Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule, 63555-63558 [2022-22662]
Download as PDF
<![CDATA[
Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
competition because the ORF is charged
to all OTP Holders on all their
transactions that clear in the Customer
range at the OCC; thus, the amount of
ORF imposed is based on the amount of
Customer volume transacted. The
Exchange believes that the proposed
temporary waiver of the ORF would not
place certain market participants at an
unfair disadvantage because all options
transactions must clear via a clearing
firm. Such clearing firms can then
choose to pass through all, a portion, or
none of the cost of the ORF to its
customers, i.e., the entering firms. In
addition, because the ORF is collected
from OTP Holder clearing firms by the
OCC on behalf of NYSE Arca, the
Exchange believes that using options
transactions in the Customer range
serves as a proxy for how to apportion
regulatory costs among such OTP
Holders. The Exchange further believes
that the proposed change to remove the
semi-annual requirement would not
impose any burden on competition
because the change would impact all
OTP Holders subject to the ORF, and the
Exchange will continue to provide
advance notice of changes to the ORF to
all OTP Holders via Trader Update. The
Exchange also believes that the
proposed change to eliminate language
relating to the August 2019 ORF would
not impact intramarket competition
because it would simply add clarity to
the Fee Schedule by removing text
describing a fee that is no longer
effective.
Intermarket Competition. The
proposed fee change is not designed to
address any competitive issues. Rather,
the proposed change is designed to help
the Exchange adequately fund its
regulatory activities while seeking to
ensure that total collections from
regulatory fees do not exceed total
regulatory costs and to promote clarity
in the Fee Schedule by deleting obsolete
text.
jspears on DSK121TN23PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 16 of the Act and
subparagraph (f)(2) of Rule 19b–4 17
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(2).
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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 shall institute proceedings
under Section 19(b)(2)(B) 18 of the Act 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 No. SR–
NYSEARCA–2022–65 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 No.
SR–NYSEARCA–2022–65. 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
16 15
VerDate Sep<11>2014
17:58 Oct 18, 2022
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 No.
SR–NYSEARCA–2022–65, and should
be submitted on or before November 9,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–22660 Filed 10–18–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96073; File No. SR–
CboeEDGX–2022–043]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
October 13, 2022.
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 October
3, 2022, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend its Fee Schedule.
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
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
18 15
Jkt 259001
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00082
Fmt 4703
Sfmt 4703
63555
E:\FR\FM\19OCN1.SGM
19OCN1
63556
Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
jspears on DSK121TN23PROD with NOTICES
1. Purpose
The Exchange proposes to amend its
Fee Schedule to modify rebates related
to Automated Improvement Mechanism
(‘‘AIM’’) transactions, effective October
3, 2022.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 18% of the market share and
currently the Exchange represents only
approximately 6% of the market share.3
Thus, in such a low-concentrated and
highly competitive market, no single
options exchange, including the
Exchange, possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow or discontinue to
reduce use of certain categories of
products, in response to fee changes.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees, and market participants can readily
trade on competing venues if they deem
pricing levels at those other venues to
be more favorable.
3 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (September 30, 2022),
available at https://markets.cboe.com/us/options/
market_statistics/.
VerDate Sep<11>2014
17:58 Oct 18, 2022
Jkt 259001
The Exchange’s Fees Schedule sets
forth standard rebates and rates applied
per contract. For example, the Exchange
provides standard rebates ranging from
$0.01 up to $0.21 per contract for
Customer orders in both Penny and
Non-Penny Securities. The Fee Codes
and Associated Fees section of the Fees
Schedule also provides for certain fee
codes associated with certain order
types and market participants that
provide for various other fees or rebates.
Fee code BC, for example, is appended
to Customer Agency orders executed in
the Automated Improvement
Mechanism (‘‘AIM’’ or ‘‘AIM Auction’’)
and currently offers a rebate of $0.06 per
contract. Additionally, the Fee Schedule
offers tiered pricing which provides
Members 4 opportunities to qualify for
higher rebates or reduced fees where
certain volume criteria and thresholds
are met. Additionally, in response to the
competitive environment, the Exchange
also offers tiered pricing, which
provides Members with opportunities to
qualify for higher rebates or reduced
fees where certain volume criteria and
thresholds are met. Tiered pricing
provides an incremental incentive for
Members to strive for higher tier levels,
which provides increasingly higher
benefits or discounts for satisfying
increasingly more stringent criteria.
