Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fee Schedule With Respect to Qualified Contingent Cross (“QCC”) and Solicitation Auction Mechanism (“SAM”) Orders, 81966-81971 [2020-27724]
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
to away markets on behalf of Members
and does so in the same manner to all
Members that are subject to routing fees.
The costs to the Exchange to route
orders to away markets for execution
primarily includes transaction fees and
rebates assessed by the away markets to
which the Exchange routes orders, in
addition to the Exchange’s clearing
costs, administrative, regulatory and
technical costs. The Exchange believes
that the proposed re-categorization of
certain exchange groupings would
enable the Exchange to recover the costs
it incurs to route orders to Nasdaq MRX.
The per-contract transaction fee amount
associated with each grouping
approximates the Exchange’s all-in cost
(plus an additional, non-material
amount) to execute the corresponding
contract at the corresponding exchange.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes its proposed recategorization of certain exchange
groupings is intended to enable the
Exchange to recover the costs it incurs
to route orders to away markets,
particularly Nasdaq MRX. The Exchange
does not believe that this proposal
imposes any unnecessary burden on
competition because it seeks to recoup
costs incurred by the Exchange when
routing orders to away markets on
behalf of Members and other exchanges
have similar routing fee structures.11
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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)(ii) of the Act,12 and Rule
19b–4(f)(2) 13 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
11 See
supra note 4.
U.S.C. 78s(b)(3)(A)(ii).
13 17 CFR 240.19b–4(f)(2).
12 15
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purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2020–19 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–EMERALD–2020–19. 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–EMERALD–2020–19 and
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should be submitted on or before
January 7, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27720 Filed 12–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90643; File No. SR–
CboeEDGX–2020–061]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Fee Schedule With Respect
to Qualified Contingent Cross (‘‘QCC’’)
and Solicitation Auction Mechanism
(‘‘SAM’’) Orders
December 11, 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 December
3, 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 Options’’)
proposes to amend its Fee Schedule
with respect to Qualified Contingent
Cross (‘‘QCC’’) and Solicitation Auction
Mechanism (‘‘SAM’’) orders. 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.
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
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 modify the
Fee Schedule relating to Qualified
Contingent Cross (‘‘QCC’’) and
Solicitation Auction Mechanism
(‘‘SAM’’) 3 orders.4
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 15% of the market share.5 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue use
of certain categories of products, in
response to fee changes. Accordingly,
competitive forces constrain the
Exchange’s transaction fees, and market
participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. In response to the competitive
environment, the Exchange offers
specific rates and credits in its fees
3 SAM is the Exchange’s solicited order
mechanism for larger-sized orders.
4 The Exchange initially filed the proposed fee
changes on December 1, 2020 (SR–CboeEDGX–
2020–058). On December 3, 2020, the Exchange
withdrew that filing and submitted this proposal.
5 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (November 25, 2020),
available at https://markets.cboe.com/us/options/
market_statistics/.
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schedule, like that of other options
exchanges’ fees schedules, which the
Exchange believes provide incentive to
Members to increase order flow of
certain qualifying orders.
QCC Transaction Fees
By way of background, a QCC order
is comprised of an ‘initiating order’ to
buy (sell) at least 1,000 contracts,
coupled with a contra-side order to sell
(buy) an equal number of contracts and
that for complex QCC transactions, the
1,000 contracts minimum is applied per
leg. Currently, the Exchange assesses a
fee of $0.08 per contract for NonCustomer Agency and Contra QCC
orders and $0.00 for Customer QCC
Agency and Contra orders. The
Exchange proposes to amend its fees for
orders executed in QCC transactions.
First, the Exchange proposes to
eliminate transaction fees for
Professional Agency and Contra QCC
orders. The purpose of the proposed
change to waive fees for Professional
QCC orders is to incentivize the sending
of QCC orders to the Exchange by these
market participants and compete with
other Exchanges that similarly do not
assess fees on Professional QCC orders.6
In connection with this proposed
change, the Exchange proposes to adopt
new fee codes QO and QP to apply
specifically to QCC Agency and Contra
Professional orders, respectively, and
amend the description of current fee
codes QM and QN to provide it applies
to Non-Customer, Non-Professionals.
The Exchange next proposes to increase
the fees for QCC Agency and Contra
Non-Customer, Non-Professional orders
from $0.08 per contract to $0.20 per
contract. The proposed Non-Customer,
Non-Professional QCC fee change is also
in line with amounts assessed by other
exchanges for similar transactions.7
Agency Orders and Designated Give Up
Footnote 5 of the Fee Schedule
currently specifies that when an order is
submitted with a Designated Give Up, as
defined in Rule 21.12(b)(1), the
applicable rebates for such orders when
executed on the Exchange (orders
yielding fee code BC, NC, PC, SC, QA,
6 See e.g., BOX Options Fee Schedule, Section
1(D), Qualified Contingent Cross (‘‘QCC’’)
Transactions, which provides that no fees are
assessed for Customer and Professional Customer
QCC transactions. See also NYSE American Options
Fee Schedule, Section 1(F), QCC Fees and Credits,
which also provides that no fees are assessed for
Customer and Professional Customer QCC
transactions.
7 See e.g., Nasdaq ISE LLC Pricing Schedule,
Options 7 Pricing Schedule, Section 1, ‘‘Crossing
Orders’’, which provides that non-customer, nonprofessional QCC orders are assessed $0.20 per
contract.
