Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fees Schedule, 42946-42951 [2020-15214]
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
All submissions should refer to File
Number SR–CboeEDGX–2020–034. 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–2020–034 and
should be submitted on or before
August 5, 2020.
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IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.17 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,18 which requires that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to remove impediments and to
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Commission also believes that the
proposal is consistent with Sections
17 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
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6(b)(1) and 6(b)(6) of the Act 19 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
Commission and Exchange rules.
Finally, the Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,20 which governs
minor rule violation plans.
As stated above, the Exchange
proposes to add the CAT Compliance
Rules to the list of minor rule violations
in Rules 8.15 and 25.3 to be consistent
with the approach FINRA has taken for
minor violations of its corresponding
CAT Compliance Rules.21 The
Commission has already approved
FINRA’s treatment of CAT Compliance
Rules violations when it approved the
addition of CAT Compliance Rules to
FINRA’s MRVP.22 As noted in that
order, and similarly herein, the
Commission believes that Exchange’s
treatment of CAT Compliance Rules
violations as part of its MRVP provides
a reasonable means of addressing
violations that do not rise to the level of
requiring formal disciplinary
proceedings, while providing greater
flexibility in handling certain violations.
However, the Commission expects that,
as with FINRA, the Exchange will
continue to conduct surveillance with
due diligence and make determinations
based on its findings, on a case-by-case
basis, regarding whether a sanction
under the rule is appropriate, or
whether a violation requires formal
disciplinary action. Accordingly, the
Commission believes the proposal raises
no novel or significant issues.
For the same reasons discussed above,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,23 for approving the proposed rule
change prior to the thirtieth day after
the date of publication of the notice of
the filing thereof in the Federal
Register. The proposal merely adds the
CAT Compliance Rules to the
U.S.C. 78f(b)(1) and 78f(b)(6).
CFR 240.19d–1(c)(2).
21 As discussed above, the Exchange has entered
into a Rule 17d–2 Plan and an RSA with FINRA
with respect to the CAT Compliance Rules. The
Commission notes that, unless relieved by the
Commission of its responsibility, as may be the case
under the Rule 17d–2 Plan, the Exchange continues
to bear the responsibility for self-regulatory conduct
and liability for self-regulatory failures, not the selfregulatory organization retained to perform
regulatory functions on the Exchange’s behalf
pursuant to an RSA. See Securities Exchange
Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR–BATS–2009–031), note 93
and accompanying text.
22 See supra note 7.
23 15 U.S.C. 78s(b)(2).
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19 15
20 17
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Exchange’s MRVP and harmonizes its
application with FINRA’s application of
CAT Compliance Rules under its own
MRVP. Accordingly, the Commission
believes that a full notice-and-comment
period is not necessary before approving
the proposal.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 24 and Rule
19d–1(c)(2) thereunder,25 that the
proposed rule change (SR–CboeEDGX–
2020–034) be, and hereby is, approved
on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15209 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89282; File No. SR–
CboeEDGX–2020–033]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Fees Schedule
July 9, 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 July 1,
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 the Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’) is
filing with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend its Fees
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
24 15
U.S.C. 78s(b)(2).
CFR 240.19d–1(c)(2).
26 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
25 17
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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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
Fees Schedule for its options platform
(EDGX Options), specifically, certain
Customer Volume Tiers and Market
Maker Volume Tiers, effective July 1,
2020.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 18% of the market share and
currently the Exchange represents only
approximately 4% of the market share.3
Thus, in such a low-concentrated and
highly competitive market, no single
options exchange, including the
Exchange, possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow or discontinue to
reduce use of certain categories of
products, in response to fee changes.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees, and market participants can readily
3 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (June 25, 2020),
available at https://markets.cboe.com/us/options/
market_statistics/.
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trade on competing venues if they deem
pricing levels at those other venues to
be more favorable.
The Exchange’s Fees Schedule sets
forth standard rebates and rates applied
per contract. For example, the Exchange
provides standard rebates ranging from
$0.01 up to $0.21 per contract for
Customer orders in both Penny and
Non-Penny Securities and assesses fees
ranging from $0.01 up to $0.75 per
contract for Market Maker, Away Market
Maker, Broker Dealer, Firm, Joint Back
Office, and Professional orders in both
Penny and Non-Penny Securities. The
Exchange also offers tiered pricing
which provides Members 4
opportunities to qualify for higher
rebates or reduced fees where certain
volume criteria and thresholds are met.
Footnote 1 of the Fee Schedule
currently offers four Customer Volume
Tiers which provide enhanced rebates
between $0.10 and $0.21 per contract
for qualifying Customer orders which
meet certain liquidity thresholds and
yield fee code PC 5 or NC.6 Footnote 2
of the Fee Schedule currently offers
eight Market Maker Volume Tiers which
provide reduced fees between $0.17 and
$0.03 per contract for qualifying Market
Maker orders which meet certain
liquidity thresholds and yield fee code
PM 7 or NM.8 Under the current
Customer Volume and Market Maker
Volume Tiers, a Member may receive an
enhanced rebate where the Member
meets certain thresholds of ADV 9 that
are greater than or equal to a percentage
of average OCV 10 for respective
qualifying orders. The Exchange now
proposes to amend Customer Volume
Tiers 1 through 4 and Market Maker
Volume Tiers 7 and 8.
Exchange Rule 1.5(n).
code PC is appended to Customer, Penny
orders and receive a standard rebate of $0.01.
6 Fee code NC is appended to Customer NonPenny orders and receive a standard rebate of $0.01.
7 Fee code PM is appended to liquidity adding
Market Maker, Penny orders and are assessed a
standard fee of $0.20.
