Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule, 61039-61043 [2020-21406]
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Federal Register / Vol. 85, No. 189 / Tuesday, September 29, 2020 / Notices
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BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89970; File No. SR–
CboeEDGX–2020–045]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fee Schedule
September 23, 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
September 11, 2020, Cboe EDGX
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘EDGX’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend the fee
schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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61039
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule applicable to its equities
trading platform (‘‘EDGX Equities’’) by:
(1) Amending certain standard rates; (2)
adding a new fee code; (3) updating the
Non-Displayed Add Volume Tiers; and
(4) including a Remove Volume Tier.3
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
13 registered equities exchanges, as well
as a number of alternative trading
systems and other off-exchange venues
that do not have similar self-regulatory
responsibilities under the Exchange Act,
to which market participants may direct
their order flow. Based on publicly
available information,4 no single
registered equities exchange has more
than 18% of the market share. Thus, in
such a low-concentrated and highly
competitive market, no single equities
exchange possesses significant pricing
power in the execution of order flow.
The Exchange in particular operates a
‘‘Maker-Taker’’ model whereby it pays
credits to members that provide
liquidity and assesses fees to those that
remove liquidity. The Exchange’s fee
schedule sets forth the standard rebates
and rates applied per share for orders
that provide and remove liquidity,
respectively. Currently, for orders
priced at or above $1.00, the Exchange
provides a standard rebate of $0.0017
per share for orders that add liquidity
and assesses a fee of $0.0027 per share
for orders that remove liquidity. For
orders priced below $1.00, the Exchange
a standard rebate of $0.00003 per share
for orders that add liquidity and
assesses a fee of 0.30% of Dollar Value
for orders that remove liquidity.
Additionally, in response to the
competitive environment, the Exchange
also offers tiered pricing which provides
Members opportunities to qualify for
higher rebates or reduced fees where
certain volume criteria and thresholds
are met. Tiered pricing provides an
3 The Exchange initially filed the proposed fee
changes on September 1, 2020 (SR–CboeEDGX–
2020–044). On September 11, 2020, the Exchange
withdrew that filing and submitted this proposal.
4 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (August 24,
2020), available at https://markets.cboe.com/us/
equities/market_statistics/.
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Federal Register / Vol. 85, No. 189 / Tuesday, September 29, 2020 / Notices
incremental incentive for Members to
strive for higher tier levels, which
provides increasingly higher benefits or
discounts for satisfying increasingly
more stringent criteria.
Proposed Amendment to Standard
Rebate for Securities Under $1.00
As stated above, the Exchange
currently offers a standard rebate of
$0.00003 for orders in securities below
$1.00 that add liquidity. The Exchange
proposes to amend this standard rate by
providing a standard rebate of $0.00009
for orders that add liquidity in securities
priced under $1.00 and reflects this
change in the Fee Codes and Associated
Fee where applicable (i.e.,
corresponding to fee codes 3, 4, B, V,
and Y). The Exchange notes that the
proposed standard rate is in line with,
yet also competitive with, rates assessed
by other equities exchanges on orders in
securities priced below $1.00.5 The
Exchange notes, too, that its affiliated
exchange, Cboe BZX Exchange, Inc.
(‘‘BZX Equities’’), is simultaneously
submitting a fee change to amend its
same current standard rate for orders
that add liquidity in securities under
$1.00 in the same manner.
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Proposed New Fee Code
The Exchange proposed to add a new
type of fee code in the Fee Code and
Associated Fees table in the Fee
Schedule. Specifically, the proposed fee
code ‘‘ZM’’ is appended to Retail 6 Day
or Regular Hours Only (‘‘RHO’’) 7 Orders
5 See NYSE Price List 2020, ‘‘Transactions in
stocks with a per share stock price less than $1.00’’,
which either does not assess a charge or assesses
a charge of 0.3% for various orders in securities
priced below $1.00; and Nasdaq Pricing, ‘‘Rebates
and Fees, Shares Executed Below $1.00’’, which
assesses no change for orders to add liquidity in
securities priced below $1.00 and assesses a charge
of 0.30% of total dollar volume for orders to remove
liquidity in securities priced below $1.00.
6 See EDGX Rule 11.21(a)(1). A ‘‘Retail Order’’ is
an agency or riskless principal order that meets the
criteria of FINRA Rule 5320.03 that originates from
a natural person and is submitted to the Exchange
by a Retail Member Organization, provided that no
change is made to the terms of the order with
respect to price or side of market and the order does
not originate from a trading algorithm or any other
computerized methodology. See EDGX Rule
11.21(a)(2). Retail Orders are submitted by a ‘‘Retail
Member Organization’’ or ‘‘RMO’’, which is a
member (or a division thereof) that has been
approved by the Exchange to submit such orders.
7 ‘‘Day’’ is an instruction the User may attach to
an order stating that an order to buy or sell which,
if not executed, expires at the end of Regular
Trading Hours. Any Day Order entered into the
System before the opening for business on the
Exchange, or after the closing of Regular Trading
Hours, will be rejected. See EDGX Rule 11.6(q)(2).
‘‘Regular Hours Only (‘‘RHO’’) is an instruction a
User may attach to an order designating it for
execution only during Regular Trading Hours,
which includes the Opening Process and ReOpening Process following a halt suspension or
pause. See EDGX Rule 11.6(q)(6).
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that remove liquidity on arrival and are
assessed no fee. Currently, such orders
in securities priced at or above $1.00 are
assessed the standard fee of $0.0027 to
remove liquidity and such orders in
securities priced below $1.00 are
assessed the standard fee of 0.30% of
Dollar Value to remove liquidity.
Proposed Updates to the Non-Displayed
Add Volume Tiers
Currently, the Exchange provides for
three Non-Displayed Add Volume Tiers
under footnote 1 of the Fee Schedule.
