Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Applicable to the EDGX Top Feed, 15530-15536 [2021-05912]
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
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–CboeBZX–2021–020 and
should be submitted on or before April
13, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05913 Filed 3–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91345; File No. SR–
NASDAQ–2020–057]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Designation of Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change,
as Modified by Amendment No. 1, To
Allow Companies To List in
Connection With a Direct Listing With
a Primary Offering in Which the
Company Will Sell Shares Itself in the
Opening Auction on the First Day of
Trading on Nasdaq and To Explain
How the Opening Transaction for Such
a Listing Will Be Effected
March 17, 2021.
On September 4, 2020, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 1 of the Securities Exchange Act
of 1934 (‘‘Act’’) 2 and Rule 19b–4
thereunder,3 a proposed rule change to
allow companies to list in connection
with a primary offering in which the
company will sell shares itself in the
opening auction on the first day of
trading on the Exchange and to explain
how the opening transaction for such a
listing will be effected. The proposed
rule change was published for comment
in the Federal Register on September
21, 2020.4 On November 4, 2020,
pursuant to Section 19(b)(2) of the Act,5
48 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 89878
(September 15, 2020), 85 FR 59349 (September 21,
2020). Comments received on the proposal are
available on the Commission’s website at: https://
www.sec.gov/comments/sr-nasdaq-2020-057/
srnasdaq2020057.htm.
5 15 U.S.C. 78s(b)(2).
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the Commission designated a longer
period within which to either approve
or disapprove the proposed rule change,
or institute proceedings to determine
whether to disapprove the proposed
rule change.6 On December 17, 2020,
the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act 7 to
determine whether to approve or
disapprove the proposed rule change.8
On February 22, 2021, the Exchange
filed Amendment No. 1 to the proposed
rule change, which superseded the
proposed rule change as originally filed.
The proposed rule change, as modified
by Amendment No. 1, was published for
comment in the Federal Register on
March 2, 2021.9
Section 19(b)(2) of the Act 10 provides
that, after initiating proceedings, the
Commission shall issue an order
approving or disapproving the proposed
rule change not later than 180 days after
the date of publication of notice of the
filing of the proposed rule change. The
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on September 21,
2020.11 The 180th day after publication
of the Notice is March 20, 2021. The
Commission is extending the time
period for approving or disapproving
the proposal for an additional 60 days.
The Commission finds that it is
appropriate to designate a longer period
within which to issue an order
approving or disapproving the proposed
rule change so that it has sufficient time
to consider the proposed rule change, as
modified by Amendment No. 1, along
with the comments received on the
proposal. Accordingly, the Commission,
pursuant to Section 19(b)(2) of the
Act,12 designates May 19, 2021, as the
date by which the Commission should
either approve or disapprove the
proposed rule change (File No. SR–
NASDAQ–2020–057), as modified by
Amendment No. 1.
6 See Securities Exchange Act Release No. 90331
(November 4, 2020), 85 FR 71708 (November 10,
2020).
7 15 U.S.C. 78s(b)(2)(B).
8 See Securities Exchange Act Release No. 90717
(December 17, 2020), 85 FR 84025 (December 23,
2020).
9 See Securities Exchange Act Release No. 91205
(February 24, 2021), 86 FR 12245 (March 2, 2021).
10 15 U.S.C. 78s(b)(2).
11 See Supra note 4.
12 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05917 Filed 3–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91338; File No. SR–
CboeEDGX–2021–014]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fees Applicable to the EDGX Top Feed
March 17, 2021.
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 March 4,
2021, 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. (‘‘EDGX’’
or the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to amend the fees applicable to
the EDGX Top Feed. 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
13 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
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 purpose of the proposed rule
change is to amend the fees applicable
to the EDGX Top Feed,3 which is an
uncompressed data feed that offers both
top-of-book quotations and execution
information based on equity orders
entered into the System.4 Specifically,
the Exchange proposes to: (1) Increase
the fee for internal distribution of the
EDGX Top Feed; and (2) introduce
Professional User fees for internal
Professional Users of the EDGX Top
Feed.5 The current fees for external
distribution of the EDGX Top Feed will
continue to apply, without change,
including various incentive programs
that the Exchange has adopted to
facilitate the provision of lower-cost
market data to retail and other
investors.6
3 The Exchange initially filed the proposed fee
changes on January 4, 2021. See Securities
Exchange Act Release No. 90923 (January 14, 2021),
86 FR 6719 (January 22, 2021) (SR–CboeEDGX–
2021–002). On March 4, 2021, the Exchange
withdrew that filing and submitted this proposal.
4 See EDGX Rule 13.8(c).
5 A Professional User of an Exchange Market Data
product is any User other than a Non-Professional
User. See EDGX Schedule of Fees, Market Data
Fees, Definitions. A ‘‘Non-Professional User’’ of an
Exchange Market Data product is a natural person
or qualifying trust that uses Data only for personal
purposes and not for any commercial purpose and,
for a natural person who works in the United States,
is not: (i) Registered or qualified in any capacity
with the Securities and Exchange Commission, the
Commodities Futures Trading Commission, any
state securities agency, any securities exchange or
association, or any commodities or futures contract
market or association; (ii) engaged as an
‘‘investment adviser’’ as that term is defined in
Section 202(a)(11) of the Investment Advisors Act
of 1940 (whether or not registered or qualified
under that Act); or (iii) employed by a bank or other
organization exempt from registration under federal
or state securities laws to perform functions that
would require registration or qualification if such
functions were performed for an organization not so
exempt; or, for a natural person who works outside
of the United States, does not perform the same
functions as would disqualify such person as a
Non-Professional User if he or she worked in the
United States. Id.
6 See e.g., EDGX Schedule of Fees, EDGX Top,
Small Retail Broker Distribution Program; EDGX
Schedule of Fees, Financial Product Distribution
Program. The Small Retail Broker Distribution
Program is a pricing program offered by the
Exchange that allows small retail brokers that
purchase top-of-book market data from the
Exchange to benefit from discounted fees for access
to such market data. The Financial Product
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Market Background
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. 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.’’ 7 As
the Commission itself recognized, the
market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 8
Equity trading is currently dispersed
across sixteen exchanges, including
three new U.S. equities exchanges that
launched trading in 2020, 32 alternative
trading systems,9 and numerous brokerdealer internalizers and wholesalers, all
competing fiercely for order flow. Based
on publicly-available information, no
single U.S. equities exchange has more
than 20% market share.10 In turn, the
market for top-of-book quotation and
transaction data is highly competitive as
national securities exchanges compete
vigorously with each other to provide
efficient, reliable, and low-cost data to
a wide range of investors and market
participants. In fact, there are twelve
competing products offered by other
national securities exchanges today,11
not counting products offered by the
Exchange’s affiliates, and each of the
Exchange’s affiliated U.S. equities
exchanges also offers similar top-ofbook data. Each of those exchanges offer
top-of-book quotation and last sale
information based on their own
Distribution Program lowers the cost of distributing
Derived Data based upon the Exchange’s top-ofbook offerings, including Derived Data that is often
used by retail investors.
7 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)
(S7–10–04) (Final Rule) (‘‘Regulation NMS
Adopting Release’’).
8 See Securities Exchange Act Release No. 84875,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Transaction Fee Pilot for NMS Stocks Final
Rule) (‘‘Transaction Fee Pilot’’).
9 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsData. A list of alternative trading systems
registered with the Commission is available at
https://www.sec.gov/foia/docs/atslist.htm.
10 See Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
11 Competing top of book products include,
Nasdaq Basic, BX Basic, PSX Basic, NYSE BQT,
NYSE BBO/Trades, NYSE Arca BQT, NYSE Arca
BBO/Trades, NYSE American BBO/Trades, NYSE
Chicago BBO/Trades, IEX TOPS, MIAX PEARL
Equities Top of Market Feed, and MEMX MEMOIR
Top.
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quotation and trading activity that is
substantially similar to the information
provided by the Exchange through the
EDGX Top Feed.12 Exchange top-ofbook data is therefore widely available
today from a number of different
sources.
Fees for Internal Distribution of the
EDGX Top Feed
Currently, the Exchange charges a
modest fee of $500 per month for
internal distribution of EDGX Top Feed
data,13 i.e., distribution within the
distributor’s own firm,14 and does not
charge any additional fees for internal
distribution based on the number of
Professional or Non-Professional Users
that receive access to this information.