8 Fee code NM is appended to liquidity adding
Market Maker, Non-Penny orders and are assessed
a standard fee of $0.20.
9 ‘‘ADV’’ means average daily volume calculated
as the number of contracts added or removed,
combined, per day. ADV is calculated on a monthly
basis, excluding contracts added or removed on any
day that the Exchange’s system experiences a
disruption that lasts for more than 60 minutes
during regular trading hours (‘‘Exchange System
Disruption’’) and on any day with a scheduled early
market close.
10 ‘‘OCV’’ is Options Clearing Corporation
(‘‘OCC’’) Customer Volume which is the total equity
and ETF options volume that clears in the Customer
range at the OCC for the month for which the fees
apply, excluding volume on any day that the
Exchange experiences an Exchange System
Disruption and on any day with a scheduled early
market close.
PO 00000
4 See
5 Fee
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The Exchange proposes to amend
Customer Volume Tier 1 and 2 to
specify that a Member must reach an
ADV in Customer orders that are NonCrossing orders (that is, orders not
executed in a two sided auction
mechanism such as the Automated
Improvement Mechanism (‘‘AIM’’) or
the Solicitation Auction Mechanism
(‘‘SAM’’) or in a crossing mechanism
such as a Qualified Contingent Cross
(‘‘QCC’’)). Currently, both Tier 1 and
Tier 2 provide that Members may
achieve the respective tiers if they
achieve an ADV in Customer orders as
a certain percentage that is greater than
or equal to average OCV. The Exchange
proposes to specify that, for these two
tiers, Members receive the enhanced
rebates currently in place if they achieve
an ADV in Customer Non-Crossing
orders as a certain percentage that is
greater than or equal to average OCV.
The Exchange notes that the ADV
thresholds of average OCV will remain
the same for these tiers. The Exchange
is proposing to specify that Customer
Non-Crossing orders may be submitted
in order to achieve Customer Volume
Tier 1 and Tier 2 as the Fee Schedule
already provides for opportunities for
which Customer Crossing orders,
specifically, may achieve enhanced
rebates comparable to the enhanced
rebates offered under Tiers 1 and 2.11 In
this way, the Exchange believes the
proposed change will incentivize
Members to submit more Non-Crossing
orders into the EDGX Options Book (as
opposed to submitting more Customer
orders into the Exchange’s crossing
auctions/mechanisms to achieve the
tiers’ criteria, which, as stated, already
receive comparable enhanced rebates
and reduced fees under the Fee
Schedule) in order to achieve Customer
Volume Tiers 1 and 2.
The Exchanges next proposes to
amend Customer Volume Tiers 3 and 4
by increasing, in each, a percentage of
ADV into average OCV within existing
criteria and adding to each tier a new,
additional criteria that a Member must
meet to receive the existing enhanced
rebate. The Exchange notes that the
proposed changes do not alter the
current enhanced rebates provided
under Customer Volume Tier 3 and 4.
Specifically, Tier 3 currently provides
an enhanced rebate of $0.21 for
Members that have an ADV in Customer
11 See Fee Schedule, Footnote 6, AIM and SAM
Pricing, which provides an enhanced rebate of
$0.11 (or does not assess a fee) for qualifying
Customer orders executed via the Exchange’s
crossing auctions.; see also Footnote 7, QCC
Initiator/Solicitation Rebate Tiers, which provide
enhanced rebates between $0.05 and $0.11 for QCC
Agency Orders or Solicitation Agency Orders.
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orders greater than or equal to 0.75% of
average OCV. Tier 4 currently also
provides enhanced rebate of $0.21 for
Members that have (1) an ADV in
Customer orders greater than or equal
0.60% of average OCV and (2) an ADV
in Customer or Market Maker orders
greater than or equal to 1.00% of
average OCV. The Exchange proposes to
first increase the ADV in Customer
orders from greater than or equal to
0.75% to 1.00% threshold of average
OCV in Tier 3 and from greater than or
equal to 0.60% to 0.75% threshold of
average OCV in prong 1 in Tier 4. The
Exchange also proposes to add an
additional prong of criteria in each Tier
3 and Tier 4. As proposed, a Member
may receive the existing enhanced
rebate under Tier 3 if the Member meets
the current criteria and, also, has an
ADV in Customer Non-Crossing orders
of greater than or equal to 0.40% of
average OCV. Likewise, a Member may
receive the existing enhanced rebate
under Tier 4 if the Member meets the
current (two) criteria and, as proposed,
has an ADV in Customer Non-Crossing
orders of greater than or equal to 0.40%
of average OCV. The proposed increases
in Customer order ADV as a percentage
of average OCV in Tier 3 and Tier 4 are
intended to incrementally increase the
level of difficulty in achieving each of
these tiers, thus, incentivizing Members
to increase their overall Customer order
flow to the Exchange by encouraging
those Members to strive for the
different, incrementally more difficult
tier criteria under the proposed tiers to
receive the enhanced rebates. The
proposed additional prongs of criteria
per each tier are also designed to
incrementally increase the level of
difficulty in achieving Tier 3 and Tier
4, while, like the proposed changes to
Tier 1 and Tier 2 described above,
specifically incentivizing Members to
submit Non-Crossing Customer orders to
the Exchange’s Order Book.