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81967
QM, ZA and ZB) are provided to the
Member who routed the order to the
Exchange. Pursuant to Rule 21.12,
which specifies the process to submit an
order with a Designated Give Up, a
Member acting as an options routing
firm on behalf of one or more other
Exchange Members (a ‘‘Routing Firm’’)
is able to route orders to the Exchange
and to immediately give up the party (a
party other than the Routing Firm itself
or the Routing Firm’s own clearing firm)
who accepts and clears any resulting
transaction. Because the Routing Firm is
responsible for the decision to route the
order to the Exchange, the Exchange
currently provides such Member with
the rebate when orders that yield fee
code BC,8 NC,9 PC,10 SC,11 QA,12 QM,13
ZA 14 and ZB 15 are executed. In
connection with the adoption of a new
fee code for QCC Professional orders,
the Exchange proposes to add new fee
code QO (QCC Professional Agency
Order) to the lead-in sentence of
footnote 5 and to append footnote 5 to
fee code QO in the Fee Codes and
Associated Fees table of the Fee
Schedule. The Exchange notes that
Professional QCC Agency orders are
currently included under Footnote 5,
albeit represented by fee code QM,
which will no longer be appended to
Professional QCC Agency orders.
QCC Initiator/Solicitation Rebate Tiers
As noted above, the Exchange
operates in a highly-competitive market
by which competitive forces constrain
the Exchange’s transaction fees and
market participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. In response to the competitive
environment, the Exchange offers,
among other things, tiered pricing
which provides Members opportunities
to qualify for higher rebates or reduced
fees where certain volume criteria and
thresholds are met. Tiered pricing
provides an incremental incentive for
Members to strive for higher tier levels,
which provides increasingly higher
8 Fee Code ‘‘BC’’ is appended to AIM Agency
Customer orders.
9 Fee Code ‘‘NC’’ is appended to Customer NonPenny orders.
10 Fee Code ‘‘PC’’ is appended to Customer Penny
orders.
11 Fee Code ‘‘SC’’ is appended to SAM Agency
Customer orders.
12 Fee Code ‘‘QA’’ is appended to QCC Agency
Customer orders.
13 Fee Code ‘‘QM’’ is appended to QCC Agency
Non-Customer orders.
14 Fee Code ‘‘ZA’’ is appended to Complex
Customer (contra Non-Customer), Penny orders.
15 Fee Code ‘‘ZB’’ is appended to Complex
Customer (contra Non-Customer), Non-Penny
orders.
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
benefits or discounts for satisfying
increasingly more stringent criteria. One
such example is that the Exchange
currently offers QCC Initiator/
Solicitation Rebate Tiers under footnote
7, which provide enhanced rebates for
qualifying QCC and SAM Agency orders
where a Member meets incrementally
increasing volume thresholds.
Particularly, the Exchange will apply
the QCC Initiator/Solicitation Rebate to
the Member that submits QCC Agency
Orders or Solicitation Agency Orders,
including a Member who routed orders
to the Exchange with a Designated Give
Up, when at least one side of the
transaction is of Non-Customer capacity.
Currently fee codes QA, QM, SA 16 and
SC qualify for these rebates. Currently,
Tier 1 provides no rebates for Members
that submit qualifying orders (i.e., QA,
QM, SA and SC) totaling 0 to 99,999
contracts per month; Tier 2, provides a
rebate of $0.05 per contract for Members
that submit qualifying orders totaling
100,000 to 199,999 contracts per month;
Tier 3, provides a rebate of $0.07 per
contract for Members that submit
qualifying orders totaling 200,000 to
499,999 contracts per month; Tier 4,
provides a rebate of $0.09 per contract
for Members that submit qualifying
orders totaling 500,000 to 749,999
contracts per month; Tier 5 provides a
rebate of $0.10 per contract for Members
that submit qualifying orders totaling
750,000 to 999,999 contracts per month;
and Tier 6, provides a rebate of $0.11
per contract for Members that submit
qualifying orders totaling 1,000,000 or
more contracts per month.
The Exchange proposes to amend the
QCC Initiator/Solicitation Rebate Tier
program by (1) amending the volume
thresholds, (2) eliminating Tiers 5 and
6, (3) amending the current rebates and
(4) clarifying that the program will
apply to new fee code QO which will be
appended to QCC Agency Professional
orders. The Exchange first proposes to
amend the volume thresholds as
follows:
• To receive the rebate in Tier 1, a
member must submit qualifying orders
totaling 0–999,999 contracts per month.
• To receive the rebate in Tier 2, a
member must submit qualifying orders
totaling 1,000,000–1,999,999 contracts
per month.
Volume threshold
(per month)
Tier
1
2
3
4
.............
.............
.............
.............
• To receive the rebate in Tier 3, a
member must submit qualifying orders
totaling 2,000,000–2,999,999 contracts
per month.
• To receive the rebate in Tier 4, a
member must submit qualifying orders
totaling 3,000,000 or more contracts per
month.
The Exchange also proposes to
eliminate Tiers 5 and 6 and notes that
no Members have historically hit such
tiers. The Exchange also proposes to
adopt a new rebate structure for Tiers 1
through 4. Particularly, the Exchange
proposes to adopt two separate rebates
that are available under each tier,
depending on the market participants
involved in a particular transaction. A
qualifying order will receive the rebate
under ‘‘Rebate 1’’ if one side of the
transaction is of Non-Customer, NonProfessional capacity. A qualifying
order will receive the rebate under
‘‘Rebate 2’’, if both sides of the
transaction are of Non-Customer, NonProfessional capacity. Transactions
where both sides of the transaction are
Customers or Professionals will not
receive a rebate. The proposed rebates
and corresponding tiers are as follows:
Rebate 1
0 to 999,999 contracts .........................................................................................................................
1,000,000 to 1,999,999 contracts ........................................................................................................
2,000,000 to 2,999,999 contracts ........................................................................................................
3,000,000+ contracts ...........................................................................................................................
The Exchange is proposing to increase
the volume thresholds under the tiers in
light of the proposed new (and much
higher) enhanced rebates. Particularly,
the Exchange believes the proposed
thresholds are more appropriate and
commensurate with the new proposed
rebates. The Exchange notes that it also
wishes to provide a lower enhanced
rebate where only one side of a
transaction is a Non-Customer, NonProfessional, as it receives less revenue
as compared to when both sides of a
transaction are Non-Customer, NonProfessionals. The Exchange believes
the proposed rebates and rebate
structure are competitive with rebates
offered at another exchange for similar
transactions.17 Additionally, the
proposed changes to the QCC Initiator/
Solicitation Rebate Tiers are designed to
incentivize Members to grow their QCC
Initiator and/or Solicitation order flow
to receive the enhanced rebates. The
Exchange believes that incentivizing
greater QCC Initiator and/or Solicitation
order flow would provide more
opportunities for participation in QCC
trades or in the SAM Auction which
icreases [sic] opportunities for price
improvement.