These internal distribution fees have
been in place, without change, since
early 2015 when the Exchange first
began offering the EDGX Top Feed.15 In
the time since, the Exchange has made
a number of significant enhancements to
its platform, including notably the
introduction of priority for retail limit
orders,16 that have resulted in improved
trading opportunities for investors and,
consequently, more valuable market
data.17
As discussed, the Exchange now
proposes to increase certain fees
applicable to firms that consume this
12 For example, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’) offers ‘‘Nasdaq Basic’’ which is a realtime market data product that offers best bid and
offer and last sale information for all U.S. exchangelisted securities based on liquidity within the
Nasdaq market center and trades reported to the
FINRA/Nasdaq Trade Reporting Facility (‘‘Nasdaq
TRF’’). See Nasdaq Equity Rules, Equity 7, Pricing
Schedule, Section 147(a). The type of information
contained on the EDGX Top Feed is substantially
similar to that offered through Nasdaq Basic, except
that the Exchange disseminates information about
quotes and trades on EDGX, whereas Nasdaq Basic
provides information about quotes and trades on
Nasdaq and the Nasdaq TRF. Other national
securities with competing top-of-book products also
offer substantially similar types of information
through those top-of-book products.
13 See EDGX Schedule of Fees, EDGX Top,
Internal Distribution.
14 The Exchange’s fee schedule defines an
Internal Distributor of an Exchange Market Data
product as a Distributor that receives the Exchange
Market Data product and then distributes that data
to one or more Users within the Distributor’s own
entity. See EDGX Schedule of Fees, Market Data
Fees, Definitions.
15 See Securities Exchange Act Release No. 74282
(February 17, 2015), 80 FR 9487 (February 23, 2015)
(SR–EDGX–2015–09).
16 See Securities Exchange Act Release No. 87200
(October 2, 2019), 84 FR 53788 (October 8, 2019)
(SR–CboeEDGX–2019–012) (Approval Order).
17 The Exchange is also about to extend its early
trading hours to begin at 4:00 a.m. ET, which would
similarly provide additional value to EDGX Top
subscribers who would receive additional
information about quotes and trades on EDGX
during the Early Trading Session. See Securities
Exchange Act Release No. 90509 (November 24,
2020), 85 FR 77310 (December 1, 2020) (SR–
CboeEDGX–2020–056).
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
data as internal distributors, i.e., firms
that use EDGX Top Feed data for
internal purposes as opposed to firms
that distribute such data externally to its
customers. As proposed, the Exchange
would increase the monthly charge for
internal distribution of EDGX Top Feed
data to $750 per month, which would
continue to be significantly cheaper
than similar products offered by the
Exchange’s main competitors.18 In
addition, the Exchange would introduce
Professional User fees for internal
Professional Users of the EDGX Top
Feed. Those Professional User fees will
be the same as the modest fee currently
charged for external distribution of the
EDGX Top Feed, i.e., $4 per month for
each Professional User. There would
continue to be no charge associated with
internal distribution to Non-Professional
Users. Further, as discussed, the current
fees for external distribution of the
EDGX Top Feed would continue to
apply, without change, including
various incentive programs that the
Exchange has adopted to facilitate the
provision of lower-cost market data to
retail and other investors. As a result,
the Exchange believes that the proposed
fee changes would allow it to be
appropriately compensated for the value
of its market data, particularly from
professional financial services firms that
use that data for internal purposes,
while simultaneously ensuring that its
data would continue to be available to
a wide range of investors and market
participants at a cost that facilitates
widespread availability of such data.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,19
in general, and furthers the objectives of
Section 6(b)(4),20 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its members and
other recipients of Exchange data. In
addition, the Exchange believes that the
proposed rule change is consistent with
Section 11(A) of the Act as it supports
(i) fair competition among brokers and
dealers, among exchange markets, and
between exchange markets and markets
other than exchange markets, and (ii)
the availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities.21 Finally, the proposed rule
change is also consistent with Rule 603
18 See
infra notes 32–39 and accompanying text.
19 15 U.S.C. 78f.
20 15 U.S.C. 78f(b)(4).
21 15 U.S.C. 78k–1.
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of Regulation NMS,22 which provides
that any national securities exchange
that distributes information with respect
to quotations for or transactions in an
NMS stock do so on terms that are not
unreasonably discriminatory.
The Exchange operates in a highly
competitive environment. Indeed, with
the launch of three new national
securities exchanges that trade U.S.
equity securities last September, there
are now sixteen registered U.S equities
exchanges, and with the exception of
Long-Term Stock Exchange, Inc.
(‘‘LTSE’’), which has determined to not
offer any proprietary market data feeds,
each of these exchanges offer associated
market data products to their customers,
either with or without a fee. It is in this
robust and competitive market in which
the Exchange is proposing to increase its
fees, while still providing its data at a
significantly lower price than competing
products offered by other national
securities exchanges with similar data
quality.
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets.
Further, with respect to market data, the
decision of the United States Court of
Appeals for the District of Columbia
Circuit in NetCoalition v. SEC upheld
the Commission’s reliance on the
existence of competitive market
mechanisms to evaluate the
reasonableness and fairness of fees for
proprietary market data: ‘‘In fact, the
legislative history indicates that the
Congress intended that the market
system ‘evolve through the interplay of
competitive forces as unnecessary
regulatory restrictions are removed’ and
that the SEC wield its regulatory power
‘in those situations where competition
may not be sufficient,’ such as in the
creation of a ‘consolidated transactional
reporting system.’ ’’ 23 The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 24 As discussed in
this filing, significant competitive forces
constrain the ability of the Exchange to
charge supra-competitive fees.
22 See
17 CFR 242.603.
v. SEC, 615 F.3d 525, 535 (D.C.
Cir. 2010) (‘‘NetCoalition I’’) (quoting H.R. Rep. No.
94–229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323).
24 Id. at 535.
23 NetCoalition
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i. The EDGX Top Feed Is an Optional
Market Data Product, and the Exchange
Is Constrained in Its Pricing by
Significant Competitive Forces
Subscribing to the EDGX Top Feed is
entirely optional. The Exchange is not
required to make the EDGX Top Feed
available to any customers, nor is any
customer required to purchase the
EDGX Top Feed.25 A customer’s
decision as to whether to purchase the
EDGX Top Feed is therefore entirely
discretionary, and is based on that firms
individual business needs. Generally,
firms that choose to subscribe to the
EDGX Top Feed do so because they
believe that it is a cost-effective source
for top-of-book data that provides
valuable information about the market
for national market system (‘‘NMS’’)
stocks traded on the Exchange, where a
consolidated display covering all U.S.
equities exchanges is not required. Such
firms are able to determine for
themselves whether the EDGX Top Feed
helps them to achieve their business
goals, and if so, whether or not it is
attractively priced compared to other
similar top-of-book products offered by
competing exchanges.
Indeed, if the EDGX Top Feed does
not provide sufficient value to firms
based on the uses those firms may have
for it, such firms may simply choose to
conduct their business operations in
ways that do not use the EDGX Top
Feed. In fact, comparing the number of
internal distributors that currently
subscribe to the EDGX Top Feed, based
on data compiled by the Exchange as of
November 2020, to the total number of
internal distributors that subscribe to
core data offered by the CTA and UTP
SIPs, as published on plan websites for
Q3 2020,26 less than 1.9% of internal
distributors that purchase U.S. equities
data choose to subscribe to the EDGX
Top Feed.27 The EDGX Top Feed
25 The Exchange notes that broker-dealers are not
required to purchase proprietary market data to
comply with their best execution obligations. See In
the Matter of the Application of Securities Industry
and Financial Markets Association for Review of
Actions Taken by Self-Regulatory Organizations,
Release Nos. 34–72182; AP–3–15350; AP–3–15351
(May16, 2014). Similarly, there is no requirement in
Regulation NMS or any other rule that proprietary
data be utilized for order routing decisions, and
some broker-dealers and ATSs have chosen not to
do so.
26 See CTA Quarterly Population Metrics (Q3
2020), available at https://www.ctaplan.com/
publicdocs/ctaplan/CTAPLAN_Population_
Metrics_3Q2020.pdf; UTP Quarterly Population
Metrics (Q3 2020), available at https://
www.utpplan.com/DOC/UTP_2020_Q3_Stats_with_
Processor_Stats.pdf.
27 This statistic reflects the number of internal
distributors that purchase the EDGX Top Feed
divided by the number of internal distributors that
purchase consolidated market data from the SIPs,
as reflected in publicly available information. Id.
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
therefore represents an insignificant
proportion of the market for such
market data, and significantly more
internal distributors choose not to
purchase this product than those that
do. Given the insignificant percentage of
internal distributors that consume the
EDGX Top Feed, it is clear that such
firms can and do exercise their right to
choose to purchase, or not purchase,
this particular market data product.
And, as discussed later in this filing,
any internal distributor of top-of-book
data that does not wish to purchase the
EDGX Top Feed, due to the price of that
data or for any other reason, can choose
to substitute similar information from
other exchanges.
