Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule Applicable to Its Equities Trading Platform To Introduce a Flat Charge for the Execution of MDOs That Are Entered With the QDP Instruction, 43269-43272 [2020-15304]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Notices
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2019–87; Filing
Title: USPS Notice of Amendment to
Priority Mail Contract 507, Filed Under
Seal; Filing Acceptance Date: July 10,
2020; Filing Authority: 39 CFR
3035.105; Public Representative:
Christopher C. Mohr; Comments Due:
July 20, 2020.
2. Docket No(s).: CP2020–67; Filing
Title: USPS Notice of Amendment to
Parcel Select Contract 36, Filed Under
Seal; Filing Acceptance Date: July 10,
2020; Filing Authority: 39 CFR
3035.105; Public Representative:
Christopher C. Mohr; Comments Due:
July 20, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–15372 Filed 7–15–20; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89291; File No. SR–
CboeEDGA–2020–019]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fee Schedule Applicable to Its Equities
Trading Platform To Introduce a Flat
Charge for the Execution of MDOs That
Are Entered With the QDP Instruction
July 10, 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 EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) 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 EDGA Exchange, Inc. (‘‘EDGA’’
or the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to amend the fee schedule
applicable to its equities trading
platform to introduce a flat charge for
the execution of MDOs that are entered
with the QDP instruction. 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/edga/),
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
On June 4, 2020, the Commission
approved the Exchange’s proposed
introduction of a new order instruction,
Quote Depletion Protection (‘‘QDP’’),
that is available for Midpoint
Discretionary Orders (‘‘MDOs’’).3 QDP,
1 15
1 See
Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
VerDate Sep<11>2014
17:43 Jul 15, 2020
Jkt 250001
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89016
(June 4, 2020), 85 FR 35488 (June 10, 2020) (SR–
CboeEDGA–2020–005).
PO 00000
2 17
Frm 00065
Fmt 4703
Sfmt 4703
43269
which was launched by the Exchange
on June 10, 2020, is designed to provide
enhanced protections to MDOs by
tracking significant executions on the
EDGA Book, and facilitating the ability
of Users to avoid potentially
unfavorable executions by preventing
MDOs entered with the optional QDP
instruction from exercising discretion to
trade at more aggressive prices when
QDP has been triggered. The Exchange
now proposes to introduce a flat charge
for the execution of MDOs that are
entered with the QDP instruction.
EDGA operates pursuant to an
inverted pricing model where orders
that add liquidity are generally charged
a fee, and orders that remove liquidity
are generally provided a rebate. Unlike
MDOs entered on the Exchange’s
affiliate, Cboe EDGX, Exchange, Inc.
(‘‘EDGX’’), MDOs entered on the
Exchange pursuant to EDGA Rule
11.8(e) are allowed to execute both on
entry and also after resting on the EDGA
Book. MDOs that are executed on the
Exchange may therefore be subject to a
fee, rebate, or in some instances free
executions, depending on whether the
order is executed as the adder or
remover of liquidity, and whether or not
the order is executed within its
discretionary range. Specifically, an
MDO that adds liquidity is currently
charged a fee of $0.00300 per share for
securities priced at or above $1.00.4
This fee applies to MDOs that are
executed either within the order’s
discretionary range or at its displayed or
non-displayed ranked price.5
Conversely, for MDOs that remove
liquidity in securities priced at or above
$1.00, the Exchange’s pricing depends
on whether the order is executed within
its discretionary range or at its
displayed or non-displayed ranked
price. Specifically, the Exchange
currently provides a rebate of $0.00240
per share for MDOs that remove
liquidity at the order’s displayed or nondisplayed ranked price,6 but instead
offers free executions for MDOs that
remove liquidity within the order’s
discretionary range, in each case for
securities priced at or above $1.00.7 For
all MDOs executed in securities priced
below $1.00, the Exchange provides free
executions, regardless of whether the
order is executed as the adder or
remover of liquidity, or whether or not
4 See
EDGA Fee Schedule, Fee Codes DA and DM.