These tiers offer enhanced rebates on
Members’ orders yielding fee codes
‘‘DM’’ 8, ‘‘HA’’ 9, ‘‘MM’’ 10 and ‘‘RP’’ 11
where a Member reaches certain
required volume-based criteria offered
in each tier. Specifically, the NonDisplayed Add Volume Tiers are as
follows:
• Tier 1 provides an enhanced rebate
of $0.0015 for a Member’s qualifying
orders (i.e., yielding fee codes DM, HA,
MM and RP) where a Member adds an
ADV 12 greater than or equal to
1,000,000 shares as Non-Displayed
orders that yield fee codes DM, HA, HI,
MM or RP.
• Tier 2 provides an enhanced rebate
of $0.0022 for a Member’s qualifying
orders where a Member adds an ADV
greater than or equal to 2,500,000 shares
as Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
• Tier 3 provides an enhanced rebate
of $0.0025 for a Member’s qualifying
orders where a Member adds an ADV
greater than or equal to 7,000,000 shares
as Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
The Exchange proposes to update the
criteria in each of the Non-Displayed
Add Volume Tiers as follows below.
The Exchange notes that the enhanced
rebates currently provided in each tier
remain the same.
• To meet the proposed criteria in
Tier 1, a Member must have an ADAV
greater than or equal to 0.01% of TCV
for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
• To meet the proposed criteria in
Tier 2, a Member must have an ADAV
8 Appended to orders that add liquidity using
MidPoint Discretionary order within discretionary
range and are provided a rebate of $0.00100.
9 Appended to non-displayed orders that add
liquidity and are provided a rebate of $0.00100.
10 Appended to non-displayed orders that add
liquidity using Mid-Point Peg and are provided a
rebate of $0.00100.
11 Appended to non-displayed orders that add
liquidity using Supplemental Peg and are provided
a rebate of $0.00100.
12 ‘‘ADV’’ means average daily volume calculated
as the number of shares added to, removed from,
or routed by, the Exchange, or any combination or
subset thereof, per day. ADV is calculated on a
monthly basis.
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greater than or equal to 0.02% of TCV
for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
• To meet the proposed criteria in
Tier 3, a Member must have an ADAV
greater than or equal to 0.05% of TCV
for Non-Displayed orders that yield fee
codes DM, HA, HI, MM or RP.
The Exchange notes that the proposed
rule change also updates the language in
each Tier to state ‘‘where a Member has
an ADAV’’, which essentially states the
same requirement as ‘‘adds an ADV’’,
but is more appropriately aligned with
the defined terms in the Fee Schedule.13
Further, the Exchange does not believe
that amending the current volume over
a baseline number of shares criteria to,
instead, be a percentage volume over
TCV poses any significant increase or
decrease in difficulty in reaching the
Non-Displayed Add Volume Tiers, but
only changes the format of the NonDisplayed Add Volume Tier criteria to
be consistent with the format of the
criteria in the other volume-based tiers
offered under the Fee Schedule.14
Proposed Remove Volume Tier
The Exchange proposes to add a new
Remove Volume Tier under footnote 1
of the Fee Schedule.15 The proposed
Remove Volume Tier offers a reduced
remove fee of $0.0026 in securities at or
above $1.00 and 0.28% of total dollar
value for orders in securities below
$1.00 16 for orders yielding fee code
‘‘BB’’ 17, ‘‘N’’ 18 and ‘‘W’’ 19 where a
Member has an ADAV 20 greater than or
equal to 0.25% TCV 21 with displayed
orders that yield fee codes B, V or Y.
The proposed Remove Volume Tier is
designed to incentivize Members to
increase their orders that add displayed
13 See
supra note 12; and see infra note 20.
EDGX Equities Fee Schedule, ‘‘Add
Volume Tiers’’, ‘‘Tape B Volume Tier’’, and ‘‘Retail
Volume Tier’’.
15 As a result of the new Remove Volume Tier,
it also updates the title of footnote 1 to ‘‘Add/
Remove Volume Tiers’’.
16 As a result, the Exchange proposes to update
the statement under General Notes in the Fee
Schedule to state that ‘‘unless otherwise indicated,
variable rates provided by tiers apply only to
executions in securities priced at or above $1.00.
17 Appended to orders that remove liquidity from
EDGX (Tape B) and is assessed a standard fee of
$0.00270.
18 Appended to orders that remove liquidity from
EDGX (Tape C) and is assessed a standard fee of
$0.00270.
19 Appended to orders that remove liquidity from
BZX (Tape A) and is assessed a standard fee of
$0.00270.
20 ‘‘ADAV’’ means average daily added volume
calculated as the number of shares added per day.
ADAV is calculated on a monthly basis.
21 ‘‘TCV’’ means total consolidated volume
calculated as the volume reported by all exchanges
and trade reporting facilities to a consolidated
transaction reporting plan for the month for which
the fees apply.
14 See
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volume on the Exchange in order to
receive a reduced fee on their
qualifying, liquidity removing orders.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,22
in general, and furthers the objectives of
Section 6(b)(4),23 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its Members,
issuers and other persons using its
facilities. 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 changes
reflect 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.
Regarding the proposed change to the
standard rates, the Exchange believes
that amending the standard rate for
orders that add volume in securities
priced below $1.00 is reasonable
because, as stated above, in order to
operate in the highly competitive
equities markets, the Exchange and its
competing exchanges seek to offer
similar pricing structures, including
assessing comparable standard fees for
orders in securities priced below $1.00.
Thus, the Exchange believes the
proposed standard rate change is
reasonable as it is generally aligned with
and competitive with the amounts
assessed for the orders in securities
below $1.00 on other equities
exchanges. The Exchange also believes
that amending this standard rate amount
represents an equitable allocation of fees
and is not unfairly discriminatory
because they will continue to
automatically apply to all Members’
orders that add liquidity in securities
less than $1.00 uniformly.
Regarding the proposed new fee code
ZM appended to Retail Day/RHO Orders
that remove liquidity on arrival, the
Exchange notes that the competition for
Retail Order flow is particularly intense,
especially as it relates to exchange
versus off-exchange venues, as
prominent retail brokerages tend to
route a majority of their limit orders to
off-exchange venues.24 Accordingly,
22 15
U.S.C. 78f.