Lastly, in connection with the
adoption of a new fee code for QCC
Professional orders, the Exchange
proposes to add new fee code QO (QCC
Agency Professional Order) to the leadin sentence of footnote 7 and to append
footnote 7 to fee code QO in the Fee
Codes and Associated Fees table of the
Fee Schedule. The Exchange notes that
Professional QCC Agency orders already
are included under Footnote 7, albeit
represented by fee code QM, which will
no longer be appended to Professional
QCC Agency orders.
16 Fee Code ‘‘SA’’ is appended to SAM Agency
Non-Customer orders.
17 See Box Options Fee Schedule, Section 1(D),
which provides a $0.14 per contract rebate to the
Agency Order where at least one party to the QCC
transaction is a Broker-Dealer or Market-Maker (i.e.,
a non-customer, non-professional) and a $0.22 per
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($0.14)
($0.15)
($0.16)
($0.16)
Rebate 2
($0.22)
($0.23)
($0.24)
($0.26)
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,18 in general, and
furthers the requirements of Section
6(b)(4),19 in particular, as it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its facilities and does not
unfairly discriminate between
customers, issuers, brokers or dealers.
As stated above, the Exchange
operates in a highly-competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. The
Exchange is only one of several options
venues to which market participants
may direct their order flow, and it
represents a small percentage of the
overall market. The proposed fee
contract rebate where both parties to the QCC
transaction are a Broker-Dealer or Market-Maker.
18 15 U.S.C. 78f.
19 15 U.S.C. 78f(b)(4).
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changes reflect a competitive pricing
structure designed to incentivize market
participants, including Professionals, to
direct their QCC order flow, which the
Exchange believes would enhance
market quality to the benefit of all
Members.
Overall, the Exchange believes that its
volume-based tiers for QCC and SAM
Agency Orders is consistent with
Section 6(b)(4) of the Act in that the
proposed fees are reasonable, equitable
and not unfairly discriminatory. The
Exchange believes that the proposed
fees and rebates are reasonable,
equitable, and not unfairly
discriminatory in that competing
options exchanges offer substantially
the same fees and credits in connection
with QCC transactions as the Exchange
now proposes.20
QCC Transaction Fees
In particular, the Exchange believes
the proposal to not assess a fee for
Professional QCC orders is reasonable
because such market participants would
not be subject to any fees for such
transactions. The Exchange notes other
Exchanges also waive fees for
Professional QCC transactions.21 The
Exchange believes the proposed change
to increase the fee for Non-Customer,
Non-Professional QCC orders is
reasonable because it is in line with the
amounts assessed for similar orders at
other exchanges.22 Additionally, the
proposed rate changes apply uniformly
to similarly situated market
participants.
Professional QCC Agency Orders and
Designated Give Up
The Exchange believes that the
proposal to add new fee code QO to the
lead-in sentence of footnote 5 and to
append footnote 5 to fee code QO is a
reasonable and equitable allocation of
fees and dues and is not unreasonably
discriminatory because, as is currently
the case pursuant to footnote 5 and Rule
21.12(b)(1), the proposal simply makes
20 See e.g., BOX Options Fee Schedule, Section
1(D), Qualified Contingent Cross (‘‘QCC’’)
Transactions. See also NYSE American Options Fee
Schedule, Section 1(F), QCC Fees and Credits and
Nasdaq ISE LLC Pricing Schedule, Options 7
Pricing Schedule, Section 1, ‘‘Crossing Orders’’.
21 See e.g., BOX Options Fee Schedule, Section
1(D), Qualified Contingent Cross (‘‘QCC’’)
Transactions, which provides that no fees are
assessed for Customer and Professional Customer
QCC transactions. See also NYSE American Options
Fee Schedule, Section 1(F), QCC Fees and Credits,
which also provides that no fees are assessed for
Customer and Professional Customer QCC
transactions.
22 See e.g., Nasdaq ISE LLC Pricing Schedule,
Options 7 Pricing Schedule, Section 1, ‘‘Crossing
Orders’’, which provides that non-customer, nonprofessional QCC orders are assessed $0.20 per
contract.
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18:52 Dec 16, 2020
Jkt 253001
clear that a firm acting as a Routing
Firm that routes Professional QCC
Agency Orders to the Exchange will be
provided applicable rebates, based on
the Routing Firm’s decision to route the
order to the Exchange. Particularly, as
noted above, Professional QCC Agency
orders were already subject to footnote
5 of the fee schedule, albeit represented
by footnote QM.
QCC Initiator/Solicitation Rebate Tiers
The Exchange believes the proposed
changes to the existing QCC Initiator/
Solicitation Rebate Tiers is reasonable
because they continue to provide
opportunities for Members to receive
higher rebates by providing for
incrementally increasing volume-based
criteria they can reach for (albeit using
more stringent criteria, but offering
higher enhanced rebates). The Exchange
believes the rebate tiers, as modified,
continue to serve as a reasonable means
to encourage Members to increase their
liquidity on the Exchange, particularly
in connection with additional QCC and/
or Solicitation Agency Order flow to the
Exchange in order to benefit from the
proposed enhanced rebates. The
Exchange believes that incentivizing
greater QCC Initiator and/or Solicitation
order flow would provide more
opportunities for participation in QCC
trades or in the SAM Auction which
increases opportunities for price
improvement. The Exchange also notes
that any overall increased liquidity that
may result from the proposed tier
incentives benefits all investors by
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 again notes
that volume-based incentives and
discounts have been widely adopted by
other exchanges, and believes that the
proposed tiers are reasonable, equitable
and non-discriminatory because they
are open to all Members on an equal
basis.