5 Id.
6 See
7 See
E:\FR\FM\16JYN1.SGM
EDGA Fee Schedule, Fee Code DR.
EDGA Fee Schedule, Fee Code DT.
16JYN1
43270
Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Notices
the order is executed within its
discretionary range.8
The Exchange now proposes to
instead introduce a small flat fee for the
execution of an MDO that is entered
with a QDP instruction. As proposed,
MDOs entered with a QDP instruction
would be subject to a fee of $0.00040
per share for securities priced at or
above $1.00, or 0.30% of the dollar
value of the trade for securities priced
below $1.00.9 This charge would apply
to the execution of MDOs that are
entered with a QDP instruction,
regardless of whether a QDP Active
Period has been enabled in the security.
MDOs entered without the optional
QDP instruction would continue to be
subject to current pricing. The
Exchange’s affiliate, Cboe EDGX
Exchange, Inc. (‘‘EDGX’’) is
simultaneously proposing a similar flat
fee pricing model for MDOs entered
with a QDP instruction that are
executed on that exchange.10
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,11
in general, and furthers the objectives of
Section 6(b)(4),12 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its members and
other persons using its facilities.
Specifically, the Exchange believes that
the proposed rule change is consistent
with the requirements of the Act as it is
designed to compensate the Exchange
for the development of new and
innovative market features, i.e., QDP,
while continuing to provide a pricing
model that the Exchange believes is
competitive with pricing models offered
by other national securities exchanges
and off-exchange venues that offer
similar protective features to their
customers. 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. The proposed rule change
reflects a competitive pricing structure
designed both to compensate the
Exchange for the introduction of
innovative features and allow it to
8 See EDGA Fee Schedule, Fee Codes DA, DM,
DR, and DT.
9 To effect this change, the Exchange would
introduce a new fee code ‘‘DQ’’ to its fee schedule
that applies to MDOs entered with a QDP
instruction.
10 See SR–CboeEDGX–2020–032 (pending
publication).
11 15 U.S.C. 78f.
12 15 U.S.C. 78f(b)(4).
VerDate Sep<11>2014
17:43 Jul 15, 2020
Jkt 250001
continue to compete aggressively with
other market centers.
As discussed, the proposed rule
change would introduce pricing that is
specific to MDOs entered with the
recently-introduced QDP instruction.
Although such MDOs would be subject
to a small flat fee instead of a fee, rebate,
or free execution under the current
pricing model, the Exchange believes
that the proposed pricing is reasonable
given the enhanced benefits provided to
Users that choose to utilize the
protective features provided by the QDP
instruction. QDP, which was introduced
on the Exchange in June, is designed to
facilitate the ability for market
participants, including buy-side and
other investors, to avoid potentially
unfavorable executions in an MDO’s
discretionary range by preventing the
exercise of discretion for two
milliseconds following the execution of
the EDGA best bid or offer on the same
side of the market as the MDO below
one round lot. While market
participants that use this instruction
would be subject to a small flat charge,
including when the order adds or
removes liquidity, the Exchange
believes that the value of the protection
provided by this feature outweighs the
small fee that would be charged by the
Exchange. Further, the proposed pricing
may actually be beneficial to market
participants that primarily add liquidity
with MDOs as the proposed flat fee
would be lower than the fee charged
under the current MDO pricing model.
In this respect, the Exchange notes that
although MDOs entered on the EDGA
Book may remove liquidity, both MDOs
and the associated QDP instruction are
designed primarily to facilitate liquidity
provision by buy-side and other
investors that are seeking protection
from potential adverse selection risks.
As a result, the Exchange believes that
the benefits of more attractive pricing
for adding liquidity may outweigh, in
many respects, the costs of paying a fee
when removing liquidity.