23 15 U.S.C. 78f(b)(4).
24 See Securities Exchange Release No. 86375
(July 15, 2019), 84 FR 34960 (SR–CboeEDGX–2019–
045).
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competitive forces compel the Exchange
to use exchange transaction fees and
credits, particularly as they relate to
competing for Retail Order flow,
because market participants can readily
trade on competing venues if they deem
pricing levels at those other venues to
be more favorable.
The Exchange believes that its
proposed change to adopt fee code ZM,
which will assess no fee for Retail Day/
RHO Orders that remove upon arrival is
reasonable, equitable and not unfairly
discriminatory. Specifically, the
Exchange believes the proposal is
reasonable as market participants will
not be subject to a fee for the execution
of such orders. This is consistent with,
and competitive with, fees assessed for
retail order flow on other equities
exchanges, which provide pricing
incentives to retail orders in the form of
lower fees and/or higher rebates.25 The
Exchange notes too that it currently
offers a rebate of $0.0032 per share for
Retail Orders that add liquidity (i.e.,
yielding fee code ‘‘ZA’’) as compared to
the standard rebate of $0.0017 for
liquidity adding orders, as well as Retail
Volume Tiers which provide various
enhanced rebates specifically for
Members’ Retail Order flow. The
Exchange believes that adopting no
charge on orders yielding fee code ZM
is reasonable in that it is reasonably
designed to incentivize an increase in
removing Retail Order flow. Retail
Orders are generally submitted in
smaller sizes and tend to attract MarketMakers, as smaller size orders are easier
to hedge, and Retail Order flow that
removes liquidity additionally signals to
liquidity providers to increase their
overall provision of liquidity in the
markets. Increased Market-Maker
activity facilitates tighter spreads and an
increase in overall liquidity provider
activity provides for deeper, more
robust levels of liquidity, both of which
signal additional corresponding increase
in order flow from other market
participants, contributing towards a
robust, well-balanced market ecosystem.
Indeed, increased overall order flow
benefits all investors by continuing to
deepen the Exchange’s liquidity pool,
potentially providing even greater
execution incentives and opportunities,
offering additional flexibility for all
25 See Nasdaq Price List, Rebate to Add Displayed
Designated Retail Liquidity, which offer rebates of
$0.00325 and $0.0033 for Add Displayed
Designated Retail Liquidity; and NYSE Price List,
‘‘Fees and Credits Applicable to Executions in the
Retail Liquidity Program’’, which offers various
reduced fees, including the assessment of no
charges, for various types of retail order volume,
and ‘‘Transaction Fees and Credits For Tape B and
C Securities’’, which provides a rebate of $0.0030
per share specifically for retail orders.
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61041
investors to enjoy cost savings,
supporting the quality of price
discovery, promoting market
transparency and improving investor
protection. The Exchange notes that,
like all other fee codes, ZM and the
accompanying free charge will be
automatically and uniformly applied to
all Members’ qualifying orders. The
Exchange additionally notes that while
the proposed fee code and assessment of
no fee is applicable only to Retail
Orders, the Exchange does not believe
this application is discriminatory as the
Exchange offers similar rebates or
reduced rates to non-Retail Order
flow.26
The Exchange believes that the
proposed Remove Volume Tier is
reasonable because it provides an
additional opportunity through a new
tier for Members to receive a discounted
rate by means of liquidity adding orders
and that the proposed changes to the
Non-Displayed Liquidity Tiers are
reasonable because they merely update
the format of the tiers’ criteria to be
consistent with other volume-based tiers
currently offered by the Exchange, thus
maintaining existing opportunities for
Members to receive a discounted rate by
means of non-displayed liquidity
adding orders.27 The Exchange notes
that relative volume-based incentives
and discounts have been widely
adopted by exchanges, including the
Exchange, 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 highly
competitive market. The Exchange is
only one of several equity venues to
which market participants may direct
their order flow, and it represents a
small percentage of the overall market.
It is also only one of several maker-taker
exchanges. Competing equity exchanges
offer similar tiered pricing structures,
including schedules of rebates and fees
that apply based upon members
achieving certain volume and/or growth
thresholds, as well as assess similar fees
or rebates for similar types of orders, to
that of the Exchange. These competing
pricing schedules, including those of
the Exchange’s affiliated equities
26 See generally, EDGX Equities Fee Schedule,
Fee Codes and Associated Fees; see also ‘‘Add
Volume Tiers’’ and ‘‘Tape B Volume Tier’’, both of
which provide various enhanced rebates for nonRetail Order flow.
27 See supra note 14.
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exchanges,28 are presently comparable
to those that the Exchange provides,
including the pricing of comparable
criteria and reduced fees.
Moreover, the Exchange believes the
Remove Volume Tier is a reasonable
means to incentivize Members to
continue to provide liquidity adding,
displayed volume to the Exchange by
offering them a different, additional
opportunity than that of the current Add
Volume Tiers—to receive a reduced fee
on their liquidity removing orders by
meeting the proposed criteria in
submitting additional add volume order
flow. In addition to this, the Exchange
has recently observed that trading in
subdollar names has grown
significantly; nearly tripling since the
beginning of 2020, and that competing
equities exchanges have begun offering
pricing incentives for subdollar
orders.29 Therefore, the Exchange
believes that it is reasonable and
equitable to provide the proposed
reduced fee under the new Remove
Volume Tier for qualifying subdollar
orders. Also, as noted above, the
Exchange’s affiliated equities exchanges
already have similar Remove Volume
Tiers in place, which offer similar
rebates for achieving comparable
criteria, in addition to their Add
Volume Tiers.30
In addition to this, the Exchange
believes the proposed Non-Displayed
Volume Tiers are reasonable in that the
proposed changes to the tiers’ criteria is
designed to be more consistent with the
format of the criteria (i.e., percentage of
volume based on TCV) currently offered
under the other volume-based tiers in
the Fee Schedule.31 Also, as noted
28 See EDGA Equities Fee Schedule, footnote 7,
‘‘Add/Remove Volume Tiers’’, of which the Remove
Volume Tiers offers an enhanced rebate of $0.0022
or $0.0028 for reaching a certain threshold of ADV
over TCV; BYX Equities Fee Schedule, footnote 1,
‘‘Add/Remove Volume Tiers’’, of which the Remove
Volume Tiers offer enhanced rebates between
$0.0015 and $0.0018 for various criteria (Step-Up
volume, ADAV of a set number of shares, ADV as
a percentage of TCV, etc.); and BZX Equities Fee
Schedule, footnote 1, ‘‘Add Volume Tiers’’, NonDisplayed Add Volume Tiers, which provide for
substantially similar enhanced rebates and nondisplayed volume based criteria.