Likewise, the Exchange also proposes
to amend Market Maker Volume Tiers 7
and 8 by increasing, in each, certain
percentages of ADV into average OCV
within existing criteria. Currently, Tier
7 provides a reduced fee of $0.04 for
Members that have (1) an ADV in
Customer orders greater than or equal to
0.30% of average OCV, (2) an ADV in
Customer or Market Maker orders
greater than or equal to 0.50% of
average OCV, (3) an ADV in AIM
Agency Orders greater than or equal to
0.15% of average OCV, and (4) an ADV
in complex Customer orders (yielding
fee codes ZA, ZB, ZC, or ZD) 12 greater
12 Fee
code ZA is appended to Complex Customer
(contra Non-Customer), Penny orders and receives
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than or equal to 5,000 contracts.
Currently, Tier 8 provides a reduced fee
of $0.03 for Members that have (1) an
ADV in Customer orders greater than or
equal to 0.70% of average OCV, (2) an
ADV in Customer or Market Maker
orders greater than or equal to 1.10% of
average OCV, (3) an ADV in AIM
Agency Orders greater than or equal to
0.15% of average OCV, and (4) an ADV
in complex Customer orders (yielding
fee codes ZA, ZB, ZC, or ZD) greater
than or equal to 0.20% of average OCV.
Regarding Tier 7, the Exchange proposes
to increase the percentage of ADV in
Customer orders from 0.30% to
0.70%,of average OCV in prong 1, to
increase the percentage of ADV in AIM
Agency Orders from 0.15% to 0.30% of
average OCV in prong 3, and to update
prong 4 from ADV in complex Customer
orders as greater than or equal to 5,000
to greater than or equal to 0.10% of
average OCV. Regarding Tier 8, the
Exchange proposes to increase the
percentage of ADV in Customer orders
from 0.70% to 1.00% in prong 1, and to
increase the percentage of ADV in AIM
Agency Orders from 0.15% to 0.75% in
prong 3. Like the proposed changes to
Customer Volume Tiers 3 and 4, the
Exchange notes that the proposed
changes to criteria in Market Maker
Volume Tiers 7 and 8 incrementally
increase the level of difficulty in
achieving these tiers, thus, are designed
to incentivize Members to increase their
Customer and/or AIM Agency order
flow to the Exchange by encouraging
those Members to strive for the
different, incrementally more difficult
tier criteria under the proposed tiers to
receive the reduced rates.
The Exchange believes that almost all
of the proposed fee changes are
designed to incentivize more Customer
order flow and, particularly, a majority
of the proposed changes are intended to
direct an increase of Customer order
flow to the EDGX Options Order Book.
An increase in Customer order flow will
create more trading opportunities,
which, in turn attracts Market-Makers.
A resulting increase in Market-Maker
activity may facilitate tighter spreads,
which may lead to an additional
increase of order flow from other market
participants, further contributing to a
deeper, more liquid market to the
benefit of all market participants by
creating a more robust and wella standard rebate of $0.45; fee code ZB is appended
to Complex Customer (contra Non-Customer), NonPenny orders and received a standard rebate of
$0.80; fee code ZC is appended to Complex
Customer (contra Customer) orders and is assessed
no charge; and fee code ZD is appended to Complex
Customer order that legs into Simple Book and is
assessed no charge.
PO 00000
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balanced market ecosystem.
Additionally, the proposed change in
connection with the AIM Agency order
ADV threshold in Market Maker Volume
Tier 8 is intended to incentivize an
increase in AIM Agency orders
submitted to an AIM auction in order to
achieve the proposed tier. The Exchange
believes increased AIM Agency order
flow results in price improvement
opportunities for customers.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,13
in general, and furthers the objectives of
Section 6(b)(4),14 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) 15 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
enhance market quality to the benefit of
all Members.
In particular, the Exchange believes
the proposed tiers are reasonable
because they amend existing
opportunities in a manner that
incentivizes increased Customer or AIM
Agency order flow via incrementally
more challenging criteria in order to
receive the same enhanced rebates or
reduced fees on a Member’s qualifying
13 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
15 15 U.S.C. 78f.(b)(5).
14 15
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orders. The Exchange notes that relative
volume-based incentives and discounts
have been widely adopted by
exchanges,16 including the Exchange,17
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 options venues to
which market participants may direct
their order flow, and it represents a
small percentage of the overall market.
Competing options 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 and offer
comparable pricing to members for
achieving such tiers.18
The Exchange believes the proposed
modification to specify that NonCrossing Customer order may be
submitted in achieving the existing
criteria in Customer Volume Tiers 1 and
2, as well as the proposed additional
criteria in Customer Volume Tiers 3 and
4 for which a Member must submit NonCrossing Customer order ADV as a
percentage of average OCV, in order to
receive the current enhanced rebates
under Customer Volume Tiers 1 through
4 is reasonable because it is designed to
direct Customer order flow to the
Exchange’s Order Book, as opposed to
into the Exchange’s crossing auctions/
mechanisms to achieve the tiers’
criteria, which already receive
comparable enhanced rebates and
reduced fees under the Fee Schedule.19
An increase in Customer order flow to
16 See e.g., MIAX Options Fee Schedule, Section
1(a)(i), which provides reduced fees (ranging from
$0.03 to $0.30) for Market Maker orders that reach
various percentage thresholds of volume; and
Section 1(a)(iii), which provides certain credits
(ranging from $0.00 to $0.28) for Customer orders,
including agency orders submitted to an exchange
auction, that reach various percentage thresholds;
and Cboe BZX U.S. Options Exchange Fee
Schedule, Footnote 1, Customer Penny Pilot Add
Tiers; Footnote 6, Market Maker Penny Pilot Add
Volume Tiers; Footnote 7, Market Maker NonPenny Pilot Add Volume Tiers; and Footnote 12,
Customer Non-Penny Pilot Add Volume Tier, all of
which provide various tier with different,
incrementally more difficult criteria, many of which
are based on average volumes as a percentage of
average OCV.