The Nasdaq Stock Market LLC
(‘‘Nasdaq’’) similarly charges special
fees for the use of orders that are
designed to offer certain protections to
market participants. Specifically,
Nasdaq charges a fee of $0.0004 per
share to members that trade using its
Midpoint Extended Life Order (‘‘M–
ELO’’) in securities priced at or above
$1.13 The Exchange believes that the
proposed fees would be competitive
with the fees that Nasdaq charges for M–
13 See Nasdaq Rules, Equity 7, Pricing Schedule,
Section 118(a)(1),(2),(3). Nasdaq does not charge a
fee for M–ELO executions in securities priced
below $1. See Nasdaq Rules, Equity 7, Pricing
Schedule, Section 118(b).
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
ELO executions, as well as the fees
charged by other national securities
exchanges and off-exchange venues that
provide various protective features.14
QDP is offered on a voluntary basis, and
therefore market participants that would
prefer to operate under the current
pricing structure can continue to enter
MDOs without the QDP instruction. The
Exchange believes, however, that market
participants may find value in the use
of the QDP instruction, and—similar to
firms that trade using Nasdaq M–ELO,
IEX Discretionary Peg, or other similar
trading mechanisms—would be willing
to pay a small flat fee to benefit from the
protections that this instruction is
designed to provide to investors.
The Exchange also believes that the
proposed fee change is equitable and
not unfairly discriminatory because it
would apply equally to all MDOs
entered with a QDP instruction. As
discussed, QDP is an optional order
instruction that a market participant can
choose to include on an MDO entered
on the Exchange in order to benefit from
enhanced protections at times when
recent executions on the EDGA Book
suggest that the market may be about to
move against the resting MDO. Both the
MDO order type and the associated QDP
instruction are available to all Users on
an equal and non-discriminatory basis,
and any User that chooses to use the
QDP instruction would be subject to the
same fee. As proposed, any MDO
entered with a QDP instruction would
be charged a small flat fee, regardless of
how the order is ultimately executed.
That is, an MDO entered with a QDP
instruction would always be subject to
a small transaction fee, whether or not
the order acts as the adder or remover
of liquidity, whether or not the MDO is
executed within its discretionary range
or at its displayed or non-displayed
ranked price, and irrespective of
whether or not the MDO is executed
during a QDP Active Period where
executions within the order’s
discretionary range are prevented.
Although MDOs that include the new
QDP instruction would be subject to a
simplified pricing model compared to
MDOs that do not include this
instruction, the Exchange does not
believe that this is inequitable or
unfairly discriminatory within the
meaning of the Act. All similarly
14 For example, Investors Exchange LLC (‘‘IEX’’),
charges a fee of $0.0009 or $0.0003 per share for
adding or removing non-displayed or displayed
liquidity, respectively. See IEX Fee Schedule, Fee
Codes I and L. Although IEX does not have special
pricing for its Discretionary Peg Orders, which are
similar in certain respects to an MDO entered with
a QDP instruction, firms that trade such orders on
IEX would be subject to the general transaction fees
described above.
E:\FR\FM\16JYN1.SGM
16JYN1
Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Notices
situated market participants would be
subject to consistent and nondiscriminatory pricing based on the
instructions that they include on their
MDOs, with Users that include the
optional QDP instruction paying a small
fee that the Exchange believes is modest
in relation to the value provided by the
QDP instruction in avoiding potentially
unfavorable executions. The proposed
pricing is designed to be attractive to
Users that enter MDOs with a QDP
instruction, notwithstanding the fact
that market participants would be
subject to a fee in all circumstances.
Further, the Exchange believes that the
ability to charge a flat fee for the
execution of such orders would
appropriately compensate the Exchange
for the development of this feature,
while allowing the Exchange to offer
pricing that is competitive with other
national securities exchanges and offexchange venues that may offer
competing features. To the extent that
any particular User believes that the
benefits of the QDP instruction are
outweighed by the proposed pricing,
such Users would be free to enter MDOs
without the QDP instruction, in which
case their orders would be subject to the
same pricing offered today.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, the
Exchange believes that the proposed
changes to its fees would promote
continued competition between the
Exchange, other national securities
exchanges, and off-exchange venues that
must continuously compete to offer both
competitive pricing and services to
members and investors. As proposed,
the Exchange would charge a small flat
fee for the use of its recently-introduced
QDP instruction. Charging fees for the
use of this instruction would both
compensate for the development and
introduction of new and innovative
features, and provide continued
incentives for the Exchange to compete
on both cost and the quality of its
products and services.