29 See NYSE Price List, ‘‘Fees and Credits
applicable to Designated Market Makers
(‘‘DMMs’’)’’, which provides, among various credits
for orders in securities at or above $1.00, additional
credit of $0.0004 for DMMs adding liquidity in
securities under $1.00; see also Securities Exchange
Release No. 89607 (August 18, 2020), 85 FR 52179
(August 24, 2020) (SR–NYSEArca–2020–75), which
recently adopted in its fee schedule a step up tier
for ETP Holders adding liquidity in Round Lots and
Odd Lots in Tapes A, B and C securities with a per
share price below $1.00 and amended the base rate
for adding and removing liquidity in Round Lots
and Odd Lots in Tapes A, B and C securities with
a per share price below $1.00.
30 See supra note 28.
31 See supra note 14.
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above, the Exchange’s affiliated equities
exchange, BZX Equities, currently has
Non-Displayed Volume Tiers in place,
which offer substantially similar
enhanced rebates and criteria based on
volume over TCV for its members.32
Overall, the Exchange believes that
the proposed tiers, each based on a
Member’s liquidity adding orders, will
benefit all market participants by
incentivizing continuous liquidity and
thus, deeper more liquid markets as
well as increased execution
opportunities. Particularly, the
proposed Remove Volume Tier is
designed to incentivize continuous
displayed liquidity, which signals other
market participants to take the
additional execution opportunities
provided by such liquidity, while the
proposed Non-Displayed Add Volume
Tiers remains designed to incentivize
non-displayed liquidity, which further
contributes to a deeper, more liquid
market and provide even more
execution opportunities for active
market participants at improved prices.
This overall increase in activity deepens
the Exchange’s liquidity pool, offers
additional cost savings, supports the
quality of price discovery, promotes
market transparency and improves
market quality, for all investors.
The Exchange believes that the
proposal represents an equitable
allocation of fees and rebates and is not
unfairly discriminatory because all
Members are eligible for the proposed
Remove Volume Tier and NonDisplayed Add Volume Tiers and would
have the opportunity to meet the tiers’
criteria and would receive the proposed
fee if such criteria is met. Without
having a view of activity on other
markets and off-exchange venues, the
Exchange has no way of knowing
whether this proposed rule change
would definitely result in any Members
qualifying for the proposed tiers. While
the Exchange has no way of predicting
with certainty how the proposed tier
will impact Member activity, the
Exchange anticipates that approximately
eight Members will be able to compete
for and reach the proposed Remove
Volume Tier. The Exchange also notes
that while the proposed changes to the
criteria in the Non-Displayed Add
Volume Tiers do not significantly
increase or decrease the level of criteria
difficulty, thus do not significantly
affect Members’ current ability to
compete for and reach the proposed
tiers, approximately three additional
Members will be able to compete for
and reach these tiers, as amended. The
Exchange anticipates that the tiers will
32 See
PO 00000
supra note 28.
Frm 00088
Fmt 4703
Sfmt 4703
include various liquidity providing
Member types, such as traditional
Market Makers, and wholesale or
consolidator firms that mainly make
markets for retail orders, each providing
distinct types of order flow to the
Exchange to the benefit of all market
participants. The Exchange also notes
that proposed tiers will not adversely
impact any Member’s pricing or ability
to qualify for other reduced fee or
enhanced rebate tiers. Should a Member
not meet the proposed criteria under
any of the proposed tiers, the Member
will merely not receive that
corresponding reduced fee.
Furthermore, the proposed reduced fee
in the Remove Volume Tier would
uniformly apply to all Members that
meet the required criteria under the
proposed tier. The Exchange again notes
that the enhanced rebates offered under
the Non-Displayed Add Volume Tiers
remain the same.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule changes will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, as
discussed above, the Exchange believes
that the proposed change would
encourage the submission of additional
order flow to a public exchange, thereby
promoting market depth, execution
incentives and enhanced execution
opportunities, as well as price discovery
and transparency for all Members. As a
result, the Exchange believes that the
proposed change furthers the
Commission’s goal in adopting
Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’
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 for the proposed Remove
Volume Tier and the proposed NonDisplayed Add Volume Tiers, have a
reasonable opportunity to meet the tiers’
criteria and will all receive the proposed
fee if such criteria is met. Additionally,
the proposed tiers are designed to attract
additional order flow to the Exchange.
The Exchange believes that the
additional and updated tier criteria
would incentivize market participants
to direct liquidity adding order flow to
the Exchange, bringing with it improved
price transparency. Greater overall order
E:\FR\FM\29SEN1.SGM
29SEN1
jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 85, No. 189 / Tuesday, September 29, 2020 / Notices
flow and pricing transparency benefits
all market participants on the Exchange
by 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. Further,
the proposed standard rebate for orders
that add liquidity in securities below
$1.00 and the proposed no charge for
orders yielding fee code ZM will apply
uniformly and automatically to all such
Members’ respective orders, as all other
standard rates and fee codes apply today
to qualifying orders. In addition to this,
and as indicated above, the Exchange
does not believe that not assessing a fee
for Retail Orders yielding fee code ZM
imposes any burden on intramarket
competition as the Exchange offers
many similar rebate opportunities for
non-Retail Orders in it Fee Schedule.33
Next, the Exchange believes the
proposed rule change does not impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
As previously discussed, the Exchange
operates in a highly competitive market.
