See supra note 23.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
distinct types of order flow to the
Exchange to the benefit of all market
participants. The Exchange also notes
that the proposed tiers will not
adversely impact any Member’s pricing
or their ability to qualify for other rebate
tiers. Rather, should a Member not meet
the proposed criteria for a proposed tier,
the Member will merely not receive the
corresponding enhanced rebate.
Furthermore, the proposed fees would
uniformly apply to all Members that
meet the required criteria per each
respective tier (Add Volume Tier 4,
Growth Tier 3, and/or Retail Volume
Tier 3).
E:\FR\FM\18JNN1.SGM
18JNN1
Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 / Notices
criteria would incentivize market
participants to direct liquidity removing
order flow to the Exchange and, as a
result, increase execution opportunities,
which would further incentivize the
provision of liquidity and continued
order flow and improve price
transparency on the Exchange. Greater
overall order flow and pricing
transparency benefits all market
participants on the Exchange by
generally providing more trading
opportunities, enhancing market
quality, and continuing to encourage
Members to send orders, thereby
contributing towards a robust and wellbalanced market ecosystem, which
benefits all market participants.
Next, the Exchange 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 that they may participate on and
direct their order flow, including 12
other equities exchanges and offexchange 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.27 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 offexchange 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.’’ 28 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
27 See
supra note 4.
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
28 See
VerDate Sep<11>2014
17:40 Jun 17, 2020
Jkt 250001
and sellers of securities, and the brokerdealers 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’ . . . .’’.29 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 has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
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 30 and paragraph (f) of Rule
19b–4 31 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.
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 rule-comments@
sec.gov. Please include File Number SR–
29 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)).
30 15 U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f).
PO 00000
Frm 00076
Fmt 4703
Sfmt 9990
36903
CboeEDGX–2020–025 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–2020–025. 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
10:00 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.
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–2020–025, and
should be submitted on or before July 9,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–13124 Filed 6–17–20; 8:45 am]
BILLING CODE 8011–01–P
32 17
E:\FR\FM\18JNN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 85, Number 118 (Thursday, June 18, 2020)]
[Notices]
[Pages 36899-36903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13124]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89064; File No. SR-CboeEDGX-2020-025]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule
June 12, 2020.
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 June 2, 2020, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule applicable to Members and non-
Members \3\ of the Exchange pursuant to EDGX Rules 15.1(a) and (c). The
text of the proposed rule change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ A Member is defined as ``any registered broker or dealer
that has been admitted to membership in the Exchange.'' See Exchange
Rule 1.5(n).
---------------------------------------------------------------------------
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
[[Page 36900]]
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 in connection with
its Add Volume Tiers.\4\
---------------------------------------------------------------------------
\4\ The Exchange initially filed the proposed fee changes on
June 1, 2020 (SR-CboeEDGX-2020-024). On June 2, 2020, the Exchange
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
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 13 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
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\5\ 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 credits to members that add liquidity and assesses fees
to those that remove liquidity. The Exchange's Fees Schedule sets forth
the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Particularly, for
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0017 per share for orders that add liquidity and assesses a fee
of $0.0027 per share for orders that remove liquidity, and for
securities below $1.00, the Exchange provides a standard rebate of
$0.00003 per share for orders that add liquidity and assesses a
standard fee of 30% of dollar value per share for orders that remove
liquidity. 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. 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 incremental incentives for
Members to strive for higher or different tier levels by offering
increasingly higher discounts or enhanced benefits for satisfying
increasingly more stringent criteria or different criteria. Pursuant to
footnote 1 of the Fees Schedule, the Exchange currently offers Add
Volume Tiers (tiers 1 through 4, plus five various additional tiers)
that provide Members an opportunity to receive an enhanced rebate from
the standard fee assessment for liquidity adding orders that yield fee
codes ``B'',\6\ ``V'',\7\ ``Y'',\8\ ``3'',\9\ and ``4''.\10\ The Add
Volume Tiers currently offer nine different tiers that vary in levels
of criteria difficulty and incentive opportunities in which Members may
qualify for enhanced rebates for such orders. For example, Tier 4
currently provides an enhanced rebate of $0.0029 for qualifying,
liquidity adding orders (i.e. yielding fee codes B, V, Y, 3, or 4) for
Members who have an ADV \11\ of greater than or equal to 0.70% of the
TCV.\12\
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\5\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (May 27, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
\6\ Appended to orders that add liquidity to EDGX (Tape B) and
offered a rebate of $0.0017 per share.