Intramarket Competition
The Exchange believes the proposed
rule change would not impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed fees would apply to all
members equally in that all members
would be subject to the same flat fee for
the execution of orders that include a
VerDate Sep<11>2014
17:43 Jul 15, 2020
Jkt 250001
QDP instruction. The Exchange and
other national securities exchanges (e.g.,
Nasdaq) offer pricing that is based on
the characteristics of the order that is
executed on the Exchange. Although
MDOs entered with the QDP instruction
would be subject to the pricing
described in this proposed rule change,
the Exchange does not believe that
pricing would impose any significant
burden on intramarket competition as
this fee would be applied in the same
manner to the execution of any MDO
entered with this instruction. Both MDO
and the associated QDP instruction
discussed in this filing are available to
all Users on an equal and nondiscriminatory basis. As a result, any
User can decide to use (or not use) the
QDP instruction based on the benefits
provided by that instruction in
potentially avoiding unfavorable
executions, and the associated charge
that the Exchange proposes to introduce
for its use. As discussed, any firm that
chooses to use the QDP instruction
would be charged the same flat fee for
the execution of orders that are entered
with this instruction.
Intermarket Competition
The Exchange also believes the
proposed fees would not impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
As discussed, the Exchange operates in
a highly competitive market where
members can direct their orders to a
number of different market centers.
These include 12 live U.S. equities
exchanges, as well as a large number of
off-exchange venues that trade NMS
stocks. In addition, the Exchange
represents a small percentage of the
overall market. Based on publicly
available information, no single equities
exchange has more than 20% of U.S.
equities market share.15 Therefore, no
exchange possesses significant pricing
power in the execution of order flow.
Indeed, market 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, or if they
believe that the products and services
that they offer are better serve their
trading needs. Since competitors are
free to modify their own pricing in
response, and as market participants
may readily adjust their order routing
practices, the Exchange believes that the
degree to which pricing changes in this
15 See Cboe Global Markets U.S. Equities Market
Volume Summary (May 28, 2020), available at
https://markets.cboe.com/us/equities/market_share/.
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
43271
market may impose any burden on
competition is extremely limited.
Conclusion
In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share to
competing exchanges and off-exchange
venues as a result. Accordingly, the
Exchange does not believe that the
proposed changes would impair the
ability of members or competing order
execution venues to maintain their
competitive standing in the financial
markets. Indeed, 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.’’ 16
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’. . . .’’.17 Accordingly, the
Exchange does not believe the proposed
fees impose 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
No written comments were either
solicited or received.
16 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
17 See 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)).
E:\FR\FM\16JYN1.SGM
16JYN1
43272
Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Notices
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 18 and paragraph (f) of Rule
19b–4 19 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–
CboeEDGA–2020–019 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–CboeEDGA–2020–019. 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–CboeEDGA–2020–019, and
should be submitted on or before
August 6, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15304 Filed 7–15–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89286; File No. SR–ICC–
2020–009]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Proposed
Rule Change Relating to the ICC Risk
Management Framework, ICC Risk
Management Model Description, ICC
Risk Parameter Setting and Review
Policy, ICC Stress Testing Framework,
and ICC Liquidity Risk Management
Framework
July 10, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 1 and
Rule 19b–4 2, notice is hereby given that
on July 1, 2020, ICE Clear Credit LLC
(‘‘ICC’’) filed with the Securities and
Exchange Commission the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared primarily by ICC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The principal purpose of the
proposed rule change is to make
changes to ICC’s Risk Management
Framework (‘‘RMF’’), Risk Management
Model Description (‘‘RMMD’’), Risk
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18 15
U.S.C. 78s(b)(3)(A).