Members have numerous alternative
venues that they may participate on and
direct their order flow, including 12
other equities exchanges and offexchange venues and alternative trading
systems. Additionally, the Exchange
represents a small percentage of the
overall market. Based on publicly
available information, no single equities
exchange has more than 18% of the
market share. Therefore, no exchange
possesses significant pricing power in
the execution of order flow. Indeed,
participants can readily choose to send
their orders to other 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.’’ 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’. . . .’’ 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 34 and paragraph (f) of Rule
19b–4 35 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:
supra note 26.
VerDate Sep<11>2014
18:14 Sep 28, 2020
35 17
Jkt 250001
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–2020–045. 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–2020–045, and
should be submitted on or before
October 20, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21406 Filed 9–28–20; 8:45 am]
BILLING CODE 8011–01–P
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–2020–045 on the subject
line.
34 15
33 See
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00089
Fmt 4703
36 17
Sfmt 9990
61043
E:\FR\FM\29SEN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 85, Number 189 (Tuesday, September 29, 2020)]
[Notices]
[Pages 61039-61043]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21406]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89970; File No. SR-CboeEDGX-2020-045]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule
September 23, 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 September 11, 2020, Cboe EDGX Exchange, Inc. (the ``Exchange''
or ``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule applicable to its
equities trading platform (``EDGX Equities'') by: (1) Amending certain
standard rates; (2) adding a new fee code; (3) updating the Non-
Displayed Add Volume Tiers; and (4) including a Remove Volume Tier.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
September 1, 2020 (SR-CboeEDGX-2020-044). On September 11, 2020, the
Exchange withdrew that filing and submitted this proposal.
---------------------------------------------------------------------------
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 13 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\4\ no single registered
equities exchange has more than 18% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Maker-Taker'' model
whereby it pays credits to members that provide liquidity and assesses
fees to those that remove liquidity. The Exchange's fee schedule sets
forth the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Currently, for orders
priced at or above $1.00, the Exchange provides a standard rebate of
$0.0017 per share for orders that add liquidity and assesses a fee of
$0.0027 per share for orders that remove liquidity. For orders priced
below $1.00, the Exchange a standard rebate of $0.00003 per share for
orders that add liquidity and assesses a fee of 0.30% of Dollar Value
for orders that remove liquidity. Additionally, in response to the
competitive environment, the Exchange also offers tiered pricing which
provides Members opportunities to qualify for higher rebates or reduced
fees where certain volume criteria and thresholds are met. Tiered
pricing provides an
[[Page 61040]]
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
---------------------------------------------------------------------------
\4\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (August 24, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
---------------------------------------------------------------------------
Proposed Amendment to Standard Rebate for Securities Under $1.00
As stated above, the Exchange currently offers a standard rebate of
$0.00003 for orders in securities below $1.00 that add liquidity. The
Exchange proposes to amend this standard rate by providing a standard
rebate of $0.00009 for orders that add liquidity in securities priced
under $1.00 and reflects this change in the Fee Codes and Associated
Fee where applicable (i.e., corresponding to fee codes 3, 4, B, V, and
Y). The Exchange notes that the proposed standard rate is in line with,
yet also competitive with, rates assessed by other equities exchanges
on orders in securities priced below $1.00.\5\ The Exchange notes, too,
that its affiliated exchange, Cboe BZX Exchange, Inc. (``BZX
Equities''), is simultaneously submitting a fee change to amend its
same current standard rate for orders that add liquidity in securities
under $1.00 in the same manner.
---------------------------------------------------------------------------
\5\ See NYSE Price List 2020, ``Transactions in stocks with a
per share stock price less than $1.00'', which either does not
assess a charge or assesses a charge of 0.3% for various orders in
securities priced below $1.00; and Nasdaq Pricing, ``Rebates and
Fees, Shares Executed Below $1.00'', which assesses no change for
orders to add liquidity in securities priced below $1.00 and
assesses a charge of 0.30% of total dollar volume for orders to
remove liquidity in securities priced below $1.00.
---------------------------------------------------------------------------
Proposed New Fee Code
The Exchange proposed to add a new type of fee code in the Fee Code
and Associated Fees table in the Fee Schedule. Specifically, the
proposed fee code ``ZM'' is appended to Retail \6\ Day or Regular Hours
Only (``RHO'') \7\ Orders that remove liquidity on arrival and are
assessed no fee. Currently, such orders in securities priced at or
above $1.00 are assessed the standard fee of $0.0027 to remove
liquidity and such orders in securities priced below $1.00 are assessed
the standard fee of 0.30% of Dollar Value to remove liquidity.
---------------------------------------------------------------------------
\6\ See EDGX Rule 11.21(a)(1). A ``Retail Order'' is an agency
or riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by a Retail Member Organization, provided that no
change is made to the terms of the order with respect to price or
side of market and the order does not originate from a trading
algorithm or any other computerized methodology. See EDGX Rule
11.21(a)(2). Retail Orders are submitted by a ``Retail Member
Organization'' or ``RMO'', which is a member (or a division thereof)
that has been approved by the Exchange to submit such orders.
\7\ ``Day'' is an instruction the User may attach to an order
stating that an order to buy or sell which, if not executed, expires
at the end of Regular Trading Hours. Any Day Order entered into the
System before the opening for business on the Exchange, or after the
closing of Regular Trading Hours, will be rejected. See EDGX Rule
11.6(q)(2). ``Regular Hours Only (``RHO'') is an instruction a User
may attach to an order designating it for execution only during
Regular Trading Hours, which includes the Opening Process and Re-
Opening Process following a halt suspension or pause. See EDGX Rule
11.6(q)(6).