Although the Exchange is not
required to make any data, including
top-of-book data, available through its
proprietary market data platform, the
Exchange believes that making such
data available increases investor choice,
and contributes to a fair and competitive
market. Specifically, making such data
publicly available through proprietary
data feeds allows investors to choose
alternative, potentially less costly,
market data based on their business
needs. For example, a buy-side investor
or fintech firm may choose to purchase
the EDGX Top Feed, or a similar
product from another exchange, in order
to perform investment analysis, or to
provide general information about the
market for U.S. equity securities,
respectively. In either case the choice to
purchase the EDGX Top Feed would be
based on the firm’s determination of the
value of the data offered by their chosen
product compared to the cost of
acquiring this data instead of receiving
similar data from other sources. The
EDGX Top Feed serves as a valuable
reference for investors that do not
require a consolidated display. Making
alternative products available to market
participants ultimately ensures
competition in the marketplace, and
constrains the ability of exchanges to
charge supra-competitive fees.
Further, in the event that a market
data customer views one exchange’s
top-of-book data product and/or fees as
more or less attractive than a
competitor’s offerings they can and
often do switch between competing
products. As discussed, similar top-ofbook information is available from a
number of competing U.S. equities
The Exchange does not have similar information
about the number of internal distributors that
purchase top-of-book data from other exchanges as
competing exchanges do not typically make this
information publicly available due to the
commercially sensitive nature of such information.
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exchanges. 28 This include a number of
large established exchanges that charge
for access to such top-of-book data, as
well as certain smaller or new exchange
entrants that provide similar data
without charge, in many cases as a way
of attracting customers to their exchange
while they seek to grow market share. In
this way, the EDGX Top Feed and other
top-of-book products offered by a
number of U.S. equities exchanges, are
all substitutes. The availability of these
substitute products constrains the
Exchange’s ability to charge supracompetitive prices as market
participants can easily obtain similar
data from one of the Exchange’s many
competitors. In fact, the impact of
competition on the market in which the
EDGX Top Feed is offered to market
participants and investors is showcased
by the Exchange’s other recent fee
changes related to this product, which
involved the reduction of fees to
facilitate the Exchange’s ability to
compete for customers.29 And, other
exchanges have similarly filed to reduce
the prices of their top-of-book data in
order to compete with products offered
by the Exchange and other competing
exchanges.30
Distributors can discontinue use of
the EDGX Top Feed at any time and for
any reason, including due to an
assessment of the reasonableness of fees
charged. Indeed, the Exchange’s
affiliate, Cboe BZX Exchange, Inc.
(‘‘BZX’’), which also filed to increase
fees for its top-of-book product, i.e., the
BZX Top Feed, had one internal
distributor cancel its subscription to
that product as of February 2021 based
on its fee increase. Internal distributors
of the EDGX Top Feed are free to
similarly cancel their subscriptions in
favor of a competitor offering, or
cheaper or free data offered by the
Exchange’s affiliated U.S. equities
exchanges, if they believe that the fees
are too high given their particular use
case for obtaining the data that the
Exchange provides over the EDGX Top
28 Although the Exchange does not have access to
the customer lists for other competing products, it
understands based on conversations with
subscribers to the EDGX Top Feed that they
typically view exchange top-of-book products as
substitutes and do not generally look to purchase
such data from more than one national securities
exchange.
29 See supra note 6. The Exchange also notes that
while this proposed fee change involves an increase
in fees, it is simultaneously filing another proposed
fee change to expand its Financial Products
Distribution Program and further reduce certain
fees. See Securities Exchange Act Release No. 90914
(January 13, 2021), 86 FR 6393 (January 21, 2021)
(SR–CboeEDGX–2021–003) [sic].
30 See e.g., Securities Exchange Act Release No.
90616 (December 9, 2020), 85 FR 81237 (December
15, 2020) (SR–NASDAQ–2020–086).
PO 00000
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15533
Feed. The Exchange offers all of its
proprietary market data products
pursuant to a month-to-month contract
that allows subscribers to choose to
terminate their subscription at any time.
As a result, there are no contractual or
other legal impediments for firms that
wish to cancel their subscription to the
Exchange’s market data products,
including the EDGX Top Feed. In
addition, the Exchange notes that all but
one internal distributor of the EDGX
Top Feed either receives this data
through a market data vendor, as
opposed to directly from the Exchange,
or is a market data vendor itself. Thus,
firms can seamlessly switch to any other
competitor product offered by their
chosen vendor without incurring
additional switching costs, such as the
cost of establishing connectivity to
another exchange to receive its market
data.31 Further, based on discussions
with the one internal distributor that
has chosen not to receive this data
through a relationship with a vendor,
the Exchange believes that the firm
likely has access to a number of
competing exchanges from which it
could source similar data without
incurring significant switching costs.
In setting the proposed fees for the
EDGX Top Feed, the Exchange
considered the competitiveness of the
market for proprietary data and all of
the implications of that competition.
Indeed, the Exchange is not in a
position to charge unreasonable fees for
its top-of-book data as there are a
number of competing products in the
market, including products that are
currently offered free of charge by
certain other exchanges that have
determined not to charge for their
market data. The existence of
alternatives to the EDGX Top Feed
ensures that the Exchange cannot set
unreasonable fees when vendors and
subscribers can freely elect these
alternatives or choose not to purchase a
specific proprietary data product if the
attendant fees are not justified by the
returns that any particular vendor or
data recipient would achieve through
the purchase.
ii. The Proposed Fees Are Reasonable
Given the Value of the Data Provided to
Customers, and When Compared to
Competing Market Data Products
The proposed fees are also reasonable
as even with the proposed fee increase
they would continue to represent a
relatively modest fee for top-of-book
31 Market data vendors typically establish
connectivity to a number of national securities
exchanges to be able to offer their market data to
customers.
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
data that has proven valuable for
investors, particularly as the Exchange
grows market share due to its innovative
market model that has been successful
in attracting retail limit orders,
increasing the Exchange’s market share
to more than 7.5% consolidated U.S.
equities volume.32 The EDGX Top Feed
is a competitively-priced alternative to
top-of-book data disseminated by other
national securities exchanges. It is
purchased by a wide variety of market
participants and vendors, including data
platforms, websites, fintech firms, buyside investors, retail brokers, regional
banks, and securities firms inside and
outside of the U.S. that desire low cost,
high quality, real-time U.S. equity
market data. By providing lower cost
access to U.S. equity market data, the
EDGX Top Feed benefits a wide range
of investors that participate in the
national market system. As discussed,
the decision to purchase a particular
market data product from a particular
exchange is largely based on two factors:
(1) The quality of the data, and (2) the
price charged for access to that data.
The Exchange believes that the EDGX
Top Feed is competitive on both of
these factors.
First, the EDGX Top Feed would
remain competitively priced compared
to similar products offered by other
comparable U.S. equities exchanges.
Although the EDGX Top Feed is not
offered free of charge like certain other
competitor offerings, particularly those
offered by newer U.S. equities
exchanges that are seeking to grow
market share, it is made available at a
price that is significantly lower than the
prices charged by the Exchange’s main
competitors—i.e., those with
comparable market shares and data
quality. Notably, even with the
proposed fee increase, the EDGX Top
Feed would remain significantly
cheaper than similar products offered by
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE Arca, Inc. (‘‘Arca’’),
and Nasdaq both in terms of the fees
charged for internal distribution and the
fees charge for each Professional User
that is provided access to the feed. For
example, NYSE charges a total of $3,000
per month for internal distribution of
their equivalent products, i.e., $1,500
per month for applicable top-of-book
quotation information,33 and an
additional $1,500 per month for
transaction information,34 both of which
32 See
Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
33 See NYSE PDP Market Data Pricing, Section
1.3, NYSE BBO.
34 See NYSE PDP Market Data Pricing, Section
1.4, NYSE Trades.
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are included in the EDGX Top Feed for
a single fee.35 Arca, which has a similar
pricing model to NYSE, also charges a
higher rate of $1,500 per month for
internal distribution of its equivalent
products, separated into a $750 per
month charge for top-of-book quotation
information and an additional $750 per
month charge for transaction
information.36 Finally, Nasdaq charges
its internal distributors a fee of $1,500
per month for Nasdaq Basic, which
includes both top-of-book quotation
information and transaction information
for the same fee, similar to the
Exchange’s pricing model, but again at
a higher cost.37 In each case, the internal
distribution charges associated with
obtaining comparable U.S. equities
market data from NYSE, Arca, and
Nasdaq runs at least double and up to
four times as much as the proposed fee
to be charged by the Exchange, meaning
that the Exchange would continue to be
offering its data at a price that is
attractive compared to the prices
charged by its competitors. Similarly,
each of these exchanges charges a fee for
each professional subscriber.38 Those
professional subscriber fees are each
higher than that proposed by the
Exchange—i.e., $26 per month for
Nasdaq,39 and $8 per month total for
both NYSE and Arca.40
Second, the proposed fees are
reasonable given the value of the data
provided in the EDGX Top Feed and
used by data recipients in their profitgenerating activities. The EDGX Top
Feed provides top-of-book quotations
and transactions executed on the
35 See supra note 4 and accompanying text. The
Exchange also offers a separate market data product,
i.e., EDGX Last Sale, that exclusively provides last
sale information. See EDGX Rule 13.8(d). However,
all of the information contained in the EDGX Last
Sale Feed is also made available in the EDGX Top
Feed at no additional charge.