The Exchange believes eliminating
current Tiers 5 and 6 is reasonable
because the Exchange is not required to
maintain these tiers and Members still
have the opportunity to receive
enhanced rebates under the existing
Tiers 1–4. Moreover, no Member has
historically achieved these tiers. The
Exchange believes the proposal to
eliminate these tiers is also equitable
and not unfairly discriminatory because
it applies to all Members.
The Exchange believes the proposed
enhanced rebates are commensurate
with the difficulty of the proposed
criteria and that the tiers continue to
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81969
provide an incremental incentive for
Members to strive for higher tier levels,
which provides increasingly higher
rebates for satisfying increasingly more
stringent criteria. As noted above, the
Exchange also believes the proposal to
adopt two alternative rebates depending
on the capacity of the parties to the
transaction is reasonable. As discussed,
the Exchange wishes to provide a lower
enhanced rebate where only one side of
a transaction is a Non-Customer, NonProfessional, as these transactions
generally generate less revenue as
compared to when both sides of a
transaction are Non-Customer, NonProfessionals. The Exchange also
believes the proposed rebates and rebate
structure are competitive with rebates
offered at another exchange for similar
transactions.23
The Exchange believes that the
proposed changes to Tiers 1–4 represent
an equitable allocation of fees and is not
unfairly discriminatory because
Members will be eligible for these tiers
and the corresponding enhanced rebates
will apply uniformly to all Members
that reach the proposed tier criteria. The
Exchange believes that a number of
market participants have a reasonable
opportunity to satisfy the tiers’ criteria,
even as modified. The Exchange notes
that currently no Members satisfy any of
the Tiers’ current criteria. While the
Exchange has no way of knowing
whether this proposed rule change
would definitively result in any
particular Member qualifying for the
proposed tiers, the Exchange anticipates
at least one to three Members meeting,
or being reasonably able to meet, the
proposed criteria under the rebate tiers.
Particularly, the Exchange anticipates at
least one firm to satisfy the criteria
under each of Tiers 1, 2 and 3; however,
the proposed tiers are open to any
Member that satisfies the tiers’ criteria.
The Exchange also notes that the
proposed changes will not adversely
impact any Member’s pricing or their
ability to qualify for other rebate tiers.
Rather, should a Member not meet the
proposed criteria, the Member will
merely not receive the corresponding
enhanced rebates.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
23 See Box Options Fee Schedule, Section 1(D),
which provides a $0.14 per contract rebate to the
Agency Order where at least one party to the QCC
transaction is a Broker-Dealer or Market-Maker (i.e.,
a non-customer, non-professional) and a $0.22 per
contract rebate where both parties to the QCC
transaction are a Broker-Dealer or Market-Maker.
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
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 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 that 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.
First, the Exchange notes that the
proposed changes apply uniformly to
similarly situated Members. The
Exchange believes that the proposed
changes related to QCC and SAM
transactions would not impose any
burden on intramarket competition, but
rather, serves to increase intramarket
competition by incentivizing members,
including Professionals, to direct their
QCC and SAM orders to the Exchange,
in turn providing for more opportunities
to compete at improved prices.
Additionally, the proposed rule change
benefits all market participants as any
overall increased liquidity that may
result from the proposed fee and tier
incentives benefits all investors by
offering additional flexibility for all
investors to enjoy cost savings,
supporting the quality of price
discovery, promoting market
transparency and improving investor
protection.
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 they may participate on and
direct their order flow, including 15
other options exchanges. Additionally,
the Exchange represents a small
percentage of the overall market. Based
on publicly available information, no
single options exchange has more than
15% of the market share.24 Therefore,
no exchange possesses significant
pricing power in the execution of order
flow. Indeed, participants can readily
choose to send their orders to other
exchanges and off-exchange venues if
they deem fee levels at those other
venues to be more favorable. As noted
above, the Exchange believes that the
proposed pricing rebates under the QCC
Initiator/Solicitation Rebate Tiers is
comparable to that of other exchanges
offering similar QCC functionality.
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 25 and paragraph (f) of Rule
19b–4 26 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
25 15
24 See
supra note 1 [sic].
VerDate Sep<11>2014
18:52 Dec 16, 2020
26 17
Jkt 253001
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00102
Fmt 4703
Sfmt 4703
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2020–061 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–2020–061. 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
E:\FR\FM\17DEN1.SGM
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
submissions should refer to File
Number SR–CboeEDGX–2020–061 and
should be submitted on or before
January 7, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27724 Filed 12–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90651; File No. SR–
PEARL–2020–33]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX
PEARL Equities Fee Schedule To
Adopt Connectivity Fees, Port Fees, a
Technical Support Request Fee, and
Historical Market Data Fee
December 11, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
3, 2020, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a 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
The Exchange is filing a proposal to
amend the MIAX PEARL Equities Fee
Schedule (the ‘‘Fee Schedule’’) by
adopting fees applicable to participants
trading equity securities on and/or using
services provided by MIAX PEARL
Equities.3
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Exchange Rule 1901. The Exchange notes
that it submitted a separate filing with the
Commission pursuant to Section 19(b)(3)(A) of the
Act to establish the Fee Schedule and adopt
transaction fees. See Securities Exchange Act
Release No. 90102 (October 6, 2020), 85 FR 64559
(October 13, 2020) (SR–PEARL–2020–17).
1 15
VerDate Sep<11>2014
18:52 Dec 16, 2020
Jkt 253001
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 August 14, 2020, the Commission
approved the Exchange’s proposal to
adopt rules governing the trading of
equity securities, referred to as MIAX
PEARL Equities.4 The Exchange
launched MIAX PEARL Equities on
September 25, 2020. The Exchange
proposes to adopt a Definitions section
in the Fee Schedule as well as the
following fees: (1) Connectivity fees for
Equity Members 5 and non-Members; (2)
Port fees (together with the proposed
connectivity fees, the ‘‘Proposed Access
Fees’’); (3) a Technical Support Request
fee; and (4) a fee for Historical Market
Data (collectively, the ‘‘Proposed Fees’’).