---------------------------------------------------------------------------
Proposed Updates to the Non-Displayed Add Volume Tiers
Currently, the Exchange provides for three Non-Displayed Add Volume
Tiers under footnote 1 of the Fee Schedule. These tiers offer enhanced
rebates on Members' orders yielding fee codes ``DM'' \8\, ``HA'' \9\,
``MM'' \10\ and ``RP'' \11\ where a Member reaches certain required
volume-based criteria offered in each tier. Specifically, the Non-
Displayed Add Volume Tiers are as follows:
---------------------------------------------------------------------------
\8\ Appended to orders that add liquidity using MidPoint
Discretionary order within discretionary range and are provided a
rebate of $0.00100.
\9\ Appended to non-displayed orders that add liquidity and are
provided a rebate of $0.00100.
\10\ Appended to non-displayed orders that add liquidity using
Mid-Point Peg and are provided a rebate of $0.00100.
\11\ Appended to non-displayed orders that add liquidity using
Supplemental Peg and are provided a rebate of $0.00100.
---------------------------------------------------------------------------
Tier 1 provides an enhanced rebate of $0.0015 for a
Member's qualifying orders (i.e., yielding fee codes DM, HA, MM and RP)
where a Member adds an ADV \12\ greater than or equal to 1,000,000
shares as Non-Displayed orders that yield fee codes DM, HA, HI, MM or
RP.
---------------------------------------------------------------------------
\12\ ``ADV'' means average daily volume calculated as the number
of shares added to, removed from, or routed by, the Exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
---------------------------------------------------------------------------
Tier 2 provides an enhanced rebate of $0.0022 for a
Member's qualifying orders where a Member adds an ADV greater than or
equal to 2,500,000 shares as Non-Displayed orders that yield fee codes
DM, HA, HI, MM or RP.
Tier 3 provides an enhanced rebate of $0.0025 for a
Member's qualifying orders where a Member adds an ADV greater than or
equal to 7,000,000 shares as Non-Displayed orders that yield fee codes
DM, HA, HI, MM or RP.
The Exchange proposes to update the criteria in each of the Non-
Displayed Add Volume Tiers as follows below. The Exchange notes that
the enhanced rebates currently provided in each tier remain the same.
To meet the proposed criteria in Tier 1, a Member must
have an ADAV greater than or equal to 0.01% of TCV for Non-Displayed
orders that yield fee codes DM, HA, HI, MM or RP.
To meet the proposed criteria in Tier 2, a Member must
have an ADAV greater than or equal to 0.02% of TCV for Non-Displayed
orders that yield fee codes DM, HA, HI, MM or RP.
To meet the proposed criteria in Tier 3, a Member must
have an ADAV greater than or equal to 0.05% of TCV for Non-Displayed
orders that yield fee codes DM, HA, HI, MM or RP.
The Exchange notes that the proposed rule change also updates the
language in each Tier to state ``where a Member has an ADAV'', which
essentially states the same requirement as ``adds an ADV'', but is more
appropriately aligned with the defined terms in the Fee Schedule.\13\
Further, the Exchange does not believe that amending the current volume
over a baseline number of shares criteria to, instead, be a percentage
volume over TCV poses any significant increase or decrease in
difficulty in reaching the Non-Displayed Add Volume Tiers, but only
changes the format of the Non-Displayed Add Volume Tier criteria to be
consistent with the format of the criteria in the other volume-based
tiers offered under the Fee Schedule.\14\
---------------------------------------------------------------------------
\13\ See supra note 12; and see infra note 20.
\14\ See EDGX Equities Fee Schedule, ``Add Volume Tiers'',
``Tape B Volume Tier'', and ``Retail Volume Tier''.
---------------------------------------------------------------------------
Proposed Remove Volume Tier
The Exchange proposes to add a new Remove Volume Tier under
footnote 1 of the Fee Schedule.\15\ The proposed Remove Volume Tier
offers a reduced remove fee of $0.0026 in securities at or above $1.00
and 0.28% of total dollar value for orders in securities below $1.00
\16\ for orders yielding fee code ``BB'' \17\, ``N'' \18\ and ``W''
\19\ where a Member has an ADAV \20\ greater than or equal to 0.25% TCV
\21\ with displayed orders that yield fee codes B, V or Y. The proposed
Remove Volume Tier is designed to incentivize Members to increase their
orders that add displayed
[[Page 61041]]
volume on the Exchange in order to receive a reduced fee on their
qualifying, liquidity removing orders.
---------------------------------------------------------------------------
\15\ As a result of the new Remove Volume Tier, it also updates
the title of footnote 1 to ``Add/Remove Volume Tiers''.
\16\ As a result, the Exchange proposes to update the statement
under General Notes in the Fee Schedule to state that ``unless
otherwise indicated, variable rates provided by tiers apply only to
executions in securities priced at or above $1.00.
\17\ Appended to orders that remove liquidity from EDGX (Tape B)
and is assessed a standard fee of $0.00270.
\18\ Appended to orders that remove liquidity from EDGX (Tape C)
and is assessed a standard fee of $0.00270.
\19\ Appended to orders that remove liquidity from BZX (Tape A)
and is assessed a standard fee of $0.00270.
\20\ ``ADAV'' means average daily added volume calculated as the
number of shares added per day. ADAV is calculated on a monthly
basis.
\21\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\22\ in general, and
furthers the objectives of Section 6(b)(4),\23\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members, issuers and other persons
using its facilities. 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 changes
reflect 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.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Regarding the proposed change to the standard rates, the Exchange
believes that amending the standard rate for orders that add volume in
securities priced below $1.00 is reasonable because, as stated above,
in order to operate in the highly competitive equities markets, the
Exchange and its competing exchanges seek to offer similar pricing
structures, including assessing comparable standard fees for orders in
securities priced below $1.00. Thus, the Exchange believes the proposed
standard rate change is reasonable as it is generally aligned with and
competitive with the amounts assessed for the orders in securities
below $1.00 on other equities exchanges. The Exchange also believes
that amending this standard rate amount represents an equitable
allocation of fees and is not unfairly discriminatory because they will
continue to automatically apply to all Members' orders that add
liquidity in securities less than $1.00 uniformly.