36 See NYSE PDP Market Data Pricing, Section
3.3, NYSE Arca BBO; NYSE PDP Market Data
Pricing, Section 3.4, NYSE Arca Trades.
37 See Nasdaq Equity Rules, Equity 7, Pricing
Schedule, Section 147(c)(1). In addition, Nasdaq
also charges distributors a $100 monthly
administrative fee. See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 135.
38 These exchanges use a definition of
‘‘professional subscriber’’ that is substantially
similar to the Professional User definition used by
the Exchange. See e.g. Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(d)(4)(B); NYSE
Nonprofessional Subscriber Policy, available at
https://www.nyse.com/publicdocs/nyse/data/
Policy-Non-ProfessionalSubscribers_PDP.pdf.
39 Nasdaq’s Professional User fee is divided into
Nasdaq issues ($13), NYSE issues ($6.50), and other
issues ($6.50) for a total of $26 per month for each
Professional User. See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(b)(1).
40 NYSE and Arca’s fees are both broken down
into $4 per month for BBO information and an
additional $4 per month for Trades information. See
supra notes 33, 34, and 36.
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Exchange, and provides a valuable
window into the market for securities
traded on a market that accounts for
more than 7.5% of U.S. equity market
volume today.41 As discussed, the
Exchange offers the EDGX Top Feed in
a competitive environment where firms
may freely choose which market data
products best suit their business needs.
Invariably, firms that choose to
purchase the EDGX Top Feed instead of
receiving one of the many free products
offered by other exchanges,42 including
free products offered by an affiliate of
the Exchange,43 have decided that the
value of the EDGX Top Feed is greater
than that offered by those other
products. The Exchange consistently
ranks among the top U.S. equities
exchanges in terms of various market
quality measures, e.g., NBBO quote
quality and NBBO market share.44
Indeed, by attracting liquidity providing
orders, e.g., through retail priority, the
Exchange is able to offer market data
products that benefit from increased
market quality. In turn, investors may
choose to rely on the Exchange’s market
data products instead of other
competitor offerings based on the value
they provide in relation to any
additional cost associated with
obtaining that market data from the
Exchange. For example, investors may
wish to obtain market data from an
exchange that has a higher time at the
inside, as data obtained from an
exchange that is quoting more often at
the NBBO may better reflect the
applicable market for securities it
trades. Similarly, an exchange with
greater overall market share will
produce more transaction information
that may be valuable to consumers of its
data. Improvements in market quality
will therefore directly impact the value
of the market data that an exchange is
able to offer to investors.
iii. The Proposed Fees Are Equitable
and Not Unfairly Discriminatory as
Internal Distributors will be Subject to
Uniform Pricing Based on Their Usage
of the Data and Differences Between the
Fees Charged for Internal and External
Distribution Are Appropriate
The Exchange believes the proposed
fees for internal distribution of the
EDGX Top Feed will continue to be
allocated fairly and equitably among
subscribers, and are not unfairly
41 See https://markets.cboe.com/us/equities/
market_share/.
42 See e.g., Investors Exchange Fee Schedule,
Market Data fees.
43 See e.g., Cboe EDGA Exchange, Inc., Fee
Schedule, EDGA Top.
44 See https://www.cboe.com/us/equities/market_
statistics/market_quality/.
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discriminatory, as the proposed fees
will apply equally to all data recipients
that choose to subscribe to the EDGX
Top Feed and distribute that data to
internal subscribers. As proposed, all
internal distributors of the EDGX Top
Feed will be subject to the same internal
distribution fee, regardless of the type of
business that they operate, or the use
they plan to make of the data feed.
Thus, all internal distributors would
have access to the EDGX Top Feed on
the same equitable and nondiscriminatory terms. Similarly, with
the introduction of Professional User
fees, internal distributors of the EDGX
Top Feed will be subject to the same
modest fees based solely on the number
of Professional Users that each internal
distributor has chosen to permission for
access to this information. The
Exchange does not believe that it is
inequitable, or unfairly discriminatory,
to charge a fee based on the number of
Professional Users within a firm that
have access to the EDGX Top Feed as
this ensures that firms with the highest
usage pay their equitable share for the
data.
The Exchange also believes that it is
fair and equitable, and not unfairly
discriminatory, to continue not to
charge a fee for internal distribution to
Non-Professional Users. The Exchange’s
fee structure is generally designed to
facilitate lower cost access to its market
data by retail investors, either through
substantially lower User fees for NonProfessional Users, or other incentive
programs, such as the Small Retail
Broker Distribution Program, which was
recently implemented to lower the cost
of the Exchange’s market data to small
broker-dealers that serve retail investors.
The Exchange does not believe that any
significant number of Non-Professional
Users to [sic] receive EDGX Top Feed
Data through internal, i.e., within the
distributor’s firm, as opposed to external
distribution, and in the event that
certain firms may distribute data
internally to Users that qualify as NonProfessional, providing such Users
access without any User fees would
facilitate the Exchange’s overall goals of
facilitating access to its data by retail
investors, which the Commission has
continually found to be consistent with
the Exchange Act.
Finally, the Exchange believes that it
is fair and equitable, and not unfairly
discriminatory to continue to charge
different fees for internal and external
distribution of the EDGX Top Feed. As
is common practice, the Exchange
charges lower fees to distributors that
use its market data products for internal
distribution only than to distributors
that redistribute that data externally to
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their customers. In the case of the EDGX
Top Feed, external distributors are
subject to a higher distribution fee, and
are also subject to Non-Professional
User fees, which as discussed above the
Exchange has determined to continue
not to charge to internal distributors.45
Increasing the fees that the Exchange
charges for internal distribution of the
EDGX Top Feed, as proposed, would
actually serve to decrease the disparity
in charge between internal and external
distribution, while at the same time
continuing to facilitate the internal
distribution of the EDGX Top Feed at a
lower cost. The Exchange continues to
believe that it is appropriate to
distinguish between internal and
external distributors in setting fees for
the EDGX Top Feed as external
distributors can redistribute the
Exchange’s market data to its clients for
a fee, whereas internal distributors are
not allowed to redistribute the data.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would result
in any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a highly
competitive environment, and its ability
to price these data products is
constrained by competition among
exchanges that offer similar data
products to their customers. Top-ofbook data is broadly disseminated by
competing U.S. equities exchanges.
There are therefore a number of
alternative products available to market
participants and investors, including
products offered by certain competing
exchanges without charge. In this
competitive environment potential
subscribers are free to choose which
competing product to purchase to
satisfy their need for market
information. Often, the choice comes
down to price, as market data customers
look to purchase cheaper top-of-book
data products, and quality, as market
participants seek to purchase data that
represents significant market liquidity.
Intramarket Competition. The
Exchange believes that the proposed
fees do not put any market participants
at a relative disadvantage compared to
other market participants. As discussed,
the proposed fees would apply to all
internal distributors of the EDGX Top
Feed on an equal and nondiscriminatory basis, and the continued
45 See EDGX Schedule of Fees, EDGX Top. The
proposed Professional User fee for internal
distribution of the EDGX Top Feed is the same as
currently charged for external distribution of that
market data product. Id.
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15535
difference in fees for internal and
external distribution are appropriate
given the ability for external distributors
to redistribute data externally to their
clients. The Exchange therefore believes
that the proposed fees neither favor nor
penalize one or more categories of
market participants in a manner that
would impose an undue burden on
competition.
To the extent that particular fees
would apply to only a subset of
subscribers, e.g., Professional versus
Non-Professional Users, those
distinctions are not unfairly
discriminatory and do not unfairly
burden one set of customers over
another. As discussed, the Exchange
does not believe that any significant
number of Non-Professional Users
receive EDGX Top Feed Data through
internal distribution. Further, to the
extent that any Non-Professional Users
receive the EDGX Top Feed through
internal distribution, the Exchange
believes that it is not unfairly
discriminatory not to charge a fee for
their usage as this would facilitate the
dissemination of market data to retail
investors.