The Exchange initially filed the
proposal on September 24, 2020.6 The
Exchange withdrew the First Proposed
Rule Change on October 5, 2020 and
submitted SR–PEARL–2020–19.7 The
Second Proposed Rule Change was
published for comment in the Federal
Register on October 20, 2020 8 and no
comment letters were received.
Nonetheless, the Exchange withdrew
the Second Proposed Rule Change 9 and
4 See Securities Exchange Act Release No. 89563
(August 14, 2020), 85 FR 51510 (August 20, 2020)
(SR–PEARL–2020–03) (Order Approving a
Proposed Rule Change, as Modified by Amendment
No. 1, To Establish Rules Governing the Trading of
Equity Securities) (‘‘Approval Order’’).
5 The term ‘‘Equity Member’’ means a Member
authorized by the Exchange to transact business on
MIAX PEARL Equities. See Exchange Rule 1901.
6 The Exchange initially filed the proposed fee
changes on September 24, 2020 (SR–PEARL–2020–
18). See SR–PEARL–2020–18 (the ‘‘First Proposed
Rule Change’’).
7 See Securities Exchange Act Release No. 90186
(October 14, 2020), 85 FR 66656 (October 20, 2020)
(SR–PEARL–2020–19) (the ‘‘Second Proposed Rule
Change’’).
8 See id.
9 See letter from Chris Solgan, VP, Senior
Counsel, the Exchange, dated November 20, 2020,
notifying the Commission that the Exchange would
withdraw SR–PEARL–2020–19.
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
81971
now replaces it with this filing to
provide further clarification regarding
the Exchange’s cost analysis for the
Proposed Fees.10
MIAX PEARL Equities, as a new
entrant into the equity securities
marketplace, has only begun generating
revenue and has a very low market
share. The Exchange believes that
exchanges, in setting fees of all types,
should meet very high standards of
transparency to demonstrate why each
new fee or fee increase meets the
requirements of the Act that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
members and markets. The Exchange
believes this high standard is especially
important when an exchange imposes
various access fees for market
participants to access an exchange’s
marketplace. The Exchange believes that
it is important to demonstrate that these
fees are based on its costs and
reasonable business needs. Accordingly,
the Exchange believes the Proposed
Fees in general, and the Proposed
Access Fees in particular, will allow the
Exchange to offset a portion of the
expenses the Exchange has and will
incur and that the Exchange has
provided sufficient transparency (as
described below) into how the Exchange
determined to charge such fees.
Definitions
The Exchange proposes to include a
Definitions section at the beginning of
the Fee Schedule, before the General
Notes section. The purpose of the
Definitions section is to provide market
participants greater clarity and
transparency regarding the applicability
of fees and rebates by defining terms
used within the Fee Schedule in a single
location. The Exchange notes that other
equities exchanges include Definitions
sections in their respective fee
schedules,11 and the Exchange believes
that including a Definitions section in
the front of the Fee Schedule makes the
Fee Schedule more user-friendly and
makes the Fee Schedule more
comprehensive.
Unless included in the Definition
section, capitalized terms used in the
Fee Schedule are defined in the MIAX
PEARL Equities Rules. Each of the
definitions proposed to be included in
10 In this filing, the Exchange also corrects an
error in the earlier filings by replacing references to
the term ‘‘Priority Purge Ports’’ with simply ‘‘Purge
Ports.’’
11 See Cboe BZX Exchange, Inc. Fee Schedule,
Definitions section; Cboe BYX Exchange, Inc.,
Definitions section; Cboe EDGA Exchange, Inc.,
Definitions section; Cboe EDGX Exchange, Inc.,
Definitions section.
E:\FR\FM\17DEN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81966-81971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27724]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90643; File No. SR-CboeEDGX-2020-061]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend Its Fee Schedule With Respect to Qualified Contingent
Cross (``QCC'') and Solicitation Auction Mechanism (``SAM'') Orders
December 11, 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 December 3, 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 Options'')
proposes to amend its Fee Schedule with respect to Qualified Contingent
Cross (``QCC'') and Solicitation Auction Mechanism (``SAM'') orders.
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.
[[Page 81967]]
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 modify the Fee Schedule relating to
Qualified Contingent Cross (``QCC'') and Solicitation Auction Mechanism
(``SAM'') \3\ orders.\4\
---------------------------------------------------------------------------
\3\ SAM is the Exchange's solicited order mechanism for larger-
sized orders.
\4\ The Exchange initially filed the proposed fee changes on
December 1, 2020 (SR-CboeEDGX-2020-058). On December 3, 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 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 15% of the market share.\5\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange possesses significant pricing power in the
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow, or
discontinue use of certain categories of products, in response to fee
changes. Accordingly, competitive forces constrain the Exchange's
transaction fees, and market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable. In response to the competitive environment, the
Exchange offers specific rates and credits in its fees schedule, like
that of other options exchanges' fees schedules, which the Exchange
believes provide incentive to Members to increase order flow of certain
qualifying orders.
---------------------------------------------------------------------------
\5\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (November 25, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
QCC Transaction Fees
By way of background, a QCC order is comprised of an `initiating
order' to buy (sell) at least 1,000 contracts, coupled with a contra-
side order to sell (buy) an equal number of contracts and that for
complex QCC transactions, the 1,000 contracts minimum is applied per
leg. Currently, the Exchange assesses a fee of $0.08 per contract for
Non-Customer Agency and Contra QCC orders and $0.00 for Customer QCC
Agency and Contra orders. The Exchange proposes to amend its fees for
orders executed in QCC transactions. First, the Exchange proposes to
eliminate transaction fees for Professional Agency and Contra QCC
orders. The purpose of the proposed change to waive fees for
Professional QCC orders is to incentivize the sending of QCC orders to
the Exchange by these market participants and compete with other
Exchanges that similarly do not assess fees on Professional QCC
orders.\6\ In connection with this proposed change, the Exchange
proposes to adopt new fee codes QO and QP to apply specifically to QCC
Agency and Contra Professional orders, respectively, and amend the
description of current fee codes QM and QN to provide it applies to
Non-Customer, Non-Professionals. The Exchange next proposes to increase
the fees for QCC Agency and Contra Non-Customer, Non-Professional
orders from $0.08 per contract to $0.20 per contract. The proposed Non-
Customer, Non-Professional QCC fee change is also in line with amounts
assessed by other exchanges for similar transactions.\7\
---------------------------------------------------------------------------
\6\ See e.g., BOX Options Fee Schedule, Section 1(D), Qualified
Contingent Cross (``QCC'') Transactions, which provides that no fees
are assessed for Customer and Professional Customer QCC
transactions. See also NYSE American Options Fee Schedule, Section
1(F), QCC Fees and Credits, which also provides that no fees are
assessed for Customer and Professional Customer QCC transactions.