17 See i.e., Cboe EDGX U.S. Options Exchange Fee
Schedule, Footnote 1, Customer Volume Tiers; and
Footnote 2, Market Maker Volume Tiers.
18 See supra note 16.
19 See supra note 11.
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the Order Book results in an increase of
transaction opportunities within the
Order Book, attracting Market Maker
quotes which, in turn, facilitates tighter
spreads on the Exchange and signals
additional corresponding increase in
order flow from other market
participants. 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. Similarly, the proposed
increases in overall Customer order and
AIM Agency order ADV as a percentage
of OCV (as proposed within Customer
Volume Tiers 3 and 4 and Market Maker
Volume Tiers 7 and 8) are reasonable
modifications to the existing criteria
because they are designed to
incrementally increase the difficulty in
achieving these tiers, thereby
incentivizing Members to increase their
overall Customer order flow and/or AIM
Agency order flow, which benefits
customers by resulting in increased
price improvement opportunities within
the auctions, to receive the exiting
enhanced rebates and/or reduced fees.
Further, the Exchange believes that
the proposed rule changes are
reasonable as they do not represent a
significant departure from the current
criteria offered in the Fee Schedule and
represent proportional increases in
difficulty per adjacent tiers. For
example, the Exchange proposes to
simultaneously increase the Customer
order ADV thresholds of average OCV in
Customer Volume Tier 3 and Tier 4 and
provide the same additional criteria in
each. As a result, the Exchange believes
the level of difficulty in achieving Tier
3 and Tier 4 will remain approximately
the same. Likewise, the Exchange
proposes to simultaneously increase the
ADV thresholds in the corresponding
prongs between Tier 7 and Tier 8. That
is, prong 1 under both Tier 7 and Tier
8, criteria of which consists of Customer
order ADV as a percentage of average
OCV, and prong 3 under both Tier 7 and
Tier 8, criteria of which consists of AIM
Agency order ADV as a percentage of
average OCV, will experience
incremental increases of ADV as a
percentage of average OCV. Thus, the
step up in difficulty from Tier 7 to Tier
8 will remain approximately the same.
Additionally, the Exchange notes that
the proposed change in prong 4 under
Tier 7 to amend the threshold of 5,000
contracts to 0.10% of average OCV is
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42949
better aligned with, and is a
proportional step down from, the 0.20%
of average OCV in corresponding prong
4 under Tier 8. The Exchange again
notes that the proposed rule changes do
not alter the amount of any of the
current rebates or fees in place.
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 Customer
Volume Tiers 1 through 4 and Market
Maker Volume Tiers 7 and 8, as
amended. The proposed changes to the
tiers’ criteria are designed as an
incentive to any and all Members
interested in meeting the tier criteria to
submit additional Customer orders
(with opportunities to achieve such tiers
via crossing and non-crossing orders), or
AIM Agency orders to the Exchange.
Each will have the opportunity to
submit the requisite order flow and will
receive the applicable existing enhanced
rebate or reduced fee if the tier criteria
are met. Without having a view of
activity on other markets and offexchange 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
approximately three or four Members
will be able to compete for and achieve
the amended criteria in each of
Customer Volume Tier 1, 2, 3, and 4,
and at least four Members will be able
to compete for and achieve the amended
criteria in each of Market Maker Volume
Tier 7 and Tier 8. 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 tier, the
Member will merely not receive the
corresponding enhanced rebate or
reduced fee. Furthermore, the existing
rebate and fees will continue to
uniformly apply to all Members that
meet the required criteria, as amended,
per each respective tier.
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
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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.’’ 20
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 equally in that all Members
are eligible to achieve the tiers’
proposed criteria, have a reasonable
opportunity to meet the tiers’ proposed
criteria and will all receive the existing
enhanced rebates or reduced fees if such
criteria is met. Overall, the proposed
change is designed to attract additional
Customer and AIM Agency order flow to
the Exchange. The Exchange believes
that the modified tier criteria would
incentivize market participants to strive
to increase such order flow to the
Exchange to meet the proposed criteria
and, as a result, increase trading
opportunities and attract further MarketMaker activity, 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 15
other options 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 options
exchange has more than 18% of the
20 Securities Exchange Act Release No. 51808, 70
FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
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17:59 Jul 14, 2020
Jkt 250001
market share.21 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.’’ 22 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 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’ . . . .’’.23 Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 24 and paragraph (f) of Rule
supra note 3.
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
23 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)).
24 15 U.S.C. 78s(b)(3)(A).
PO 00000
21 See
22 See
Frm 00132
Fmt 4703
Sfmt 4703
19b–4 25 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–
CboeEDGX–2020–033 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–2020–033. 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
25 17
E:\FR\FM\15JYN1.SGM
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15JYN1
Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
office of the Exchange. 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–2020–033, and should be
submitted on or before August 5, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15214 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Order Granting Accelerated
Approval of a Proposed Rule Change
To Add the Consolidated Audit Trail
Industry Member Compliance Rules to
the List of Minor Rule Violations in
Rules 8.15 and 25.3
July 9, 2020.
khammond on DSKJM1Z7X2PROD with NOTICES
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 July 8,
2020, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
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 and approving
the proposal on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to add
the Consolidated Audit Trail (‘‘CAT’’)
industry member compliance rules
(‘‘CAT Compliance Rules’’) to the list of
minor rule violations in Rules 8.15 and
25.3. 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/
equities/regulation/rule_filings/bzx/), at
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
[Release No. 34–89273; File No. SR–
CboeBZX–2020–056]
26 17
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
1. Purpose
In order to implement the National
Market System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) the Exchange
codified the CAT Compliance Rules in
Rules 4.5 through 4.16.3 The CAT NMS
Plan was filed by the Plan Participants
to comply with Rule 613 of Regulation
NMS under the Exchange Act,4 and
each Plan Participant accordingly has
adopted the same compliance rules as
the Exchange’s Rules 4.5 through 4.16.