\7\ Appended to orders that add liquidity to EDGX (Tape A) and
offered a rebate of $0.0017 per share.
\8\ Appended to orders that add liquidity to EDGX (Tape C) and
offered a rebate of $0.0017 per share.
\9\ Appended to orders that add liquidity to EDGX pre and post
market (Tape A or C) and offered a rebate of $0.0017 per share.
\10\ Appended to orders that add liquidity to EDGX pre and post
market (Tape B) and offered a rebate of $0.0017 per share.
\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.
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Moreover, the Exchange notes that the competition for Retail Order
flow is particularly intense, especially as it relates to exchange
versus off-exchange venues, as prominent retail brokerages tend to
route a majority of their limit orders to off-exchange venues.\13\ This
competition is particularly acute for non-marketable Retail Orders,
i.e., Retail Orders that provide liquidity, and even more fiercely for
non-marketable Retail Orders that provide displayed liquidity on an
exchange. Accordingly, competitive forces compel the Exchange to use
exchange transaction fees and credits, particularly as they relate to
competing for Retail Order flow, because market participants can
readily trade on competing venues if they deem pricing levels at those
other venues to be more favorable. Pursuant to footnote 3 of the Fees
Schedule, the Exchange currently offers Retail Volume Tiers which
provide Members an opportunity to receive an enhanced rebate from the
standard fee assessment for Retail Orders \14\ that add liquidity
(i.e., yielding fee code ``ZA'' \15\). Currently, the Retail Volume
Tiers offer two levels of criteria difficulty and incentive
opportunities in which Members may qualify for enhanced rebates for
Retail Orders.
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\13\ See Securities Exchange Release No. 86375 (July 15, 2019),
84 FR 34960 (SR-CboeEDGX-2019-045).
\14\ See EDGX Rule 11.21(a)(1). A ``Retail Order'' is an agency
or riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by a Retail Member Organization, provided that no
change is made to the terms of the order with respect to price or
side of market and the order does not originate from a trading
algorithm or any other computerized methodology. See EDGX Rule
11.21(a)(2). Retail Orders are submitted by a ``Retail Member
Organization'' or ``RMO'', which is a member (or a division thereof)
that has been approved by the Exchange to submit such orders.
\15\ Appended to Retail Orders that add liquidity to EDGX and
offered a rebate of $0.0032 per share.
---------------------------------------------------------------------------
The tier structures described above are designed to encourage
Members to increase their order flow (adding and removing or Retail) in
order to receive an enhanced rebate on their liquidity adding orders,
and the Exchange now proposes to amend Add Volume Tier 4, as well as
add an additional Add Volume Tier (Growth Tier 3) in footnote 1 and an
additional Retail Volume Tier (Retail Volume Tier 3) in footnote 3 of
the Fees Schedule.