Regarding the proposed new fee code ZM appended to Retail Day/RHO
Orders that remove liquidity on arrival, the Exchange notes that the
competition for Retail Order flow is particularly intense, especially
as it relates to exchange versus off-exchange venues, as prominent
retail brokerages tend to route a majority of their limit orders to
off-exchange venues.\24\ Accordingly, competitive forces compel the
Exchange to use exchange transaction fees and credits, particularly as
they relate to competing for Retail Order flow, because market
participants can readily trade on competing venues if they deem pricing
levels at those other venues to be more favorable.
---------------------------------------------------------------------------
\24\ See Securities Exchange Release No. 86375 (July 15, 2019),
84 FR 34960 (SR-CboeEDGX-2019-045).
---------------------------------------------------------------------------
The Exchange believes that its proposed change to adopt fee code
ZM, which will assess no fee for Retail Day/RHO Orders that remove upon
arrival is reasonable, equitable and not unfairly discriminatory.
Specifically, the Exchange believes the proposal is reasonable as
market participants will not be subject to a fee for the execution of
such orders. This is consistent with, and competitive with, fees
assessed for retail order flow on other equities exchanges, which
provide pricing incentives to retail orders in the form of lower fees
and/or higher rebates.\25\ The Exchange notes too that it currently
offers a rebate of $0.0032 per share for Retail Orders that add
liquidity (i.e., yielding fee code ``ZA'') as compared to the standard
rebate of $0.0017 for liquidity adding orders, as well as Retail Volume
Tiers which provide various enhanced rebates specifically for Members'
Retail Order flow. The Exchange believes that adopting no charge on
orders yielding fee code ZM is reasonable in that it is reasonably
designed to incentivize an increase in removing Retail Order flow.
Retail Orders are generally submitted in smaller sizes and tend to
attract Market-Makers, as smaller size orders are easier to hedge, and
Retail Order flow that removes liquidity additionally signals to
liquidity providers to increase their overall provision of liquidity in
the markets. Increased Market-Maker activity facilitates tighter
spreads and an increase in overall liquidity provider activity provides
for deeper, more robust levels of liquidity, both of which signal
additional corresponding increase in order flow from other market
participants, contributing towards a robust, well-balanced market
ecosystem. Indeed, increased overall order flow benefits all investors
by continuing to deepen 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. The Exchange notes
that, like all other fee codes, ZM and the accompanying free charge
will be automatically and uniformly applied to all Members' qualifying
orders. The Exchange additionally notes that while the proposed fee
code and assessment of no fee is applicable only to Retail Orders, the
Exchange does not believe this application is discriminatory as the
Exchange offers similar rebates or reduced rates to non-Retail Order
flow.\26\
---------------------------------------------------------------------------
\25\ See Nasdaq Price List, Rebate to Add Displayed Designated
Retail Liquidity, which offer rebates of $0.00325 and $0.0033 for
Add Displayed Designated Retail Liquidity; and NYSE Price List,
``Fees and Credits Applicable to Executions in the Retail Liquidity
Program'', which offers various reduced fees, including the
assessment of no charges, for various types of retail order volume,
and ``Transaction Fees and Credits For Tape B and C Securities'',
which provides a rebate of $0.0030 per share specifically for retail
orders.
\26\ See generally, EDGX Equities Fee Schedule, Fee Codes and
Associated Fees; see also ``Add Volume Tiers'' and ``Tape B Volume
Tier'', both of which provide various enhanced rebates for non-
Retail Order flow.
---------------------------------------------------------------------------
The Exchange believes that the proposed Remove Volume Tier is
reasonable because it provides an additional opportunity through a new
tier for Members to receive a discounted rate by means of liquidity
adding orders and that the proposed changes to the Non-Displayed
Liquidity Tiers are reasonable because they merely update the format of
the tiers' criteria to be consistent with other volume-based tiers
currently offered by the Exchange, thus maintaining existing
opportunities for Members to receive a discounted rate by means of non-
displayed liquidity adding orders.\27\ The Exchange notes that relative
volume-based incentives and discounts have been widely adopted by
exchanges, including the Exchange, 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 highly competitive market. The Exchange
is only one of several equity venues to which market participants may
direct their order flow, and it represents a small percentage of the
overall market. It is also only one of several maker-taker exchanges.
Competing equity exchanges offer similar tiered pricing structures,
including schedules of rebates and fees that apply based upon members
achieving certain volume and/or growth thresholds, as well as assess
similar fees or rebates for similar types of orders, to that of the
Exchange. These competing pricing schedules, including those of the
Exchange's affiliated equities
[[Page 61042]]
exchanges,\28\ are presently comparable to those that the Exchange
provides, including the pricing of comparable criteria and reduced
fees.
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\27\ See supra note 14.
\28\ See EDGA Equities Fee Schedule, footnote 7, ``Add/Remove
Volume Tiers'', of which the Remove Volume Tiers offers an enhanced
rebate of $0.0022 or $0.0028 for reaching a certain threshold of ADV
over TCV; BYX Equities Fee Schedule, footnote 1, ``Add/Remove Volume
Tiers'', of which the Remove Volume Tiers offer enhanced rebates
between $0.0015 and $0.0018 for various criteria (Step-Up volume,
ADAV of a set number of shares, ADV as a percentage of TCV, etc.);
and BZX Equities Fee Schedule, footnote 1, ``Add Volume Tiers'',
Non-Displayed Add Volume Tiers, which provide for substantially
similar enhanced rebates and non-displayed volume based criteria.