The common compliance rules adopted
by each Plan Participant are designed to
require industry members to comply
with the provisions of the CAT NMS
Plan, which broadly calls for industry
members to record and report timely
and accurate customer, order, and trade
information relating to activity in NMS
Securities and OTC Equity Securities.
Rule 8.15 provides for disposition of
certain violations through assessment of
fines in lieu of conducting a formal
disciplinary proceeding. Rule 8.15.01,
specifically, sets forth the list of specific
BZX Equities Rules under which any
Member, associated person of a
Member, or registered or non-registered
employee of a Member may be subject
to a fine for violations of such Rules.
Rule 25.3 provides the same for BZX
Options Rule violations, under which
an Options Member, associated person
of an Options Member, or registered or
non-registered employee of an Options
3 See Securities Exchange Act Release Nos. 79927
(February 2, 2017), 82 FR 9874 (February 8, 2017)
(SR–BatsBZX–2017–08); and 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (Order
Approving Proposed Rule Changes To Adopt
Consolidated Audit Trail Compliance Rules).
4 17 CFR 242.613.
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
42951
Member may be subject to a fine for
violations of such Rules. The Exchange
proposes to amend Rule 8.15.01 and
Rule 25.3 to add the CAT Compliance
Rules in Rules 4.5 through 4.16 to the
list of rules in Rule 8.15.01 and Rule
25.3 eligible for disposition pursuant to
a minor fine; specifically, under
proposed Rule 8.15.01(i) and proposed
Rule 25.3(g).5 Proposed Rule 8.15.01(i)
and proposed Rule 25.3(g) each provide
that for failures to comply with the
Consolidated Audit Trail Compliance
Rule requirements of Rules 4.5 through
4.16, the Exchange may impose a minor
rule violation fine of up to $2,500. The
Exchange may seek other disciplinary
action for more serious violations.
The Exchange is coordinating with
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and other
Plan Participants to promote
harmonized and consistent enforcement
of all the Plan Participants’ CAT
Compliance Rules. The Commission
recently approved a Rule 17d–2 Plan
under which the regulation of CAT
Compliance Rules will be allocated
among Plan Participants to reduce
regulatory duplication for industry
members that are members of more than
one Participant (‘‘common members’’).6
Under the Rule 17d–2 Plan, the
regulation of CAT Compliance Rules
with respect to common members that
are members of FINRA is allocated to
FINRA. Similarly, under the Rule 17d–
2 Plan, responsibility for common
members of multiple other Plan
Participants and not a member of FINRA
will be allocated among those other Plan
Participants, including to the Exchange.
For those non-common members who
are allocated to BZX pursuant to the
Rule 17d–2 Plan, the Exchange and
FINRA have entered into a Regulatory
Services Agreement (‘‘RSA’’) pursuant
to which FINRA will assist the
Exchange with conducting surveillance,
investigation, examination, and
enforcement activity in connection with
5 FINRA’s maximum fine for minor rule
violations under FINRA Rule 9216(b) is $2,500. The
Exchange will apply an identical maximum fine
amount for eligible violations of Rules 4.5 through
4.16 to achieve consistency with FINRA and also
amend its minor rule violation plan (‘‘MRVP’’) to
include such fines. Like FINRA, the Exchange
would be able to pursue a fine greater than $2,500
for violations of Rules 4.5 through 4.16 in a regular
disciplinary proceeding or a letter of consent under
Chapter 8 as appropriate. Any fine imposed in
excess of $2,500 or not otherwise covered by Rule
19d–1(c)(2) of the Act would be subject to prompt
notice to the Commission pursuant to Rule 19d–1
under the Act. As noted below, in assessing the
appropriateness of a minor rule fine with respect to
CAT Compliance Rules, the Exchange will be
guided by the same factors that FINRA utilizes. See
text accompanying notes 7–8 [sic], infra.
6 See Securities Exchange Act Release No. 88366
(March 12, 2020), 85 FR 15238 (March 17, 2020).
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[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42946-42951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15214]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89282; File No. SR-CboeEDGX-2020-033]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend Its Fees Schedule
July 9, 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 July 1, 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 the
Substance of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') is
filing with the Securities and Exchange Commission (``Commission'') a
proposed rule change to amend its Fees 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
[[Page 42947]]
website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule for its options
platform (EDGX Options), specifically, certain Customer Volume Tiers
and Market Maker Volume Tiers, effective July 1, 2020.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 18% of the market share and
currently the Exchange represents only approximately 4% of the market
share.\3\ Thus, in such a low-concentrated and highly competitive
market, no single options exchange, including the Exchange, possesses
significant pricing power in the execution of option order flow. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain the Exchange's transaction fees, and market participants can
readily trade on competing venues if they deem pricing levels at those
other venues to be more favorable.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (June 25, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
The Exchange's Fees Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides standard
rebates ranging from $0.01 up to $0.21 per contract for Customer orders
in both Penny and Non-Penny Securities and assesses fees ranging from
$0.01 up to $0.75 per contract for Market Maker, Away Market Maker,
Broker Dealer, Firm, Joint Back Office, and Professional orders in both
Penny and Non-Penny Securities. The Exchange also offers tiered pricing
which provides Members \4\ opportunities to qualify for higher rebates
or reduced fees where certain volume criteria and thresholds are met.