First, the proposed rule change amends Add Volume Tier 4 (as
[[Page 36901]]
described in the example above) so that a Member may receive the
current enhanced rebate of $0.0029 for qualifying, liquidity adding
orders if that Member has an ADV that is greater than or equal to 0.65%
of the TCV. The proposed criteria change is designed to incentivize
Members to continue to submit order flow to the Exchange in order to
receive an enhanced rebate on their liquidity adding orders, by making
Tier 4 criteria easier to achieve. Instead of meeting a 0.70% ADV
threshold of the TCV, the proposed change eases the threshold five
basis points to 0.65% of the TCV. As a result of the proposed ease in
criteria, Members will be further incentivized to submit order flow to
receive the enhanced rebate provided under Tier 4 for their qualifying
orders. The Exchange notes that Tier 4, as amended, will continue to be
available to all Members and is competitively achievable for all
Members that submit an overall ADV as the requisite threshold of TCV
(both adding and removing order flow), in that, all firms that submit
the requisite order flow will continue to be able to compete to meet
the tier.
Second, the Exchange proposes to add Growth Tier 3 to the Add
Volume Tiers and Retail Volume Tier 3 to the Retail Volume Tiers.
Pursuant to both additional proposed tiers, Members will be able to
receive an enhanced rebate if they have a Retail Step-Up Add (i.e.,
yielding fee code ZA \16\) TCV \17\ from May 2020 that is greater or
equal to 0.10%. A Member that meets such criteria will receive an
enhanced rebate of $0.0027 on qualifying orders (B, V, Y, 3, and 4)
pursuant to proposed Growth Tier 3 and/or an enhanced rebate of $0.0037
on qualifying orders (ZA) pursuant to proposed Retail Volume Tier 3.
The proposed criteria under the additional tiers is designed to
encourage growth in retail order flow (i.e., Members must increase
their relative liquidity each month over a predetermined baseline (in
this case the month being May 2020)). The Exchange notes that the
proposed tier is available to all Retail Member Organizations
(``RMOs'') and is competitively achievable for all RMOs that submit
liquidity adding retail order flow, in that, all firms that submit the
requisite liquidity adding retail order flow could compete to meet the
tier.
---------------------------------------------------------------------------
\16\ Appended to Retail Orders that add liquidity to EDGX and
offered a rebate of $0.0032 per share.
\17\ ``Step-Up Add TCV'' means ADAV as a percentage of TCV in
the relevant baseline month subtracted from current ADAV as a
percentage of TCV. ``ADAV'' means ADAV means average daily added
volume calculated as the number of shares added per day. ADAV is
calculated on a monthly basis.
---------------------------------------------------------------------------
The Exchange believes the proposed opportunity to receive an
enhanced rebate on qualifying orders for (1) liquidity adding and
removing orders and (2) Retail Orders incentivizes an increase in
overall order flow to the Book. It provides liquidity adding Members on
the Exchange a further incentive to contribute to a deeper, more liquid
market, and liquidity executing Members on the Exchange a further
incentive to increase transactions and take execution opportunities
provided by such increased liquidity, together providing for overall
enhanced price discovery and price improvement opportunities on the
Exchange. As such, this benefits all Members by contributing towards a
robust and well-balanced market ecosystem.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\18\ in general, and
furthers the objectives of Section 6(b)(4),\19\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of 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, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f.(b)(5).
---------------------------------------------------------------------------
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
Members.
In particular, the Exchange believes the proposed tiers are
reasonable because they either amend an existing opportunity to make it
easier to reach or provide an additional opportunity for Members to
receive an enhanced rebate on qualifying orders by means of liquidity
adding orders and removing or Retail Orders. The Exchange notes that
relative volume-based incentives and discounts have been widely adopted
by exchanges,\21\ including the Exchange,\22\ 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. Additionally, as noted
above, the Exchange operates in a highly competitive market. The
Exchange is only one of several equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. It is also only one of several maker-
taker exchanges. Competing equity exchanges offer similar tiered
pricing structures to that of the Exchange, including schedules of
rebates and fees that apply based upon members achieving certain volume
and/or growth thresholds. These competing pricing schedules, moreover,
are presently comparable to those that the Exchange provides, including
the pricing of comparable tiers.\23\
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\21\ See e.g., Nasdaq PSX Price List, Rebate to Add Displayed
Liquidity (Per Share Executed), which provides rebates to members
for adding displayed liquidity over certain thresholds of TCV
ranging between $0.0020 and $0.0026; Cboe BZX U.S. Equities Exchange
Fee Schedule, Footnote 1, Add Volume Tiers, which provides similar
incentives for liquidity adding orders and offers rebates ranging
between $0.0018 and $0.0032; Nasdaq Price List, Rebate to Add
Displayed Designated Retail Liquidity, which offer rebates of
$0.00325 and $0.0033 for Add Displayed Designated Retail Liquidity.