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Moreover, the Exchange believes the Remove Volume Tier is a
reasonable means to incentivize Members to continue to provide
liquidity adding, displayed volume to the Exchange by offering them a
different, additional opportunity than that of the current Add Volume
Tiers--to receive a reduced fee on their liquidity removing orders by
meeting the proposed criteria in submitting additional add volume order
flow. In addition to this, the Exchange has recently observed that
trading in subdollar names has grown significantly; nearly tripling
since the beginning of 2020, and that competing equities exchanges have
begun offering pricing incentives for subdollar orders.\29\ Therefore,
the Exchange believes that it is reasonable and equitable to provide
the proposed reduced fee under the new Remove Volume Tier for
qualifying subdollar orders. Also, as noted above, the Exchange's
affiliated equities exchanges already have similar Remove Volume Tiers
in place, which offer similar rebates for achieving comparable
criteria, in addition to their Add Volume Tiers.\30\
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\29\ See NYSE Price List, ``Fees and Credits applicable to
Designated Market Makers (``DMMs'')'', which provides, among various
credits for orders in securities at or above $1.00, additional
credit of $0.0004 for DMMs adding liquidity in securities under
$1.00; see also Securities Exchange Release No. 89607 (August 18,
2020), 85 FR 52179 (August 24, 2020) (SR-NYSEArca-2020-75), which
recently adopted in its fee schedule a step up tier for ETP Holders
adding liquidity in Round Lots and Odd Lots in Tapes A, B and C
securities with a per share price below $1.00 and amended the base
rate for adding and removing liquidity in Round Lots and Odd Lots in
Tapes A, B and C securities with a per share price below $1.00.
\30\ See supra note 28.
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In addition to this, the Exchange believes the proposed Non-
Displayed Volume Tiers are reasonable in that the proposed changes to
the tiers' criteria is designed to be more consistent with the format
of the criteria (i.e., percentage of volume based on TCV) currently
offered under the other volume-based tiers in the Fee Schedule.\31\
Also, as noted above, the Exchange's affiliated equities exchange, BZX
Equities, currently has Non-Displayed Volume Tiers in place, which
offer substantially similar enhanced rebates and criteria based on
volume over TCV for its members.\32\
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\31\ See supra note 14.
\32\ See supra note 28.
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Overall, the Exchange believes that the proposed tiers, each based
on a Member's liquidity adding orders, will benefit all market
participants by incentivizing continuous liquidity and thus, deeper
more liquid markets as well as increased execution opportunities.
Particularly, the proposed Remove Volume Tier is designed to
incentivize continuous displayed liquidity, which signals other market
participants to take the additional execution opportunities provided by
such liquidity, while the proposed Non-Displayed Add Volume Tiers
remains designed to incentivize non-displayed liquidity, which further
contributes to a deeper, more liquid market and provide even more
execution opportunities for active market participants at improved
prices. This overall increase in activity deepens the Exchange's
liquidity pool, offers additional cost savings, supports the quality of
price discovery, promotes market transparency and improves market
quality, for all investors.
The Exchange believes that the proposal represents an equitable
allocation of fees and rebates and is not unfairly discriminatory
because all Members are eligible for the proposed Remove Volume Tier
and Non-Displayed Add Volume Tiers and would have the opportunity to
meet the tiers' criteria and would receive the proposed fee if such
criteria is met. Without having a view of activity on other markets and
off-exchange venues, the Exchange has no way of knowing whether this
proposed rule change would definitely result in any Members qualifying
for the proposed tiers. While the Exchange has no way of predicting
with certainty how the proposed tier will impact Member activity, the
Exchange anticipates that approximately eight Members will be able to
compete for and reach the proposed Remove Volume Tier. The Exchange
also notes that while the proposed changes to the criteria in the Non-
Displayed Add Volume Tiers do not significantly increase or decrease
the level of criteria difficulty, thus do not significantly affect
Members' current ability to compete for and reach the proposed tiers,
approximately three additional Members will be able to compete for and
reach these tiers, as amended. The Exchange anticipates that the tiers
will include various liquidity providing Member types, such as
traditional Market Makers, and wholesale or consolidator firms that
mainly make markets for retail orders, each providing distinct types of
order flow to the Exchange to the benefit of all market participants.
The Exchange also notes that proposed tiers will not adversely impact
any Member's pricing or ability to qualify for other reduced fee or
enhanced rebate tiers. Should a Member not meet the proposed criteria
under any of the proposed tiers, the Member will merely not receive
that corresponding reduced fee. Furthermore, the proposed reduced fee
in the Remove Volume Tier would uniformly apply to all Members that
meet the required criteria under the proposed tier. The Exchange again
notes that the enhanced rebates offered under the Non-Displayed Add
Volume Tiers remain the same.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, as discussed above, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.''
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
for the proposed Remove Volume Tier and the proposed Non-Displayed Add
Volume Tiers, have a reasonable opportunity to meet the tiers' criteria
and will all receive the proposed fee if such criteria is met.
Additionally, the proposed tiers are designed to attract additional
order flow to the Exchange. The Exchange believes that the additional
and updated tier criteria would incentivize market participants to
direct liquidity adding order flow to the Exchange, bringing with it
improved price transparency. Greater overall order
[[Page 61043]]
flow and pricing transparency benefits all market participants on the
Exchange by 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. Further, the proposed standard rebate
for orders that add liquidity in securities below $1.00 and the
proposed no charge for orders yielding fee code ZM will apply uniformly
and automatically to all such Members' respective orders, as all other
standard rates and fee codes apply today to qualifying orders. In
addition to this, and as indicated above, the Exchange does not believe
that not assessing a fee for Retail Orders yielding fee code ZM imposes
any burden on intramarket competition as the Exchange offers many
similar rebate opportunities for non-Retail Orders in it Fee
Schedule.\33\
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\33\ See supra note 26.
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Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and direct their order flow, including 12 other equities exchanges and
off-exchange venues and alternative trading systems. Additionally, the
Exchange represents a small percentage of the overall market. Based on
publicly available information, no single equities exchange has more
than 18% of the market share. Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other 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.'' The fact that this market is competitive has also long
been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \34\ and paragraph (f) of Rule 19b-4 \35\
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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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 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-2020-045 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-2020-045. 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-2020-045, and should be
submitted on or before October 20, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21406 Filed 9-28-20; 8:45 am]
BILLING CODE 8011-01-P