19 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
17:43 Jul 15, 2020
1 15
Jkt 250001
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
Parameter Setting and Review Policy
(‘‘RPSRP’’), Stress Testing Framework
(‘‘STF’’), and Liquidity Risk
Management Framework (‘‘LRMF’’).
These revisions do not require any
changes to the ICC Clearing Rules.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICC
included statements concerning the
purpose of and basis for the proposed
rule change, security-based swap
submission, or advance notice and
discussed any comments it received on
the proposed rule change, securitybased swap submission, or advance
notice. The text of these statements may
be examined at the places specified in
Item IV below. ICC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
ICC proposes revising its RMF,
RMMD, RPSRP, STF, and LRMF. The
proposed amendments would update
certain stress scenario naming
conventions to be more generic and
introduce stress scenarios related to the
Coronavirus pandemic and oil price war
in March 2020 (‘‘COVID–19/Oil Crisis
Scenarios’’). The proposed amendments
would also make clarification changes,
including adding additional
transparency and clarity with respect to
ICC’s liquidity risk management
practices. ICC believes that such
revisions will facilitate the prompt and
accurate clearance and settlement of
securities transactions and derivative
agreements, contracts, and transactions
for which it is responsible. ICC proposes
to move forward with implementation
of such changes following Commission
approval of the proposed rule change.3
3 ICC has filed with the Commission changes
related to clearing credit default index swaptions
(‘‘Index Swaptions’’), which ICC intends to
implement following the completion of the ICC
governance process surrounding the Index
Swaptions product expansion and Commission
approval of any related policies and procedures.
SEC Release No. 34–87297 (Oct. 15, 2019)
(approval), 84 FR 56270 (Oct. 21, 2019) (SR–ICC–
2019–007); SEC Release No. 34–89142 (June 24,
2020) (approval), 85 FR 39226 (June 30, 2020) (SR–
ICC–2020–002); SEC Release No. 34–89072 (June
16, 2020) (notice), 85 FR 37483 (June 22, 2020) (SR–
ICC–2020–008). ICC similarly proposes to
implement any changes in this proposed rule
change that impact the documentation in respect of
Index Swaptions after completion of the governance
process surrounding the Index Swaptions product
expansion and Commission approval of any related
policies and procedures.
E:\FR\FM\16JYN1.SGM
16JYN1
]]>Agencies
[Federal Register Volume 85, Number 137 (Thursday, July 16, 2020)]
[Notices]
[Pages 43269-43272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15304]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89291; File No. SR-CboeEDGA-2020-019]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule Applicable to Its Equities Trading Platform To
Introduce a Flat Charge for the Execution of MDOs That Are Entered With
the QDP Instruction
July 10, 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 EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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 EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fee schedule applicable to its
equities trading platform to introduce a flat charge for the execution
of MDOs that are entered with the QDP instruction. 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/edga/), 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
On June 4, 2020, the Commission approved the Exchange's proposed
introduction of a new order instruction, Quote Depletion Protection
(``QDP''), that is available for Midpoint Discretionary Orders
(``MDOs'').\3\ QDP, which was launched by the Exchange on June 10,
2020, is designed to provide enhanced protections to MDOs by tracking
significant executions on the EDGA Book, and facilitating the ability
of Users to avoid potentially unfavorable executions by preventing MDOs
entered with the optional QDP instruction from exercising discretion to
trade at more aggressive prices when QDP has been triggered. The
Exchange now proposes to introduce a flat charge for the execution of
MDOs that are entered with the QDP instruction.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 89016 (June 4,
2020), 85 FR 35488 (June 10, 2020) (SR-CboeEDGA-2020-005).