Intermarket Competition. The
Exchange believes that the proposed
fees do not impose a burden on
competition or on other SROs that is not
necessary or appropriate in furtherance
of the purposes of the Act. In setting the
proposed fees, the Exchange is
constrained by the availability of
numerous substitute products offered by
other national securities exchanges.
Because market data customers can find
suitable substitute feeds, an exchange
that overprices its market data products
stands a high risk that users may
substitute another product. These
competitive pressures ensure that no
one exchange’s market data fees can
impose an undue burden on
competition, and the Exchange’s
proposed fees do not do so here.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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 46 and paragraph (f) of Rule
19b–4 47 thereunder. At any time within
46 15
47 17
E:\FR\FM\23MRN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
23MRN1
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Federal Register / Vol. 86, No. 54 / Tuesday, March 23, 2021 / Notices
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2021–014 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–2021–014. 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
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17:45 Mar 22, 2021
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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–2021–014 and
should be submitted on or before April
13, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05912 Filed 3–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91343; File No. SR–NYSE–
2020–98]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend Its
Rules To Prohibit Member
Organizations From Seeking
Reimbursement, in Certain
Circumstances, From Issuers for
Forwarding Proxy and Other Materials
to Beneficial Owners
March 17, 2021.
I. Introduction
On November 30, 2020, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its rules to prohibit member
organizations from seeking
reimbursement from issuers for
forwarding proxy and other materials to
beneficial owners who received shares
from their broker at no cost or at a price
substantially less than the market price
in connection with a promotion by the
broker. The proposed rule change was
published for comment in the Federal
Register on December 18, 2020.3 On
48 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90653
(December 14, 2020), 85 FR 82539 (‘‘Notice’’).
Certain comments filed in response to File No. SR–
NYSE–2020–96 by Paul Conn, President, Global
Capital Markets, Computershare, dated January 11,
2021 (‘‘Computershare Letter’’), and Niels Holch,
Executive Director, Shareholder Communications
Coalition, dated January 20, 2021 (‘‘Coalition
Letter’’), also address this proposed rule change.
These comments on the proposed rule change are
1 15
PO 00000
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January 29, 2021, pursuant to Section
19(b)(2) of the Exchange Act,4 the
Commission designated a longer period
within which to either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
This order institutes proceedings under
Section 19(b)(2)(B) of the Exchange Act 6
to determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposal
NYSE Rules (‘‘Rule’’) 451 and 465
require NYSE member organizations
that hold securities for beneficial
owners in street name to solicit proxies
from, and deliver proxy and issuer
communication materials to, beneficial
owners on behalf of issuers.7 For this
service, issuers reimburse NYSE
member organizations for out-of-pocket,
reasonable clerical, postage and other
expenses incurred for a particular
distribution.8 This reimbursement
structure stems from SEC Rules 14b–1
and 14b–2 under the Act,9 which
impose obligations on companies and
nominees to ensure that beneficial
owners receive proxy materials. These
rules require companies to send their
proxy materials to broker-dealers or
banks, who are nominees that hold
securities in street name, for forwarding
to beneficial owners, and to pay
nominees for reasonable expenses, both
direct and indirect, incurred in
providing proxy information to
beneficial owners.10 The Commission’s
rules do not specify the fees that
nominees can charge issuers for proxy
distribution; rather, they state that
available at: https://www.sec.gov/comments/srnyse-2020-98/srnyse202098.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 91011,
86 FR 8246 (February 4, 2021). The Commission
designated March 18, 2021, as the date by which
it should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Rules 451 and 465; Notice, supra note 3, at
82539. The ownership of shares in street name
means that a shareholder, or ‘‘beneficial owner,’’
has purchased shares through a broker-dealer or
bank, also known as a ‘‘nominee.’’ In contrast to
direct ownership, where shares are directly
registered in the name of the shareholder, shares
held in street name are registered in the name of
the nominee, or in the nominee name of a
depository, such as the Depository Trust Company.
See Securities Exchange Act Release No. 70720
(October 18, 2013), 78 FR 63530 n.14 (October 24,
2013) (order approving SR–NYSE–2013–07) (‘‘2013
Approval Order’’).
8 See Rule 451 and 465; 2013 Approval Order,
supra note 7, at 63531.
9 17 CFR 240.14b–1; 17 CFR 240.14b–2.
10 See 17 CFR 240.14b–1 and 14b–2; see also 2013
Approval Order, supra note 7, at 63531.
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]]>Agencies
[Federal Register Volume 86, Number 54 (Tuesday, March 23, 2021)]
[Notices]
[Pages 15530-15536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05912]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91338; File No. SR-CboeEDGX-2021-014]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fees Applicable to the EDGX Top Feed
March 17, 2021.
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 March 4, 2021, 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. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fees applicable to the EDGX Top Feed.
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
[[Page 15531]]
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 purpose of the proposed rule change is to amend the fees
applicable to the EDGX Top Feed,\3\ which is an uncompressed data feed
that offers both top-of-book quotations and execution information based
on equity orders entered into the System.\4\ Specifically, the Exchange
proposes to: (1) Increase the fee for internal distribution of the EDGX
Top Feed; and (2) introduce Professional User fees for internal
Professional Users of the EDGX Top Feed.\5\ The current fees for
external distribution of the EDGX Top Feed will continue to apply,
without change, including various incentive programs that the Exchange
has adopted to facilitate the provision of lower-cost market data to
retail and other investors.\6\
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\3\ The Exchange initially filed the proposed fee changes on
January 4, 2021. See Securities Exchange Act Release No. 90923
(January 14, 2021), 86 FR 6719 (January 22, 2021) (SR-CboeEDGX-2021-
002). On March 4, 2021, the Exchange withdrew that filing and
submitted this proposal.
\4\ See EDGX Rule 13.8(c).
\5\ A Professional User of an Exchange Market Data product is
any User other than a Non-Professional User. See EDGX Schedule of
Fees, Market Data Fees, Definitions. A ``Non-Professional User'' of
an Exchange Market Data product is a natural person or qualifying
trust that uses Data only for personal purposes and not for any
commercial purpose and, for a natural person who works in the United
States, is not: (i) Registered or qualified in any capacity with the
Securities and Exchange Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (ii) engaged as an ``investment adviser'' as that term
is defined in Section 202(a)(11) of the Investment Advisors Act of
1940 (whether or not registered or qualified under that Act); or
(iii) employed by a bank or other organization exempt from
registration under federal or state securities laws to perform
functions that would require registration or qualification if such
functions were performed for an organization not so exempt; or, for
a natural person who works outside of the United States, does not
perform the same functions as would disqualify such person as a Non-
Professional User if he or she worked in the United States. Id.
\6\ See e.g., EDGX Schedule of Fees, EDGX Top, Small Retail
Broker Distribution Program; EDGX Schedule of Fees, Financial
Product Distribution Program. The Small Retail Broker Distribution
Program is a pricing program offered by the Exchange that allows
small retail brokers that purchase top-of-book market data from the
Exchange to benefit from discounted fees for access to such market
data. The Financial Product Distribution Program lowers the cost of
distributing Derived Data based upon the Exchange's top-of-book
offerings, including Derived Data that is often used by retail
investors.
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Market Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. 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.'' \7\ As the Commission
itself recognized, the market for trading services in NMS stocks has
become ``more fragmented and competitive.'' \8\
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\7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
\8\ See Securities Exchange Act Release No. 84875, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
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Equity trading is currently dispersed across sixteen exchanges,
including three new U.S. equities exchanges that launched trading in
2020, 32 alternative trading systems,\9\ and numerous broker-dealer
internalizers and wholesalers, all competing fiercely for order flow.
Based on publicly-available information, no single U.S. equities
exchange has more than 20% market share.\10\ In turn, the market for
top-of-book quotation and transaction data is highly competitive as
national securities exchanges compete vigorously with each other to
provide efficient, reliable, and low-cost data to a wide range of
investors and market participants. In fact, there are twelve competing
products offered by other national securities exchanges today,\11\ not
counting products offered by the Exchange's affiliates, and each of the
Exchange's affiliated U.S. equities exchanges also offers similar top-
of-book data. Each of those exchanges offer top-of-book quotation and
last sale information based on their own quotation and trading activity
that is substantially similar to the information provided by the
Exchange through the EDGX Top Feed.\12\ Exchange top-of-book data is
therefore widely available today from a number of different sources.
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\9\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\10\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\11\ Competing top of book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BQT, NYSE
Arca BBO/Trades, NYSE American BBO/Trades, NYSE Chicago BBO/Trades,
IEX TOPS, MIAX PEARL Equities Top of Market Feed, and MEMX MEMOIR
Top.