\22\ See generally, Cboe EDGX U.S. Equities Exchange Fee
Schedule, Footnote 1, Add Volume Tiers, which provides incentives
for ADV/ADAV order flow as a percentage of TCV and for criteria
based on certain other threshold components (i.e. Step-Up Add TCV,
average OCV, and AIM and Customer orders); and Footnote 3, Retail
Volume Tiers, which provides incentives for Retail Step-Up Add TCV
and Retail Order ADV as a percentage of TCV.
\23\ See supra note 20.
---------------------------------------------------------------------------
The Exchange believes the proposed modification to ease the
criteria under Add Volume Tier 4, by decreasing the threshold of ADV to
TCV is a reasonable means to further incentivize Members to increase
their total order flow to the Exchange by encouraging those
[[Page 36902]]
Members who could not previously achieve Tier 4 to strive, instead, for
the proposed lower ADV percentage of the TCV to receive the same
rebate. Likewise, the Exchange believes that the proposed criteria for
the new Growth Tier 3 and Retail Volume Tier 3 is a reasonable means to
encourage Members to grow their overall liquidity adding Retail Orders
as it provides an additional opportunity for Members to receive an
enhanced rebate on various qualifying orders (B,V,Y, 3, and 4 under
Growth Tier 3 and ZA under Retail Volume Tier 3) based on increases in
their add retail volume by a modest amount since May 2020. Moreover,
the Exchange believes the proposed tiers are reasonable because they
are designed to encourage overall order flow, that is, both adding and
removing orders as a result of proposed Add Volume Tier 4 and Retail
Orders as a result of proposed Growth Tier 3 and Retail Volume Tier 3.
Indeed, the Exchange notes that greater add volume order flow provides
for deeper, more liquid markets and execution opportunities, and
greater remove volume order flow increases transactions on the
Exchange, which incentivizes liquidity providers to submit additional
liquidity and execution opportunities, thus, providing an overall
increase in price discovery and transparency on the Exchange. Also, an
increase in Retail Order flow, which generally are submitted in smaller
sizes, tends to attract Market-Makers, as smaller size orders are
easier to hedge. Increased Market-Maker activity facilitates tighter
spreads, signaling additional corresponding increase in order flow from
other market participants, which contributes towards a robust, well-
balanced market ecosystem. Increased overall order flow benefits all
investors by deepening the Exchange's liquidity pool, potentially
providing even greater execution incentives and opportunities, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
Further, the Exchange believes that the proposed rule changes are
reasonable as they do not represent a significant departure from the
current criteria or enhanced rebates currently offered in the Fees
Schedule. The proposed criteria under Add Volume Tier 4 remains in line
with the incremental increases in ADV as a percentage of TCV from Tier
1 through Tier 3 (where Tier 1 provides for 20%, Tier 2 for 30%, and
Tier 3 for 40%). Also, the proposed criteria in Growth Tier 3 poses an
incremental increase in difficulty from Growth Tier 2 (which may be met
if a Member adds an ADV greater than or equal to 0.20% of the TCV, and
has a Step-Up Add TCV from March 2019 of greater than or equal to
0.10%) as the sum of Retail Orders as a Step-Up component present a
more narrow, thus more difficult, type of order flow that must meet
threshold in total. As such, the Exchange believes the enhanced rebate
of $0.0027 offered under proposed Growth Tier 3, over the $0.0026
enhanced rebate offered under Growth Tier 2, is a reasonable increase.