---------------------------------------------------------------------------
EDGA operates pursuant to an inverted pricing model where orders
that add liquidity are generally charged a fee, and orders that remove
liquidity are generally provided a rebate. Unlike MDOs entered on the
Exchange's affiliate, Cboe EDGX, Exchange, Inc. (``EDGX''), MDOs
entered on the Exchange pursuant to EDGA Rule 11.8(e) are allowed to
execute both on entry and also after resting on the EDGA Book. MDOs
that are executed on the Exchange may therefore be subject to a fee,
rebate, or in some instances free executions, depending on whether the
order is executed as the adder or remover of liquidity, and whether or
not the order is executed within its discretionary range. Specifically,
an MDO that adds liquidity is currently charged a fee of $0.00300 per
share for securities priced at or above $1.00.\4\ This fee applies to
MDOs that are executed either within the order's discretionary range or
at its displayed or non-displayed ranked price.\5\ Conversely, for MDOs
that remove liquidity in securities priced at or above $1.00, the
Exchange's pricing depends on whether the order is executed within its
discretionary range or at its displayed or non-displayed ranked price.
Specifically, the Exchange currently provides a rebate of $0.00240 per
share for MDOs that remove liquidity at the order's displayed or non-
displayed ranked price,\6\ but instead offers free executions for MDOs
that remove liquidity within the order's discretionary range, in each
case for securities priced at or above $1.00.\7\ For all MDOs executed
in securities priced below $1.00, the Exchange provides free
executions, regardless of whether the order is executed as the adder or
remover of liquidity, or whether or not
[[Page 43270]]
the order is executed within its discretionary range.\8\
---------------------------------------------------------------------------
\4\ See EDGA Fee Schedule, Fee Codes DA and DM.
\5\ Id.
\6\ See EDGA Fee Schedule, Fee Code DR.
\7\ See EDGA Fee Schedule, Fee Code DT.
\8\ See EDGA Fee Schedule, Fee Codes DA, DM, DR, and DT.
---------------------------------------------------------------------------
The Exchange now proposes to instead introduce a small flat fee for
the execution of an MDO that is entered with a QDP instruction. As
proposed, MDOs entered with a QDP instruction would be subject to a fee
of $0.00040 per share for securities priced at or above $1.00, or 0.30%
of the dollar value of the trade for securities priced below $1.00.\9\
This charge would apply to the execution of MDOs that are entered with
a QDP instruction, regardless of whether a QDP Active Period has been
enabled in the security. MDOs entered without the optional QDP
instruction would continue to be subject to current pricing. The
Exchange's affiliate, Cboe EDGX Exchange, Inc. (``EDGX'') is
simultaneously proposing a similar flat fee pricing model for MDOs
entered with a QDP instruction that are executed on that exchange.\10\
---------------------------------------------------------------------------
\9\ To effect this change, the Exchange would introduce a new
fee code ``DQ'' to its fee schedule that applies to MDOs entered
with a QDP instruction.
\10\ See SR-CboeEDGX-2020-032 (pending publication).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\11\ in general, and
furthers the objectives of Section 6(b)(4),\12\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other persons using its
facilities. Specifically, the Exchange believes that the proposed rule
change is consistent with the requirements of the Act as it is designed
to compensate the Exchange for the development of new and innovative
market features, i.e., QDP, while continuing to provide a pricing model
that the Exchange believes is competitive with pricing models offered
by other national securities exchanges and off-exchange venues that
offer similar protective features to their customers. 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. The proposed rule change
reflects a competitive pricing structure designed both to compensate
the Exchange for the introduction of innovative features and allow it
to continue to compete aggressively with other market centers.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
As discussed, the proposed rule change would introduce pricing that
is specific to MDOs entered with the recently-introduced QDP
instruction. Although such MDOs would be subject to a small flat fee
instead of a fee, rebate, or free execution under the current pricing
model, the Exchange believes that the proposed pricing is reasonable
given the enhanced benefits provided to Users that choose to utilize
the protective features provided by the QDP instruction. QDP, which was
introduced on the Exchange in June, is designed to facilitate the
ability for market participants, including buy-side and other
investors, to avoid potentially unfavorable executions in an MDO's
discretionary range by preventing the exercise of discretion for two
milliseconds following the execution of the EDGA best bid or offer on
the same side of the market as the MDO below one round lot. While
market participants that use this instruction would be subject to a
small flat charge, including when the order adds or removes liquidity,
the Exchange believes that the value of the protection provided by this
feature outweighs the small fee that would be charged by the Exchange.