\12\ For example, The Nasdaq Stock Market LLC (``Nasdaq'')
offers ``Nasdaq Basic'' which is a real-time market data product
that offers best bid and offer and last sale information for all
U.S. exchange-listed securities based on liquidity within the Nasdaq
market center and trades reported to the FINRA/Nasdaq Trade
Reporting Facility (``Nasdaq TRF''). See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(a). The type of information
contained on the EDGX Top Feed is substantially similar to that
offered through Nasdaq Basic, except that the Exchange disseminates
information about quotes and trades on EDGX, whereas Nasdaq Basic
provides information about quotes and trades on Nasdaq and the
Nasdaq TRF. Other national securities with competing top-of-book
products also offer substantially similar types of information
through those top-of-book products.
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Fees for Internal Distribution of the EDGX Top Feed
Currently, the Exchange charges a modest fee of $500 per month for
internal distribution of EDGX Top Feed data,\13\ i.e., distribution
within the distributor's own firm,\14\ and does not charge any
additional fees for internal distribution based on the number of
Professional or Non-Professional Users that receive access to this
information. These internal distribution fees have been in place,
without change, since early 2015 when the Exchange first began offering
the EDGX Top Feed.\15\ In the time since, the Exchange has made a
number of significant enhancements to its platform, including notably
the introduction of priority for retail limit orders,\16\ that have
resulted in improved trading opportunities for investors and,
consequently, more valuable market data.\17\
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\13\ See EDGX Schedule of Fees, EDGX Top, Internal Distribution.
\14\ The Exchange's fee schedule defines an Internal Distributor
of an Exchange Market Data product as a Distributor that receives
the Exchange Market Data product and then distributes that data to
one or more Users within the Distributor's own entity. See EDGX
Schedule of Fees, Market Data Fees, Definitions.
\15\ See Securities Exchange Act Release No. 74282 (February 17,
2015), 80 FR 9487 (February 23, 2015) (SR-EDGX-2015-09).
\16\ See Securities Exchange Act Release No. 87200 (October 2,
2019), 84 FR 53788 (October 8, 2019) (SR-CboeEDGX-2019-012)
(Approval Order).
\17\ The Exchange is also about to extend its early trading
hours to begin at 4:00 a.m. ET, which would similarly provide
additional value to EDGX Top subscribers who would receive
additional information about quotes and trades on EDGX during the
Early Trading Session. See Securities Exchange Act Release No. 90509
(November 24, 2020), 85 FR 77310 (December 1, 2020) (SR-CboeEDGX-
2020-056).
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As discussed, the Exchange now proposes to increase certain fees
applicable to firms that consume this
[[Page 15532]]
data as internal distributors, i.e., firms that use EDGX Top Feed data
for internal purposes as opposed to firms that distribute such data
externally to its customers. As proposed, the Exchange would increase
the monthly charge for internal distribution of EDGX Top Feed data to
$750 per month, which would continue to be significantly cheaper than
similar products offered by the Exchange's main competitors.\18\ In
addition, the Exchange would introduce Professional User fees for
internal Professional Users of the EDGX Top Feed. Those Professional
User fees will be the same as the modest fee currently charged for
external distribution of the EDGX Top Feed, i.e., $4 per month for each
Professional User. There would continue to be no charge associated with
internal distribution to Non-Professional Users. Further, as discussed,
the current fees for external distribution of the EDGX Top Feed would
continue to apply, without change, including various incentive programs
that the Exchange has adopted to facilitate the provision of lower-cost
market data to retail and other investors. As a result, the Exchange
believes that the proposed fee changes would allow it to be
appropriately compensated for the value of its market data,
particularly from professional financial services firms that use that
data for internal purposes, while simultaneously ensuring that its data
would continue to be available to a wide range of investors and market
participants at a cost that facilitates widespread availability of such
data.
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\18\ See infra notes 32-39 and accompanying text.
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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,\19\ in general, and
furthers the objectives of Section 6(b)(4),\20\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data. In addition, the Exchange believes that the proposed
rule change is consistent with Section 11(A) of the Act as it supports
(i) fair competition among brokers and dealers, among exchange markets,
and between exchange markets and markets other than exchange markets,
and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities.\21\ Finally, the proposed rule change is also consistent
with Rule 603 of Regulation NMS,\22\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
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\19\ 15 U.S.C. 78f.
\20\ 15 U.S.C. 78f(b)(4).
\21\ 15 U.S.C. 78k-1.
\22\ See 17 CFR 242.603.
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The Exchange operates in a highly competitive environment. Indeed,
with the launch of three new national securities exchanges that trade
U.S. equity securities last September, there are now sixteen registered
U.S equities exchanges, and with the exception of Long-Term Stock
Exchange, Inc. (``LTSE''), which has determined to not offer any
proprietary market data feeds, each of these exchanges offer associated
market data products to their customers, either with or without a fee.
It is in this robust and competitive market in which the Exchange is
proposing to increase its fees, while still providing its data at a
significantly lower price than competing products offered by other
national securities exchanges with similar data quality.
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Further, with respect
to market data, the decision of the United States Court of Appeals for
the District of Columbia Circuit in NetCoalition v. SEC upheld the
Commission's reliance on the existence of competitive market mechanisms
to evaluate the reasonableness and fairness of fees for proprietary
market data: ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' '' \23\
The court agreed with the Commission's conclusion that ``Congress
intended that `competitive forces should dictate the services and
practices that constitute the U.S. national market system for trading
equity securities.' '' \24\ As discussed in this filing, significant
competitive forces constrain the ability of the Exchange to charge
supra-competitive fees.
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\23\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
\24\ Id. at 535.
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i. The EDGX Top Feed Is an Optional Market Data Product, and the
Exchange Is Constrained in Its Pricing by Significant Competitive
Forces
Subscribing to the EDGX Top Feed is entirely optional. The Exchange
is not required to make the EDGX Top Feed available to any customers,
nor is any customer required to purchase the EDGX Top Feed.\25\ A
customer's decision as to whether to purchase the EDGX Top Feed is
therefore entirely discretionary, and is based on that firms individual
business needs. Generally, firms that choose to subscribe to the EDGX
Top Feed do so because they believe that it is a cost-effective source
for top-of-book data that provides valuable information about the
market for national market system (``NMS'') stocks traded on the
Exchange, where a consolidated display covering all U.S. equities
exchanges is not required. Such firms are able to determine for
themselves whether the EDGX Top Feed helps them to achieve their
business goals, and if so, whether or not it is attractively priced
compared to other similar top-of-book products offered by competing
exchanges.
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\25\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
---------------------------------------------------------------------------
Indeed, if the EDGX Top Feed does not provide sufficient value to
firms based on the uses those firms may have for it, such firms may
simply choose to conduct their business operations in ways that do not
use the EDGX Top Feed. In fact, comparing the number of internal
distributors that currently subscribe to the EDGX Top Feed, based on
data compiled by the Exchange as of November 2020, to the total number
of internal distributors that subscribe to core data offered by the CTA
and UTP SIPs, as published on plan websites for Q3 2020,\26\ less than
1.9% of internal distributors that purchase U.S. equities data choose
to subscribe to the EDGX Top Feed.\27\ The EDGX Top Feed
[[Page 15533]]
therefore represents an insignificant proportion of the market for such
market data, and significantly more internal distributors choose not to
purchase this product than those that do. Given the insignificant
percentage of internal distributors that consume the EDGX Top Feed, it
is clear that such firms can and do exercise their right to choose to
purchase, or not purchase, this particular market data product. And, as
discussed later in this filing, any internal distributor of top-of-book
data that does not wish to purchase the EDGX Top Feed, due to the price
of that data or for any other reason, can choose to substitute similar
information from other exchanges.
---------------------------------------------------------------------------
\26\ See CTA Quarterly Population Metrics (Q3 2020), available
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2020.pdf; UTP Quarterly Population
Metrics (Q3 2020), available at https://www.utpplan.com/DOC/UTP_2020_Q3_Stats_with_Processor_Stats.pdf.
\27\ This statistic reflects the number of internal distributors
that purchase the EDGX Top Feed divided by the number of internal
distributors that purchase consolidated market data from the SIPs,
as reflected in publicly available information. Id. The Exchange
does not have similar information about the number of internal
distributors that purchase top-of-book data from other exchanges as
competing exchanges do not typically make this information publicly
available due to the commercially sensitive nature of such
information.