\7\ See e.g., Nasdaq ISE LLC Pricing Schedule, Options 7 Pricing
Schedule, Section 1, ``Crossing Orders'', which provides that non-
customer, non-professional QCC orders are assessed $0.20 per
contract.
---------------------------------------------------------------------------
Agency Orders and Designated Give Up
Footnote 5 of the Fee Schedule currently specifies that when an
order is submitted with a Designated Give Up, as defined in Rule
21.12(b)(1), the applicable rebates for such orders when executed on
the Exchange (orders yielding fee code BC, NC, PC, SC, QA, QM, ZA and
ZB) are provided to the Member who routed the order to the Exchange.
Pursuant to Rule 21.12, which specifies the process to submit an order
with a Designated Give Up, a Member acting as an options routing firm
on behalf of one or more other Exchange Members (a ``Routing Firm'') is
able to route orders to the Exchange and to immediately give up the
party (a party other than the Routing Firm itself or the Routing Firm's
own clearing firm) who accepts and clears any resulting transaction.
Because the Routing Firm is responsible for the decision to route the
order to the Exchange, the Exchange currently provides such Member with
the rebate when orders that yield fee code BC,\8\ NC,\9\ PC,\10\
SC,\11\ QA,\12\ QM,\13\ ZA \14\ and ZB \15\ are executed. In connection
with the adoption of a new fee code for QCC Professional orders, the
Exchange proposes to add new fee code QO (QCC Professional Agency
Order) to the lead-in sentence of footnote 5 and to append footnote 5
to fee code QO in the Fee Codes and Associated Fees table of the Fee
Schedule. The Exchange notes that Professional QCC Agency orders are
currently included under Footnote 5, albeit represented by fee code QM,
which will no longer be appended to Professional QCC Agency orders.
---------------------------------------------------------------------------
\8\ Fee Code ``BC'' is appended to AIM Agency Customer orders.
\9\ Fee Code ``NC'' is appended to Customer Non-Penny orders.
\10\ Fee Code ``PC'' is appended to Customer Penny orders.
\11\ Fee Code ``SC'' is appended to SAM Agency Customer orders.
\12\ Fee Code ``QA'' is appended to QCC Agency Customer orders.
\13\ Fee Code ``QM'' is appended to QCC Agency Non-Customer
orders.
\14\ Fee Code ``ZA'' is appended to Complex Customer (contra
Non-Customer), Penny orders.
\15\ Fee Code ``ZB'' is appended to Complex Customer (contra
Non-Customer), Non-Penny orders.
---------------------------------------------------------------------------
QCC Initiator/Solicitation Rebate Tiers
As noted above, the Exchange operates in a highly-competitive
market by which competitive forces constrain the Exchange's transaction
fees and market participants can readily trade on competing venues if
they deem pricing levels at those other venues to be more favorable. In
response to the competitive environment, the Exchange offers, among
other things, tiered pricing which provides Members opportunities to
qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. Tiered pricing provides an incremental
incentive for Members to strive for higher tier levels, which provides
increasingly higher
[[Page 81968]]
benefits or discounts for satisfying increasingly more stringent
criteria. One such example is that the Exchange currently offers QCC
Initiator/Solicitation Rebate Tiers under footnote 7, which provide
enhanced rebates for qualifying QCC and SAM Agency orders where a
Member meets incrementally increasing volume thresholds. Particularly,
the Exchange will apply the QCC Initiator/Solicitation Rebate to the
Member that submits QCC Agency Orders or Solicitation Agency Orders,
including a Member who routed orders to the Exchange with a Designated
Give Up, when at least one side of the transaction is of Non-Customer
capacity. Currently fee codes QA, QM, SA \16\ and SC qualify for these
rebates. Currently, Tier 1 provides no rebates for Members that submit
qualifying orders (i.e., QA, QM, SA and SC) totaling 0 to 99,999
contracts per month; Tier 2, provides a rebate of $0.05 per contract
for Members that submit qualifying orders totaling 100,000 to 199,999
contracts per month; Tier 3, provides a rebate of $0.07 per contract
for Members that submit qualifying orders totaling 200,000 to 499,999
contracts per month; Tier 4, provides a rebate of $0.09 per contract
for Members that submit qualifying orders totaling 500,000 to 749,999
contracts per month; Tier 5 provides a rebate of $0.10 per contract for
Members that submit qualifying orders totaling 750,000 to 999,999
contracts per month; and Tier 6, provides a rebate of $0.11 per
contract for Members that submit qualifying orders totaling 1,000,000
or more contracts per month.
---------------------------------------------------------------------------
\16\ Fee Code ``SA'' is appended to SAM Agency Non-Customer
orders.
---------------------------------------------------------------------------
The Exchange proposes to amend the QCC Initiator/Solicitation
Rebate Tier program by (1) amending the volume thresholds, (2)
eliminating Tiers 5 and 6, (3) amending the current rebates and (4)
clarifying that the program will apply to new fee code QO which will be
appended to QCC Agency Professional orders. The Exchange first proposes
to amend the volume thresholds as follows:
To receive the rebate in Tier 1, a member must submit
qualifying orders totaling 0-999,999 contracts per month.