Further, the proposed pricing may actually be beneficial to market
participants that primarily add liquidity with MDOs as the proposed
flat fee would be lower than the fee charged under the current MDO
pricing model. In this respect, the Exchange notes that although MDOs
entered on the EDGA Book may remove liquidity, both MDOs and the
associated QDP instruction are designed primarily to facilitate
liquidity provision by buy-side and other investors that are seeking
protection from potential adverse selection risks. As a result, the
Exchange believes that the benefits of more attractive pricing for
adding liquidity may outweigh, in many respects, the costs of paying a
fee when removing liquidity.
The Nasdaq Stock Market LLC (``Nasdaq'') similarly charges special
fees for the use of orders that are designed to offer certain
protections to market participants. Specifically, Nasdaq charges a fee
of $0.0004 per share to members that trade using its Midpoint Extended
Life Order (``M-ELO'') in securities priced at or above $1.\13\ The
Exchange believes that the proposed fees would be competitive with the
fees that Nasdaq charges for M-ELO executions, as well as the fees
charged by other national securities exchanges and off-exchange venues
that provide various protective features.\14\ QDP is offered on a
voluntary basis, and therefore market participants that would prefer to
operate under the current pricing structure can continue to enter MDOs
without the QDP instruction. The Exchange believes, however, that
market participants may find value in the use of the QDP instruction,
and--similar to firms that trade using Nasdaq M-ELO, IEX Discretionary
Peg, or other similar trading mechanisms--would be willing to pay a
small flat fee to benefit from the protections that this instruction is
designed to provide to investors.
---------------------------------------------------------------------------
\13\ See Nasdaq Rules, Equity 7, Pricing Schedule, Section
118(a)(1),(2),(3). Nasdaq does not charge a fee for M-ELO executions
in securities priced below $1. See Nasdaq Rules, Equity 7, Pricing
Schedule, Section 118(b).
\14\ For example, Investors Exchange LLC (``IEX''), charges a
fee of $0.0009 or $0.0003 per share for adding or removing non-
displayed or displayed liquidity, respectively. See IEX Fee
Schedule, Fee Codes I and L. Although IEX does not have special
pricing for its Discretionary Peg Orders, which are similar in
certain respects to an MDO entered with a QDP instruction, firms
that trade such orders on IEX would be subject to the general
transaction fees described above.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fee change is
equitable and not unfairly discriminatory because it would apply
equally to all MDOs entered with a QDP instruction. As discussed, QDP
is an optional order instruction that a market participant can choose
to include on an MDO entered on the Exchange in order to benefit from
enhanced protections at times when recent executions on the EDGA Book
suggest that the market may be about to move against the resting MDO.
Both the MDO order type and the associated QDP instruction are
available to all Users on an equal and non-discriminatory basis, and
any User that chooses to use the QDP instruction would be subject to
the same fee. As proposed, any MDO entered with a QDP instruction would
be charged a small flat fee, regardless of how the order is ultimately
executed. That is, an MDO entered with a QDP instruction would always
be subject to a small transaction fee, whether or not the order acts as
the adder or remover of liquidity, whether or not the MDO is executed
within its discretionary range or at its displayed or non-displayed
ranked price, and irrespective of whether or not the MDO is executed
during a QDP Active Period where executions within the order's
discretionary range are prevented.