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Although the Exchange is not required to make any data, including
top-of-book data, available through its proprietary market data
platform, the Exchange believes that making such data available
increases investor choice, and contributes to a fair and competitive
market. Specifically, making such data publicly available through
proprietary data feeds allows investors to choose alternative,
potentially less costly, market data based on their business needs. For
example, a buy-side investor or fintech firm may choose to purchase the
EDGX Top Feed, or a similar product from another exchange, in order to
perform investment analysis, or to provide general information about
the market for U.S. equity securities, respectively. In either case the
choice to purchase the EDGX Top Feed would be based on the firm's
determination of the value of the data offered by their chosen product
compared to the cost of acquiring this data instead of receiving
similar data from other sources. The EDGX Top Feed serves as a valuable
reference for investors that do not require a consolidated display.
Making alternative products available to market participants ultimately
ensures competition in the marketplace, and constrains the ability of
exchanges to charge supra-competitive fees.
Further, in the event that a market data customer views one
exchange's top-of-book data product and/or fees as more or less
attractive than a competitor's offerings they can and often do switch
between competing products. As discussed, similar top-of-book
information is available from a number of competing U.S. equities
exchanges. \28\ This include a number of large established exchanges
that charge for access to such top-of-book data, as well as certain
smaller or new exchange entrants that provide similar data without
charge, in many cases as a way of attracting customers to their
exchange while they seek to grow market share. In this way, the EDGX
Top Feed and other top-of-book products offered by a number of U.S.
equities exchanges, are all substitutes. The availability of these
substitute products constrains the Exchange's ability to charge supra-
competitive prices as market participants can easily obtain similar
data from one of the Exchange's many competitors. In fact, the impact
of competition on the market in which the EDGX Top Feed is offered to
market participants and investors is showcased by the Exchange's other
recent fee changes related to this product, which involved the
reduction of fees to facilitate the Exchange's ability to compete for
customers.\29\ And, other exchanges have similarly filed to reduce the
prices of their top-of-book data in order to compete with products
offered by the Exchange and other competing exchanges.\30\
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\28\ Although the Exchange does not have access to the customer
lists for other competing products, it understands based on
conversations with subscribers to the EDGX Top Feed that they
typically view exchange top-of-book products as substitutes and do
not generally look to purchase such data from more than one national
securities exchange.
\29\ See supra note 6. The Exchange also notes that while this
proposed fee change involves an increase in fees, it is
simultaneously filing another proposed fee change to expand its
Financial Products Distribution Program and further reduce certain
fees. See Securities Exchange Act Release No. 90914 (January 13,
2021), 86 FR 6393 (January 21, 2021) (SR-CboeEDGX-2021-003) [sic].
\30\ See e.g., Securities Exchange Act Release No. 90616
(December 9, 2020), 85 FR 81237 (December 15, 2020) (SR-NASDAQ-2020-
086).
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Distributors can discontinue use of the EDGX Top Feed at any time
and for any reason, including due to an assessment of the
reasonableness of fees charged. Indeed, the Exchange's affiliate, Cboe
BZX Exchange, Inc. (``BZX''), which also filed to increase fees for its
top-of-book product, i.e., the BZX Top Feed, had one internal
distributor cancel its subscription to that product as of February 2021
based on its fee increase. Internal distributors of the EDGX Top Feed
are free to similarly cancel their subscriptions in favor of a
competitor offering, or cheaper or free data offered by the Exchange's
affiliated U.S. equities exchanges, if they believe that the fees are
too high given their particular use case for obtaining the data that
the Exchange provides over the EDGX Top Feed. The Exchange offers all
of its proprietary market data products pursuant to a month-to-month
contract that allows subscribers to choose to terminate their
subscription at any time. As a result, there are no contractual or
other legal impediments for firms that wish to cancel their
subscription to the Exchange's market data products, including the EDGX
Top Feed. In addition, the Exchange notes that all but one internal
distributor of the EDGX Top Feed either receives this data through a
market data vendor, as opposed to directly from the Exchange, or is a
market data vendor itself. Thus, firms can seamlessly switch to any
other competitor product offered by their chosen vendor without
incurring additional switching costs, such as the cost of establishing
connectivity to another exchange to receive its market data.\31\
Further, based on discussions with the one internal distributor that
has chosen not to receive this data through a relationship with a
vendor, the Exchange believes that the firm likely has access to a
number of competing exchanges from which it could source similar data
without incurring significant switching costs.
---------------------------------------------------------------------------
\31\ Market data vendors typically establish connectivity to a
number of national securities exchanges to be able to offer their
market data to customers.
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In setting the proposed fees for the EDGX Top Feed, the Exchange
considered the competitiveness of the market for proprietary data and
all of the implications of that competition. Indeed, the Exchange is
not in a position to charge unreasonable fees for its top-of-book data
as there are a number of competing products in the market, including
products that are currently offered free of charge by certain other
exchanges that have determined not to charge for their market data. The
existence of alternatives to the EDGX Top Feed ensures that the
Exchange cannot set unreasonable fees when vendors and subscribers can
freely elect these alternatives or choose not to purchase a specific
proprietary data product if the attendant fees are not justified by the
returns that any particular vendor or data recipient would achieve
through the purchase.
ii. The Proposed Fees Are Reasonable Given the Value of the Data
Provided to Customers, and When Compared to Competing Market Data
Products
The proposed fees are also reasonable as even with the proposed fee
increase they would continue to represent a relatively modest fee for
top-of-book
[[Page 15534]]
data that has proven valuable for investors, particularly as the
Exchange grows market share due to its innovative market model that has
been successful in attracting retail limit orders, increasing the
Exchange's market share to more than 7.5% consolidated U.S. equities
volume.\32\ The EDGX Top Feed is a competitively-priced alternative to
top-of-book data disseminated by other national securities exchanges.
It is purchased by a wide variety of market participants and vendors,
including data platforms, websites, fintech firms, buy-side investors,
retail brokers, regional banks, and securities firms inside and outside
of the U.S. that desire low cost, high quality, real-time U.S. equity
market data. By providing lower cost access to U.S. equity market data,
the EDGX Top Feed benefits a wide range of investors that participate
in the national market system. As discussed, the decision to purchase a
particular market data product from a particular exchange is largely
based on two factors: (1) The quality of the data, and (2) the price
charged for access to that data. The Exchange believes that the EDGX
Top Feed is competitive on both of these factors.
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\32\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
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First, the EDGX Top Feed would remain competitively priced compared
to similar products offered by other comparable U.S. equities
exchanges. Although the EDGX Top Feed is not offered free of charge
like certain other competitor offerings, particularly those offered by
newer U.S. equities exchanges that are seeking to grow market share, it
is made available at a price that is significantly lower than the
prices charged by the Exchange's main competitors--i.e., those with
comparable market shares and data quality. Notably, even with the
proposed fee increase, the EDGX Top Feed would remain significantly
cheaper than similar products offered by New York Stock Exchange LLC
(``NYSE''), NYSE Arca, Inc. (``Arca''), and Nasdaq both in terms of the
fees charged for internal distribution and the fees charge for each
Professional User that is provided access to the feed. For example,
NYSE charges a total of $3,000 per month for internal distribution of
their equivalent products, i.e., $1,500 per month for applicable top-
of-book quotation information,\33\ and an additional $1,500 per month
for transaction information,\34\ both of which are included in the EDGX
Top Feed for a single fee.\35\ Arca, which has a similar pricing model
to NYSE, also charges a higher rate of $1,500 per month for internal
distribution of its equivalent products, separated into a $750 per
month charge for top-of-book quotation information and an additional
$750 per month charge for transaction information.\36\ Finally, Nasdaq
charges its internal distributors a fee of $1,500 per month for Nasdaq
Basic, which includes both top-of-book quotation information and
transaction information for the same fee, similar to the Exchange's
pricing model, but again at a higher cost.\37\ In each case, the
internal distribution charges associated with obtaining comparable U.S.
equities market data from NYSE, Arca, and Nasdaq runs at least double
and up to four times as much as the proposed fee to be charged by the
Exchange, meaning that the Exchange would continue to be offering its
data at a price that is attractive compared to the prices charged by
its competitors. Similarly, each of these exchanges charges a fee for
each professional subscriber.\38\ Those professional subscriber fees
are each higher than that proposed by the Exchange--i.e., $26 per month
for Nasdaq,\39\ and $8 per month total for both NYSE and Arca.\40\
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\33\ See NYSE PDP Market Data Pricing, Section 1.3, NYSE BBO.
\34\ See NYSE PDP Market Data Pricing, Section 1.4, NYSE Trades.
\35\ See supra note 4 and accompanying text. The Exchange also
offers a separate market data product, i.e., EDGX Last Sale, that
exclusively provides last sale information. See EDGX Rule 13.8(d).
However, all of the information contained in the EDGX Last Sale Feed
is also made available in the EDGX Top Feed at no additional charge.
\36\ See NYSE PDP Market Data Pricing, Section 3.3, NYSE Arca
BBO; NYSE PDP Market Data Pricing, Section 3.4, NYSE Arca Trades.