Likewise the proposed criteria under Retail Tier 3 is of comparable
difficulty to the criteria under Retail Tier 2 (which may be met if a
Member adds a Retail Order ADV greater than or equal to 0.50% of the
TCV) therefore it is reasonable to offer the same enhanced rebate of
$0.0037 across the two tiers.
The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
Members will continue to be eligible for Add Volume Tier 4, as amended,
and all RMOs will be eligible for Growth Tier 3 and Retail Volume Tier
3. The proposed tiers are designed as an incentive to any and all
Members or RMOs, as applicable, interested in meeting the tier criteria
to submit additional adding and removing, or Retail, order flow to the
Exchange. Each will have the opportunity to submit the requisite order
flow and will receive the applicable enhanced rebate if the tier
criteria is met. The Exchange additionally notes that while the
proposed Growth and Retail Volume tiers are applicable only to RMOs,
the Exchange does not believe this application is discriminatory as the
Exchange offers similar rebates to non-RMO order flow.\24\
---------------------------------------------------------------------------
\24\ Such as the nine other Add Volume Tiers and the Tape B
Volume Tier which provide opportunities to all Members to submit the
requisite order flow to receive an enhanced rebate.
---------------------------------------------------------------------------
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 for the
proposed tiers. While the Exchange has no way of predicting with
certainty how the proposed tiers will impact Member activity, the
Exchange anticipates that at least two Members will be able to compete
for and reach each of the proposed tiers. The Exchange anticipates that
multiple Member types will compete to reach the proposed tiers, broker-
dealers and liquidity providers, each providing distinct types of order
flow to the Exchange to the benefit of all market participants. The
Exchange also notes that the proposed tiers will not adversely impact
any Member's pricing or their ability to qualify for other rebate
tiers. Rather, should a Member not meet the proposed criteria for a
proposed tier, the Member will merely not receive the corresponding
enhanced rebate. Furthermore, the proposed fees would uniformly apply
to all Members that meet the required criteria per each respective tier
(Add Volume Tier 4, Growth Tier 3, and/or Retail Volume Tier 3).
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 intramarket or intermarket 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
change 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 change furthers 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.'' \25\
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\25\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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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 proposed
change applies to all Members or RMOs, as applicable, equally in that
all Members or RMOs, as applicable, are eligible for the proposed
tiers, have a reasonable opportunity to meet the tiers' criteria and
will all receive the proposed rebates if such criteria is met. As
indicated above, the Exchange does not believe that offering RMOs,
specifically, opportunities to meet certain tier criteria for enhanced
rebates imposes a burden on intramarket competition as the Exchange
offers many similar rebate opportunities for non-RMOs.\26\ Overall, the
proposed change is designed to attract additional order flow to the
Exchange. The Exchange believes that the modified tier
[[Page 36903]]
criteria would incentivize market participants to direct liquidity
removing order flow to the Exchange and, as a result, increase
execution opportunities, which would further incentivize the provision
of liquidity and continued order flow and improve price transparency on
the Exchange. Greater overall order flow and pricing transparency
benefits all market participants on the Exchange by generally providing
more trading opportunities, enhancing market quality, and continuing to
encourage Members to send orders, thereby contributing towards a robust
and well-balanced market ecosystem, which benefits all market
participants.
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\26\ See supra note 23.
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Next, the Exchange 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 that they may participate on
and direct their order flow, including 12 other equities exchanges and
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.\27\ 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.'' \28\ 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' . . . .''.\29\ 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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\27\ See supra note 4.
\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\29\ 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 has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from Members or other interested
parties.
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 \30\ and paragraph (f) of Rule 19b-4 \31\
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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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 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-2020-025 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-2020-025. 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 10:00 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. 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-2020-025, and should be
submitted on or before July 9, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13124 Filed 6-17-20; 8:45 am]
BILLING CODE 8011-01-P