To receive the rebate in Tier 2, a member must submit
qualifying orders totaling 1,000,000-1,999,999 contracts per month.
To receive the rebate in Tier 3, a member must submit
qualifying orders totaling 2,000,000-2,999,999 contracts per month.
To receive the rebate in Tier 4, a member must submit
qualifying orders totaling 3,000,000 or more contracts per month.
The Exchange also proposes to eliminate Tiers 5 and 6 and notes that no
Members have historically hit such tiers. The Exchange also proposes to
adopt a new rebate structure for Tiers 1 through 4. Particularly, the
Exchange proposes to adopt two separate rebates that are available
under each tier, depending on the market participants involved in a
particular transaction. A qualifying order will receive the rebate
under ``Rebate 1'' if one side of the transaction is of Non-Customer,
Non-Professional capacity. A qualifying order will receive the rebate
under ``Rebate 2'', if both sides of the transaction are of Non-
Customer, Non-Professional capacity. Transactions where both sides of
the transaction are Customers or Professionals will not receive a
rebate. The proposed rebates and corresponding tiers are as follows:
------------------------------------------------------------------------
Volume threshold (per
Tier month) Rebate 1 Rebate 2
------------------------------------------------------------------------
1.............. 0 to 999,999 contracts. ($0.14) ($0.22)
2.............. 1,000,000 to 1,999,999 ($0.15) ($0.23)
contracts.
3.............. 2,000,000 to 2,999,999 ($0.16) ($0.24)
contracts.
4.............. 3,000,000+ contracts... ($0.16) ($0.26)
------------------------------------------------------------------------
The Exchange is proposing to increase the volume thresholds under
the tiers in light of the proposed new (and much higher) enhanced
rebates. Particularly, the Exchange believes the proposed thresholds
are more appropriate and commensurate with the new proposed rebates.
The Exchange notes that it also wishes to provide a lower enhanced
rebate where only one side of a transaction is a Non-Customer, Non-
Professional, as it receives less revenue as compared to when both
sides of a transaction are Non-Customer, Non-Professionals. The
Exchange believes the proposed rebates and rebate structure are
competitive with rebates offered at another exchange for similar
transactions.\17\ Additionally, the proposed changes to the QCC
Initiator/Solicitation Rebate Tiers are designed to incentivize Members
to grow their QCC Initiator and/or Solicitation order flow to receive
the enhanced rebates. The Exchange believes that incentivizing greater
QCC Initiator and/or Solicitation order flow would provide more
opportunities for participation in QCC trades or in the SAM Auction
which icreases [sic] opportunities for price improvement.
---------------------------------------------------------------------------
\17\ See Box Options Fee Schedule, Section 1(D), which provides
a $0.14 per contract rebate to the Agency Order where at least one
party to the QCC transaction is a Broker-Dealer or Market-Maker
(i.e., a non-customer, non-professional) and a $0.22 per contract
rebate where both parties to the QCC transaction are a Broker-Dealer
or Market-Maker.
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Lastly, in connection with the adoption of a new fee code for QCC
Professional orders, the Exchange proposes to add new fee code QO (QCC
Agency Professional Order) to the lead-in sentence of footnote 7 and to
append footnote 7 to fee code QO in the Fee Codes and Associated Fees
table of the Fee Schedule. The Exchange notes that Professional QCC
Agency orders already are included under Footnote 7, albeit represented
by fee code QM, which will no longer be appended to Professional QCC
Agency orders.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\18\ in general, and furthers the
requirements of Section 6(b)(4),\19\ in particular, as it is designed
to provide for the equitable allocation of reasonable dues, fees and
other charges among its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
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As stated above, the Exchange operates in a highly-competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The Exchange is only one of
several options venues to which market participants may direct their
order flow, and it represents a small percentage of the overall market.
The proposed fee
[[Page 81969]]
changes reflect a competitive pricing structure designed to incentivize
market participants, including Professionals, to direct their QCC order
flow, which the Exchange believes would enhance market quality to the
benefit of all Members.
Overall, the Exchange believes that its volume-based tiers for QCC
and SAM Agency Orders is consistent with Section 6(b)(4) of the Act in
that the proposed fees are reasonable, equitable and not unfairly
discriminatory. The Exchange believes that the proposed fees and
rebates are reasonable, equitable, and not unfairly discriminatory in
that competing options exchanges offer substantially the same fees and
credits in connection with QCC transactions as the Exchange now
proposes.\20\
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\20\ See e.g., BOX Options Fee Schedule, Section 1(D), Qualified
Contingent Cross (``QCC'') Transactions. See also NYSE American
Options Fee Schedule, Section 1(F), QCC Fees and Credits and Nasdaq
ISE LLC Pricing Schedule, Options 7 Pricing Schedule, Section 1,
``Crossing Orders''.
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QCC Transaction Fees
In particular, the Exchange believes the proposal to not assess a
fee for Professional QCC orders is reasonable because such market
participants would not be subject to any fees for such transactions.
The Exchange notes other Exchanges also waive fees for Professional QCC
transactions.\21\ The Exchange believes the proposed change to increase
the fee for Non-Customer, Non-Professional QCC orders is reasonable
because it is in line with the amounts assessed for similar orders at
other exchanges.\22\ Additionally, the proposed rate changes apply
uniformly to similarly situated market participants.
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\21\ See e.g., BOX Options Fee Schedule, Section 1(D), Qualified
Contingent Cross (``QCC'') Transactions, which provides that no fees
are assessed for Customer and Professional Customer QCC
transactions. See also NYSE American Options Fee Schedule, Section
1(F), QCC Fees and Credits, which also provides that no fees are
assessed for Customer and Professional Customer QCC transactions.
\22\ See e.g., Nasdaq ISE LLC Pricing Schedule, Options 7
Pricing Schedule, Section 1, ``Crossing Orders'', which provides
that non-customer, non-professional QCC orders are assessed $0.20
per contract.