For example, the Exchange currently
offers two AIM Volume Tiers which
provide enhanced rebates between $0.11
and $0.12 per contract for qualifying
Customer orders that yield fee code BC
where a Member meets the respective
tiers’ volume threshold.5 More
specifically, AIM Tier 1 currently offers
an enhanced rebate of $0.11 per contract
for a Member’s qualifying orders (i.e.,
yielding fee code BC) if a Member has
an ADV 6 in Customer Orders greater
than or equal to 0.30% of average OCV.7
AIM Tier 2 currently offers an enhanced
rebate of $0.12 per contract for a
Member’s qualifying orders (i.e.,
yielding fee code BC) if a Member has
an ADV in Customer Orders greater than
or equal to 0.50% of average OCV. The
Exchange first proposes to reduce the
current rebates for both AIM Tiers.
4 See
Exchange Rule 1.5(n).
Cboe EDGX U.S. Options Exchange Fees
Schedule, Footnote 9, Automated Improvement
Mechanism (‘‘AIM’’) Tiers.
6 ‘‘ADV’’ means average daily volume calculated
as the number of contracts added or removed,
combined, per day.
7 ‘‘OCC Customer Volume or ‘‘OCV’’ means the
total equity and ETF options volume that clears in
the Customer range at the Options Clearing
Corporation (‘‘OCC’’) for the month for which the
fees apply, excluding volume on any day that the
Exchange experiences an Exchange System
Disruption and on any day with a scheduled early
market close.
5 See
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
Specifically, the Exchange proposes to
reduce the current enhanced rebate for
AIM Tier 1 from $0.11 per contract to
$0.09 per contract. The Exchange
proposes to reduce the current
enhanced rebate for AIM Tier 2 from
$0.12 per contract to $0.10 per contract.
The Exchange notes that it believes the
AIM Tiers continue to provide Members
with an opportunity to receive an
enhanced rebate (albeit at a lower
amount), thus providing a continued
incentive to submit Customer order flow
to the Exchange.
The Exchange also proposes to adopt
new supplemental AIM Tiers (under
Footnote 9) which would provide
additional rebates (i.e., in addition to
the standard rebate or enhanced rebates
Members may receive for Customer
Agency orders executed in AIM). The
proposed tiers would be applicable to
fee code BC and applied on an order-byorder basis. In addition to a volume
threshold described below, the
proposed tiers would include criteria
based on the ‘‘Interaction Rate’’ of the
order. Particularly, the Exchange
proposes to add new Supplemental Tier
1, which would provide an additional
rebate of $0.02 per contract where a
Member (i) has an ADV in Customer
Orders greater than or equal to 0.50% of
average OCV and (ii) the order has an
Interaction Rate greater than or equal to
51% and less than 80%. The Exchange
proposes to add new Supplemental Tier
2, which would provide an additional
rebate of $0.05 per contract where a
Member (i) has Member has an ADV in
Customer Orders greater than or equal to
0.50% of average OCV and (ii) the order
has an Interaction Rate greater than or
equal to 0% and less than 51%. The
‘‘Interaction Rate’’ of an order refers to
the percentage of the Agency Order that
traded against the Initiating Order.8 By
way of example, if an AIM Agency
Order trades 35 out of 40 contracts with
the paired Initiating Order (i.e., 15 [sic]
contracts were executed against a
response or unrelated order), the
Interaction Rate would be 87.5% (35 ÷
40). Because the Interaction Rate was
above 80% in this example, that order
would not qualify for either additional
rebate. However, if an AIM Agency
Order trades 25 out of 40 contracts with
the paired Initiating Order, the
Interaction Rate would be 62.5% (25 ÷
40), and that order would be entitled to
an additional rebate of $0.02 per
8 An Options Member may electronically submit
for execution in AIM an order it represents as agent
(‘‘Agency Order’’) against principal interest or a
solicited order(s) (except for an order for the
account of any Options Market Maker registered in
the applicable series on the Exchange) (an
‘‘Initiating Order’’). See EDGX Options Rule 21.19.
E:\FR\FM\19OCN1.SGM
19OCN1
Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
contract (provided the Member also
meets the requirements of the first prong
and has an ADV in Customer Orders
greater than or equal to 0.50% of
average OCV). The proposed new tiers
are designed to incentivize order flow
providers to continue to route AIM
orders to the Exchange, notwithstanding
the potential for such orders to be
broken up. The Exchange also proposes
to clarify that the additional proposed
rebates will apply to the Member that
submitted a qualifying AIM Agency
Order, including a Member who routed
an order to the Exchange with a
Designated Give Up, when the Agency
Order trades with a Response Order.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.9 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 10 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 11 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
As described above, the Exchange
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. The
proposed rule change reflects a
competitive pricing structure designed
to incentivize market participants to
direct their order flow to the Exchange,
which the Exchange believes would
enhance market quality to the benefit of
all Members.