Footnote 1 of the Fee Schedule currently offers four Customer Volume
Tiers which provide enhanced rebates between $0.10 and $0.21 per
contract for qualifying Customer orders which meet certain liquidity
thresholds and yield fee code PC \5\ or NC.\6\ Footnote 2 of the Fee
Schedule currently offers eight Market Maker Volume Tiers which provide
reduced fees between $0.17 and $0.03 per contract for qualifying Market
Maker orders which meet certain liquidity thresholds and yield fee code
PM \7\ or NM.\8\ Under the current Customer Volume and Market Maker
Volume Tiers, a Member may receive an enhanced rebate where the Member
meets certain thresholds of ADV \9\ that are greater than or equal to a
percentage of average OCV \10\ for respective qualifying orders. The
Exchange now proposes to amend Customer Volume Tiers 1 through 4 and
Market Maker Volume Tiers 7 and 8.
---------------------------------------------------------------------------
\4\ See Exchange Rule 1.5(n).
\5\ Fee code PC is appended to Customer, Penny orders and
receive a standard rebate of $0.01.
\6\ Fee code NC is appended to Customer Non-Penny orders and
receive a standard rebate of $0.01.
\7\ Fee code PM is appended to liquidity adding Market Maker,
Penny orders and are assessed a standard fee of $0.20.
\8\ Fee code NM is appended to liquidity adding Market Maker,
Non-Penny orders and are assessed a standard fee of $0.20.
\9\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day. ADV is calculated
on a monthly basis, excluding contracts added or removed on any day
that the Exchange's system experiences a disruption that lasts for
more than 60 minutes during regular trading hours (``Exchange System
Disruption'') and on any day with a scheduled early market close.
\10\ ``OCV'' is Options Clearing Corporation (``OCC'') Customer
Volume which is the total equity and ETF options volume that clears
in the Customer range at the OCC for the month for which the fees
apply, excluding volume on any day that the Exchange experiences an
Exchange System Disruption and on any day with a scheduled early
market close.
---------------------------------------------------------------------------
The Exchange proposes to amend Customer Volume Tier 1 and 2 to
specify that a Member must reach an ADV in Customer orders that are
Non-Crossing orders (that is, orders not executed in a two sided
auction mechanism such as the Automated Improvement Mechanism (``AIM'')
or the Solicitation Auction Mechanism (``SAM'') or in a crossing
mechanism such as a Qualified Contingent Cross (``QCC'')). Currently,
both Tier 1 and Tier 2 provide that Members may achieve the respective
tiers if they achieve an ADV in Customer orders as a certain percentage
that is greater than or equal to average OCV. The Exchange proposes to
specify that, for these two tiers, Members receive the enhanced rebates
currently in place if they achieve an ADV in Customer Non-Crossing
orders as a certain percentage that is greater than or equal to average
OCV. The Exchange notes that the ADV thresholds of average OCV will
remain the same for these tiers. The Exchange is proposing to specify
that Customer Non-Crossing orders may be submitted in order to achieve
Customer Volume Tier 1 and Tier 2 as the Fee Schedule already provides
for opportunities for which Customer Crossing orders, specifically, may
achieve enhanced rebates comparable to the enhanced rebates offered
under Tiers 1 and 2.\11\ In this way, the Exchange believes the
proposed change will incentivize Members to submit more Non-Crossing
orders into the EDGX Options Book (as opposed to submitting more
Customer orders into the Exchange's crossing auctions/mechanisms to
achieve the tiers' criteria, which, as stated, already receive
comparable enhanced rebates and reduced fees under the Fee Schedule) in
order to achieve Customer Volume Tiers 1 and 2.
---------------------------------------------------------------------------
\11\ See Fee Schedule, Footnote 6, AIM and SAM Pricing, which
provides an enhanced rebate of $0.11 (or does not assess a fee) for
qualifying Customer orders executed via the Exchange's crossing
auctions.; see also Footnote 7, QCC Initiator/Solicitation Rebate
Tiers, which provide enhanced rebates between $0.05 and $0.11 for
QCC Agency Orders or Solicitation Agency Orders.
---------------------------------------------------------------------------
The Exchanges next proposes to amend Customer Volume Tiers 3 and 4
by increasing, in each, a percentage of ADV into average OCV within
existing criteria and adding to each tier a new, additional criteria
that a Member must meet to receive the existing enhanced rebate. The
Exchange notes that the proposed changes do not alter the current
enhanced rebates provided under Customer Volume Tier 3 and 4.
Specifically, Tier 3 currently provides an enhanced rebate of $0.21 for
Members that have an ADV in Customer
[[Page 42948]]
orders greater than or equal to 0.75% of average OCV. Tier 4 currently
also provides enhanced rebate of $0.21 for Members that have (1) an ADV
in Customer orders greater than or equal 0.60% of average OCV and (2)
an ADV in Customer or Market Maker orders greater than or equal to
1.00% of average OCV. The Exchange proposes to first increase the ADV
in Customer orders from greater than or equal to 0.75% to 1.00%
threshold of average OCV in Tier 3 and from greater than or equal to
0.60% to 0.75% threshold of average OCV in prong 1 in Tier 4. The
Exchange also proposes to add an additional prong of criteria in each
Tier 3 and Tier 4. As proposed, a Member may receive the existing
enhanced rebate under Tier 3 if the Member meets the current criteria
and, also, has an ADV in Customer Non-Crossing orders of greater than
or equal to 0.40% of average OCV. Likewise, a Member may receive the
existing enhanced rebate under Tier 4 if the Member meets the current
(two) criteria and, as proposed, has an ADV in Customer Non-Crossing
orders of greater than or equal to 0.40% of average OCV. The proposed
increases in Customer order ADV as a percentage of average OCV in Tier
3 and Tier 4 are intended to incrementally increase the level of
difficulty in achieving each of these tiers, thus, incentivizing
Members to increase their overall Customer order flow to the Exchange
by encouraging those Members to strive for the different, incrementally
more difficult tier criteria under the proposed tiers to receive the
enhanced rebates. The proposed additional prongs of criteria per each
tier are also designed to incrementally increase the level of
difficulty in achieving Tier 3 and Tier 4, while, like the proposed
changes to Tier 1 and Tier 2 described above, specifically
incentivizing Members to submit Non-Crossing Customer orders to the
Exchange's Order Book.