\37\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(c)(1). In addition, Nasdaq also charges distributors a
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7,
Pricing Schedule, Section 135.
\38\ These exchanges use a definition of ``professional
subscriber'' that is substantially similar to the Professional User
definition used by the Exchange. See e.g. Nasdaq Equity Rules,
Equity 7, Pricing Schedule, Section 147(d)(4)(B); NYSE
Nonprofessional Subscriber Policy, available at https://www.nyse.com/publicdocs/nyse/data/Policy-Non-ProfessionalSubscribers_PDP.pdf.
\39\ Nasdaq's Professional User fee is divided into Nasdaq
issues ($13), NYSE issues ($6.50), and other issues ($6.50) for a
total of $26 per month for each Professional User. See Nasdaq Equity
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
\40\ NYSE and Arca's fees are both broken down into $4 per month
for BBO information and an additional $4 per month for Trades
information. See supra notes 33, 34, and 36.
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Second, the proposed fees are reasonable given the value of the
data provided in the EDGX Top Feed and used by data recipients in their
profit-generating activities. The EDGX Top Feed provides top-of-book
quotations and transactions executed on the Exchange, and provides a
valuable window into the market for securities traded on a market that
accounts for more than 7.5% of U.S. equity market volume today.\41\ As
discussed, the Exchange offers the EDGX Top Feed in a competitive
environment where firms may freely choose which market data products
best suit their business needs. Invariably, firms that choose to
purchase the EDGX Top Feed instead of receiving one of the many free
products offered by other exchanges,\42\ including free products
offered by an affiliate of the Exchange,\43\ have decided that the
value of the EDGX Top Feed is greater than that offered by those other
products. The Exchange consistently ranks among the top U.S. equities
exchanges in terms of various market quality measures, e.g., NBBO quote
quality and NBBO market share.\44\ Indeed, by attracting liquidity
providing orders, e.g., through retail priority, the Exchange is able
to offer market data products that benefit from increased market
quality. In turn, investors may choose to rely on the Exchange's market
data products instead of other competitor offerings based on the value
they provide in relation to any additional cost associated with
obtaining that market data from the Exchange. For example, investors
may wish to obtain market data from an exchange that has a higher time
at the inside, as data obtained from an exchange that is quoting more
often at the NBBO may better reflect the applicable market for
securities it trades. Similarly, an exchange with greater overall
market share will produce more transaction information that may be
valuable to consumers of its data. Improvements in market quality will
therefore directly impact the value of the market data that an exchange
is able to offer to investors.
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\41\ See https://markets.cboe.com/us/equities/market_share/.
\42\ See e.g., Investors Exchange Fee Schedule, Market Data
fees.
\43\ See e.g., Cboe EDGA Exchange, Inc., Fee Schedule, EDGA Top.
\44\ See https://www.cboe.com/us/equities/market_statistics/market_quality/.
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iii. The Proposed Fees Are Equitable and Not Unfairly Discriminatory as
Internal Distributors will be Subject to Uniform Pricing Based on Their
Usage of the Data and Differences Between the Fees Charged for Internal
and External Distribution Are Appropriate
The Exchange believes the proposed fees for internal distribution
of the EDGX Top Feed will continue to be allocated fairly and equitably
among subscribers, and are not unfairly
[[Page 15535]]
discriminatory, as the proposed fees will apply equally to all data
recipients that choose to subscribe to the EDGX Top Feed and distribute
that data to internal subscribers. As proposed, all internal
distributors of the EDGX Top Feed will be subject to the same internal
distribution fee, regardless of the type of business that they operate,
or the use they plan to make of the data feed. Thus, all internal
distributors would have access to the EDGX Top Feed on the same
equitable and non-discriminatory terms. Similarly, with the
introduction of Professional User fees, internal distributors of the
EDGX Top Feed will be subject to the same modest fees based solely on
the number of Professional Users that each internal distributor has
chosen to permission for access to this information. The Exchange does
not believe that it is inequitable, or unfairly discriminatory, to
charge a fee based on the number of Professional Users within a firm
that have access to the EDGX Top Feed as this ensures that firms with
the highest usage pay their equitable share for the data.
The Exchange also believes that it is fair and equitable, and not
unfairly discriminatory, to continue not to charge a fee for internal
distribution to Non-Professional Users. The Exchange's fee structure is
generally designed to facilitate lower cost access to its market data
by retail investors, either through substantially lower User fees for
Non-Professional Users, or other incentive programs, such as the Small
Retail Broker Distribution Program, which was recently implemented to
lower the cost of the Exchange's market data to small broker-dealers
that serve retail investors. The Exchange does not believe that any
significant number of Non-Professional Users to [sic] receive EDGX Top
Feed Data through internal, i.e., within the distributor's firm, as
opposed to external distribution, and in the event that certain firms
may distribute data internally to Users that qualify as Non-
Professional, providing such Users access without any User fees would
facilitate the Exchange's overall goals of facilitating access to its
data by retail investors, which the Commission has continually found to
be consistent with the Exchange Act.
Finally, the Exchange believes that it is fair and equitable, and
not unfairly discriminatory to continue to charge different fees for
internal and external distribution of the EDGX Top Feed. As is common
practice, the Exchange charges lower fees to distributors that use its
market data products for internal distribution only than to
distributors that redistribute that data externally to their customers.
In the case of the EDGX Top Feed, external distributors are subject to
a higher distribution fee, and are also subject to Non-Professional
User fees, which as discussed above the Exchange has determined to
continue not to charge to internal distributors.\45\ Increasing the
fees that the Exchange charges for internal distribution of the EDGX
Top Feed, as proposed, would actually serve to decrease the disparity
in charge between internal and external distribution, while at the same
time continuing to facilitate the internal distribution of the EDGX Top
Feed at a lower cost. The Exchange continues to believe that it is
appropriate to distinguish between internal and external distributors
in setting fees for the EDGX Top Feed as external distributors can
redistribute the Exchange's market data to its clients for a fee,
whereas internal distributors are not allowed to redistribute the data.
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\45\ See EDGX Schedule of Fees, EDGX Top. The proposed
Professional User fee for internal distribution of the EDGX Top Feed
is the same as currently charged for external distribution of that
market data product. Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by competition among exchanges that
offer similar data products to their customers. Top-of-book data is
broadly disseminated by competing U.S. equities exchanges. There are
therefore a number of alternative products available to market
participants and investors, including products offered by certain
competing exchanges without charge. In this competitive environment
potential subscribers are free to choose which competing product to
purchase to satisfy their need for market information. Often, the
choice comes down to price, as market data customers look to purchase
cheaper top-of-book data products, and quality, as market participants
seek to purchase data that represents significant market liquidity.
Intramarket Competition. The Exchange believes that the proposed
fees do not put any market participants at a relative disadvantage
compared to other market participants. As discussed, the proposed fees
would apply to all internal distributors of the EDGX Top Feed on an
equal and non-discriminatory basis, and the continued difference in
fees for internal and external distribution are appropriate given the
ability for external distributors to redistribute data externally to
their clients. The Exchange therefore believes that the proposed fees
neither favor nor penalize one or more categories of market
participants in a manner that would impose an undue burden on
competition.
To the extent that particular fees would apply to only a subset of
subscribers, e.g., Professional versus Non-Professional Users, those
distinctions are not unfairly discriminatory and do not unfairly burden
one set of customers over another. As discussed, the Exchange does not
believe that any significant number of Non-Professional Users receive
EDGX Top Feed Data through internal distribution. Further, to the
extent that any Non-Professional Users receive the EDGX Top Feed
through internal distribution, the Exchange believes that it is not
unfairly discriminatory not to charge a fee for their usage as this
would facilitate the dissemination of market data to retail investors.
Intermarket Competition. The Exchange believes that the proposed
fees do not impose a burden on competition or on other SROs that is not
necessary or appropriate in furtherance of the purposes of the Act. In
setting the proposed fees, the Exchange is constrained by the
availability of numerous substitute products offered by other national
securities exchanges. Because market data customers can find suitable
substitute feeds, an exchange that overprices its market data products
stands a high risk that users may substitute another product. These
competitive pressures ensure that no one exchange's market data fees
can impose an undue burden on competition, and the Exchange's proposed
fees do not do so here.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \46\ and paragraph (f) of Rule 19b-4 \47\
thereunder. At any time within
[[Page 15536]]
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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\46\ 15 U.S.C. 78s(b)(3)(A).
\47\ 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-2021-014 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-2021-014. 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-2021-014 and should be
submitted on or before April 13, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05912 Filed 3-22-21; 8:45 am]
BILLING CODE 8011-01-P