Although MDOs that include the new QDP instruction would be subject
to a simplified pricing model compared to MDOs that do not include this
instruction, the Exchange does not believe that this is inequitable or
unfairly discriminatory within the meaning of the Act. All similarly
[[Page 43271]]
situated market participants would be subject to consistent and non-
discriminatory pricing based on the instructions that they include on
their MDOs, with Users that include the optional QDP instruction paying
a small fee that the Exchange believes is modest in relation to the
value provided by the QDP instruction in avoiding potentially
unfavorable executions. The proposed pricing is designed to be
attractive to Users that enter MDOs with a QDP instruction,
notwithstanding the fact that market participants would be subject to a
fee in all circumstances. Further, the Exchange believes that the
ability to charge a flat fee for the execution of such orders would
appropriately compensate the Exchange for the development of this
feature, while allowing the Exchange to offer pricing that is
competitive with other national securities exchanges and off-exchange
venues that may offer competing features. To the extent that any
particular User believes that the benefits of the QDP instruction are
outweighed by the proposed pricing, such Users would be free to enter
MDOs without the QDP instruction, in which case their orders would be
subject to the same pricing offered today.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the Exchange
believes that the proposed changes to its fees would promote continued
competition between the Exchange, other national securities exchanges,
and off-exchange venues that must continuously compete to offer both
competitive pricing and services to members and investors. As proposed,
the Exchange would charge a small flat fee for the use of its recently-
introduced QDP instruction. Charging fees for the use of this
instruction would both compensate for the development and introduction
of new and innovative features, and provide continued incentives for
the Exchange to compete on both cost and the quality of its products
and services.
Intramarket Competition
The Exchange believes the proposed rule change would not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed fees would
apply to all members equally in that all members would be subject to
the same flat fee for the execution of orders that include a QDP
instruction. The Exchange and other national securities exchanges
(e.g., Nasdaq) offer pricing that is based on the characteristics of
the order that is executed on the Exchange. Although MDOs entered with
the QDP instruction would be subject to the pricing described in this
proposed rule change, the Exchange does not believe that pricing would
impose any significant burden on intramarket competition as this fee
would be applied in the same manner to the execution of any MDO entered
with this instruction. Both MDO and the associated QDP instruction
discussed in this filing are available to all Users on an equal and
non-discriminatory basis. As a result, any User can decide to use (or
not use) the QDP instruction based on the benefits provided by that
instruction in potentially avoiding unfavorable executions, and the
associated charge that the Exchange proposes to introduce for its use.
As discussed, any firm that chooses to use the QDP instruction would be
charged the same flat fee for the execution of orders that are entered
with this instruction.
Intermarket Competition
The Exchange also believes the proposed fees would not impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. As discussed, the Exchange
operates in a highly competitive market where members can direct their
orders to a number of different market centers. These include 12 live
U.S. equities exchanges, as well as a large number of off-exchange
venues that trade NMS stocks. In addition, the Exchange represents a
small percentage of the overall market. Based on publicly available
information, no single equities exchange has more than 20% of U.S.
equities market share.\15\ Therefore, no exchange possesses significant
pricing power in the execution of order flow. Indeed, market
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, or if they believe that the products and services
that they offer are better serve their trading needs. Since competitors
are free to modify their own pricing in response, and as market
participants may readily adjust their order routing practices, the
Exchange believes that the degree to which pricing changes in this
market may impose any burden on competition is extremely limited.
---------------------------------------------------------------------------
\15\ See Cboe Global Markets U.S. Equities Market Volume Summary
(May 28, 2020), available at https://markets.cboe.com/us/equities/market_share/.
---------------------------------------------------------------------------
Conclusion
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share to
competing exchanges and off-exchange venues as a result. Accordingly,
the Exchange does not believe that the proposed changes would impair
the ability of members or competing order execution venues to maintain
their competitive standing in the financial markets. Indeed, 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.'' \16\
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
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'. . . .''.\17\ Accordingly, the Exchange does not believe the
proposed fees impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\17\ See 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)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
[[Page 43272]]
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 \18\ and paragraph (f) of Rule 19b-4 \19\
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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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-CboeEDGA-2020-019 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-CboeEDGA-2020-019. 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-CboeEDGA-2020-019, and should be
submitted on or before August 6, 2020.
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15304 Filed 7-15-20; 8:45 am]
BILLING CODE 8011-01-P