Likewise, the Exchange also proposes to amend Market Maker Volume
Tiers 7 and 8 by increasing, in each, certain percentages of ADV into
average OCV within existing criteria. Currently, Tier 7 provides a
reduced fee of $0.04 for Members that have (1) an ADV in Customer
orders greater than or equal to 0.30% of average OCV, (2) an ADV in
Customer or Market Maker orders greater than or equal to 0.50% of
average OCV, (3) an ADV in AIM Agency Orders greater than or equal to
0.15% of average OCV, and (4) an ADV in complex Customer orders
(yielding fee codes ZA, ZB, ZC, or ZD) \12\ greater than or equal to
5,000 contracts. Currently, Tier 8 provides a reduced fee of $0.03 for
Members that have (1) an ADV in Customer orders greater than or equal
to 0.70% of average OCV, (2) an ADV in Customer or Market Maker orders
greater than or equal to 1.10% of average OCV, (3) an ADV in AIM Agency
Orders greater than or equal to 0.15% of average OCV, and (4) an ADV in
complex Customer orders (yielding fee codes ZA, ZB, ZC, or ZD) greater
than or equal to 0.20% of average OCV. Regarding Tier 7, the Exchange
proposes to increase the percentage of ADV in Customer orders from
0.30% to 0.70%,of average OCV in prong 1, to increase the percentage of
ADV in AIM Agency Orders from 0.15% to 0.30% of average OCV in prong 3,
and to update prong 4 from ADV in complex Customer orders as greater
than or equal to 5,000 to greater than or equal to 0.10% of average
OCV. Regarding Tier 8, the Exchange proposes to increase the percentage
of ADV in Customer orders from 0.70% to 1.00% in prong 1, and to
increase the percentage of ADV in AIM Agency Orders from 0.15% to 0.75%
in prong 3. Like the proposed changes to Customer Volume Tiers 3 and 4,
the Exchange notes that the proposed changes to criteria in Market
Maker Volume Tiers 7 and 8 incrementally increase the level of
difficulty in achieving these tiers, thus, are designed to incentivize
Members to increase their Customer and/or AIM Agency order flow to the
Exchange by encouraging those Members to strive for the different,
incrementally more difficult tier criteria under the proposed tiers to
receive the reduced rates.
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\12\ Fee code ZA is appended to Complex Customer (contra Non-
Customer), Penny orders and receives a standard rebate of $0.45; fee
code ZB is appended to Complex Customer (contra Non-Customer), Non-
Penny orders and received a standard rebate of $0.80; fee code ZC is
appended to Complex Customer (contra Customer) orders and is
assessed no charge; and fee code ZD is appended to Complex Customer
order that legs into Simple Book and is assessed no charge.
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The Exchange believes that almost all of the proposed fee changes
are designed to incentivize more Customer order flow and, particularly,
a majority of the proposed changes are intended to direct an increase
of Customer order flow to the EDGX Options Order Book. An increase in
Customer order flow will create more trading opportunities, which, in
turn attracts Market-Makers. A resulting increase in Market-Maker
activity may facilitate tighter spreads, which may lead to an
additional increase of order flow from other market participants,
further contributing to a deeper, more liquid market to the benefit of
all market participants by creating a more robust and well-balanced
market ecosystem. Additionally, the proposed change in connection with
the AIM Agency order ADV threshold in Market Maker Volume Tier 8 is
intended to incentivize an increase in AIM Agency orders submitted to
an AIM auction in order to achieve the proposed tier. The Exchange
believes increased AIM Agency order flow results in price improvement
opportunities for customers.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(4),\14\ 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) \15\
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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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
\15\ 15 U.S.C. 78f.(b)(5).
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As described above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
Members.
In particular, the Exchange believes the proposed tiers are
reasonable because they amend existing opportunities in a manner that
incentivizes increased Customer or AIM Agency order flow via
incrementally more challenging criteria in order to receive the same
enhanced rebates or reduced fees on a Member's qualifying
[[Page 42949]]
orders. The Exchange notes that relative volume-based incentives and
discounts have been widely adopted by exchanges,\16\ including the
Exchange,\17\ 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
options venues to which market participants may direct their order
flow, and it represents a small percentage of the overall market.
Competing options 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 and offer comparable pricing to members for achieving such
tiers.\18\
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\16\ See e.g., MIAX Options Fee Schedule, Section 1(a)(i), which
provides reduced fees (ranging from $0.03 to $0.30) for Market Maker
orders that reach various percentage thresholds of volume; and
Section 1(a)(iii), which provides certain credits (ranging from
$0.00 to $0.28) for Customer orders, including agency orders
submitted to an exchange auction, that reach various percentage
thresholds; and Cboe BZX U.S. Options Exchange Fee Schedule,
Footnote 1, Customer Penny Pilot Add Tiers; Footnote 6, Market Maker
Penny Pilot Add Volume Tiers; Footnote 7, Market Maker Non-Penny
Pilot Add Volume Tiers; and Footnote 12, Customer Non-Penny Pilot
Add Volume Tier, all of which provide various tier with different,
incrementally more difficult criteria, many of which are based on
average volumes as a percentage of average OCV.