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Professional QCC Agency Orders and Designated Give Up
The Exchange believes that the proposal to add new fee code QO to
the lead-in sentence of footnote 5 and to append footnote 5 to fee code
QO is a reasonable and equitable allocation of fees and dues and is not
unreasonably discriminatory because, as is currently the case pursuant
to footnote 5 and Rule 21.12(b)(1), the proposal simply makes clear
that a firm acting as a Routing Firm that routes Professional QCC
Agency Orders to the Exchange will be provided applicable rebates,
based on the Routing Firm's decision to route the order to the
Exchange. Particularly, as noted above, Professional QCC Agency orders
were already subject to footnote 5 of the fee schedule, albeit
represented by footnote QM.
QCC Initiator/Solicitation Rebate Tiers
The Exchange believes the proposed changes to the existing QCC
Initiator/Solicitation Rebate Tiers is reasonable because they continue
to provide opportunities for Members to receive higher rebates by
providing for incrementally increasing volume-based criteria they can
reach for (albeit using more stringent criteria, but offering higher
enhanced rebates). The Exchange believes the rebate tiers, as modified,
continue to serve as a reasonable means to encourage Members to
increase their liquidity on the Exchange, particularly in connection
with additional QCC and/or Solicitation Agency Order flow to the
Exchange in order to benefit from the proposed enhanced rebates. The
Exchange believes that incentivizing greater QCC Initiator and/or
Solicitation order flow would provide more opportunities for
participation in QCC trades or in the SAM Auction which increases
opportunities for price improvement. The Exchange also notes that any
overall increased liquidity that may result from the proposed tier
incentives benefits all investors by 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 again notes that volume-based incentives and
discounts have been widely adopted by other exchanges, and believes
that the proposed tiers are reasonable, equitable and non-
discriminatory because they are open to all Members on an equal basis.
The Exchange believes eliminating current Tiers 5 and 6 is
reasonable because the Exchange is not required to maintain these tiers
and Members still have the opportunity to receive enhanced rebates
under the existing Tiers 1-4. Moreover, no Member has historically
achieved these tiers. The Exchange believes the proposal to eliminate
these tiers is also equitable and not unfairly discriminatory because
it applies to all Members.
The Exchange believes the proposed enhanced rebates are
commensurate with the difficulty of the proposed criteria and that the
tiers continue to provide an incremental incentive for Members to
strive for higher tier levels, which provides increasingly higher
rebates for satisfying increasingly more stringent criteria. As noted
above, the Exchange also believes the proposal to adopt two alternative
rebates depending on the capacity of the parties to the transaction is
reasonable. As discussed, the Exchange wishes to provide a lower
enhanced rebate where only one side of a transaction is a Non-Customer,
Non-Professional, as these transactions generally generate less revenue
as compared to when both sides of a transaction are Non-Customer, Non-
Professionals. The Exchange also believes the proposed rebates and
rebate structure are competitive with rebates offered at another
exchange for similar transactions.\23\
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\23\ See Box Options Fee Schedule, Section 1(D), which provides
a $0.14 per contract rebate to the Agency Order where at least one
party to the QCC transaction is a Broker-Dealer or Market-Maker
(i.e., a non-customer, non-professional) and a $0.22 per contract
rebate where both parties to the QCC transaction are a Broker-Dealer
or Market-Maker.
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The Exchange believes that the proposed changes to Tiers 1-4
represent an equitable allocation of fees and is not unfairly
discriminatory because Members will be eligible for these tiers and the
corresponding enhanced rebates will apply uniformly to all Members that
reach the proposed tier criteria. The Exchange believes that a number
of market participants have a reasonable opportunity to satisfy the
tiers' criteria, even as modified. The Exchange notes that currently no
Members satisfy any of the Tiers' current criteria. While the Exchange
has no way of knowing whether this proposed rule change would
definitively result in any particular Member qualifying for the
proposed tiers, the Exchange anticipates at least one to three Members
meeting, or being reasonably able to meet, the proposed criteria under
the rebate tiers. Particularly, the Exchange anticipates at least one
firm to satisfy the criteria under each of Tiers 1, 2 and 3; however,
the proposed tiers are open to any Member that satisfies the tiers'
criteria. The Exchange also notes that the proposed changes will not
adversely impact any Member's pricing or their ability to qualify for
other rebate tiers. Rather, should a Member not meet the proposed
criteria, the Member will merely not receive the corresponding enhanced
rebates.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not
[[Page 81970]]
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 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 that 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. First, the
Exchange notes that the proposed changes apply uniformly to similarly
situated Members. The Exchange believes that the proposed changes
related to QCC and SAM transactions would not impose any burden on
intramarket competition, but rather, serves to increase intramarket
competition by incentivizing members, including Professionals, to
direct their QCC and SAM orders to the Exchange, in turn providing for
more opportunities to compete at improved prices. Additionally, the
proposed rule change benefits all market participants as any overall
increased liquidity that may result from the proposed fee and tier
incentives benefits all investors by offering additional flexibility
for all investors to enjoy cost savings, supporting the quality of
price discovery, promoting market transparency and improving investor
protection.
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 they may participate on and
direct their order flow, including 15 other options exchanges.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no single options
exchange has more than 15% of the market share.\24\ Therefore, no
exchange possesses significant pricing power in the execution of order
flow. Indeed, participants can readily choose to send their orders to
other exchanges and off-exchange venues if they deem fee levels at
those other venues to be more favorable. As noted above, the Exchange
believes that the proposed pricing rebates under the QCC Initiator/
Solicitation Rebate Tiers is comparable to that of other exchanges
offering similar QCC functionality. 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.
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\24\ See supra note 1 [sic].
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \25\ and paragraph (f) of Rule 19b-4 \26\
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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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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-2020-061 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-2020-061. 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
[[Page 81971]]
submissions should refer to File Number SR-CboeEDGX-2020-061 and should
be submitted on or before January 7, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27724 Filed 12-16-20; 8:45 am]
BILLING CODE 8011-01-P