\17\ See i.e., Cboe EDGX U.S. Options Exchange Fee Schedule,
Footnote 1, Customer Volume Tiers; and Footnote 2, Market Maker
Volume Tiers.
\18\ See supra note 16.
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The Exchange believes the proposed modification to specify that
Non-Crossing Customer order may be submitted in achieving the existing
criteria in Customer Volume Tiers 1 and 2, as well as the proposed
additional criteria in Customer Volume Tiers 3 and 4 for which a Member
must submit Non-Crossing Customer order ADV as a percentage of average
OCV, in order to receive the current enhanced rebates under Customer
Volume Tiers 1 through 4 is reasonable because it is designed to direct
Customer order flow to the Exchange's Order Book, as opposed to into
the Exchange's crossing auctions/mechanisms to achieve the tiers'
criteria, which already receive comparable enhanced rebates and reduced
fees under the Fee Schedule.\19\ An increase in Customer order flow to
the Order Book results in an increase of transaction opportunities
within the Order Book, attracting Market Maker quotes which, in turn,
facilitates tighter spreads on the Exchange and signals additional
corresponding increase in order flow from other market participants.
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. Similarly, the proposed increases in overall Customer order
and AIM Agency order ADV as a percentage of OCV (as proposed within
Customer Volume Tiers 3 and 4 and Market Maker Volume Tiers 7 and 8)
are reasonable modifications to the existing criteria because they are
designed to incrementally increase the difficulty in achieving these
tiers, thereby incentivizing Members to increase their overall Customer
order flow and/or AIM Agency order flow, which benefits customers by
resulting in increased price improvement opportunities within the
auctions, to receive the exiting enhanced rebates and/or reduced fees.
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\19\ See supra note 11.
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Further, the Exchange believes that the proposed rule changes are
reasonable as they do not represent a significant departure from the
current criteria offered in the Fee Schedule and represent proportional
increases in difficulty per adjacent tiers. For example, the Exchange
proposes to simultaneously increase the Customer order ADV thresholds
of average OCV in Customer Volume Tier 3 and Tier 4 and provide the
same additional criteria in each. As a result, the Exchange believes
the level of difficulty in achieving Tier 3 and Tier 4 will remain
approximately the same. Likewise, the Exchange proposes to
simultaneously increase the ADV thresholds in the corresponding prongs
between Tier 7 and Tier 8. That is, prong 1 under both Tier 7 and Tier
8, criteria of which consists of Customer order ADV as a percentage of
average OCV, and prong 3 under both Tier 7 and Tier 8, criteria of
which consists of AIM Agency order ADV as a percentage of average OCV,
will experience incremental increases of ADV as a percentage of average
OCV. Thus, the step up in difficulty from Tier 7 to Tier 8 will remain
approximately the same. Additionally, the Exchange notes that the
proposed change in prong 4 under Tier 7 to amend the threshold of 5,000
contracts to 0.10% of average OCV is better aligned with, and is a
proportional step down from, the 0.20% of average OCV in corresponding
prong 4 under Tier 8. The Exchange again notes that the proposed rule
changes do not alter the amount of any of the current rebates or fees
in place.
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 Customer Volume Tiers 1
through 4 and Market Maker Volume Tiers 7 and 8, as amended. The
proposed changes to the tiers' criteria are designed as an incentive to
any and all Members interested in meeting the tier criteria to submit
additional Customer orders (with opportunities to achieve such tiers
via crossing and non-crossing orders), or AIM Agency orders to the
Exchange. Each will have the opportunity to submit the requisite order
flow and will receive the applicable existing enhanced rebate or
reduced fee if the tier criteria are 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 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
approximately three or four Members will be able to compete for and
achieve the amended criteria in each of Customer Volume Tier 1, 2, 3,
and 4, and at least four Members will be able to compete for and
achieve the amended criteria in each of Market Maker Volume Tier 7 and
Tier 8. 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 tier, the Member will merely not receive the
corresponding enhanced rebate or reduced fee. Furthermore, the existing
rebate and fees will continue to uniformly apply to all Members that
meet the required criteria, as amended, per each respective tier.
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
[[Page 42950]]
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.'' \20\
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\20\ 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 equally in that all Members are eligible
to achieve the tiers' proposed criteria, have a reasonable opportunity
to meet the tiers' proposed criteria and will all receive the existing
enhanced rebates or reduced fees if such criteria is met. Overall, the
proposed change is designed to attract additional Customer and AIM
Agency order flow to the Exchange. The Exchange believes that the
modified tier criteria would incentivize market participants to strive
to increase such order flow to the Exchange to meet the proposed
criteria and, as a result, increase trading opportunities and attract
further Market-Maker activity, 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.
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 15 other options 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 options exchange has more
than 18% of the market share.\21\ 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.'' \22\ 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' . . . .''.\23\ 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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\21\ See supra note 3.
\22\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\23\ 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 \24\ and paragraph (f) of Rule 19b-4 \25\
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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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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-2020-033 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-2020-033. 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
[[Page 42951]]
office of the Exchange. 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-2020-033, and should be submitted on or before August 5, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15214 Filed 7-14-20; 8:45 am]
BILLING CODE 8011-01-P