The Exchange believes the proposed
reduction in rebate amounts under AIM
Tiers 1 and 2 for orders yielding fee
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
11 Id.
12 See e.g., Nasdaq ISE Options 7 Pricing
Schedule, Facilitation and Solicitation Break-Up
Rebate.
10 15
VerDate Sep<11>2014
17:58 Oct 18, 2022
code BC is reasonable both tiers
continue to provide an enhanced rebate
(albeit at lower amounts), which the
Exchange believes is still commensurate
with the current criteria. The proposed
rule change is equitable and unfairly
[sic] discriminatory as the amended
rebate amounts apply uniformly to all
Members’ respective qualifying
Customer orders. The Exchange believes
that the current AIM Tiers continue to
benefit all Members by contributing
towards a robust and well-balanced
market ecosystem. Indeed, the Exchange
believes AIM Tiers 1 and 2 will
continue to incentivize increased
Customer order flow and overall order
flow to the Exchange’s Book, which
creates more trading opportunities,
which, in turn attracts Market-Makers.
A resulting increase in Market-Maker
activity may facilitate tighter spreads,
which may lead to an additional
increase of order flow from other market
participants. Increased overall order
flow benefits all investors by deepening
the Exchange’s liquidity pool,
potentially providing even greater
execution incentives and opportunities,
offering additional flexibility for all
investors to enjoy cost savings,
supporting the quality of price
discovery, promoting market
transparency, and improving investor
protection.
The Exchange believes the proposed
rule change to adopt new AIM
Supplemental Tiers is reasonable
because it provides an opportunity for
Members to receive additional rebates
for meeting certain thresholds and based
on the Interaction Rate of the AIM order.
The Exchange also believes the
proposed additional rebates are
commensurate with the proposed
criteria. The Exchange further believes
the proposal encourages the use of AIM.
Specifically, the Exchange believes that
the proposed additional rebates for AIM
Agency Orders would incentivize
Agency Order flow to AIM Auctions,
notwithstanding the potential for such
orders to be broken up. Additional
auction order flow provides market
participants with additional trading
opportunities at improved prices.
Moreover, exchanges have a history of
providing credits when an auctioned
order is broken up.12 Lastly, the
proposed additional rebates are not
unreasonably discriminatory because
such rebates are equally available to all
Members submitting AIM Agency
Orders to the Exchange.
Jkt 259001
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
63557
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In particular,
the Exchange believes the proposed rule
change does not impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, but rather,
serves to increase intra-market
competition by incentivizing members
to direct their orders, and, in particular,
Customer orders, to the Exchange’s AIM
Auction, in turn providing for more
opportunities to compete at improved
prices. Moreover, the Exchange notes
the proposed change to AIM Tiers will
apply to all Members equally in that all
Members will be eligible to receive the
rebates under the tiers, have a
reasonable opportunity to meet the tier’s
criteria and receive the enhanced
rebates (albeit at a lower amount) on
their qualifying orders if such criteria is
met.
Also, as stated above, the proposal to
adopt the proposed Supplemental AIM
Tiers will also apply to all Members, in
that, such Tier will be available for any
Member that meets the criteria. The
Exchange does not believe the proposed
changes burden competition as all
Members will continue to have an
opportunity receive enhanced rebates or
additional rebates offered under various
tiers, which tiers are generally designed
to increase the competitiveness of EDGX
and attract order flow and incentivize
participants to increase their
participation on the Exchange,
providing for additional execution
opportunities for market participants
and improved price transparency.
Greater overall order flow, trading
opportunities, and pricing transparency
benefit all market participants on the
Exchange by enhancing market quality
and continuing to encourage Members
to send orders, thereby contributing
towards a robust and well-balanced
market ecosystem.
The Exchange also believes the
proposed rule change does not impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
As previously discussed, the Exchange
operates in a highly competitive market.
Members have numerous alternative
venues they may participate on and
direct their order flow, including 15
other options exchanges. Additionally,
the Exchange represents a small
percentage of the overall market. Based
on publicly available information, no
E:\FR\FM\19OCN1.SGM
19OCN1
63558
Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
single options exchange has more than
18% of the market share. Therefore, no
exchange possesses significant pricing
power in the execution of order flow.
Indeed, participants can readily choose
to send their orders to other exchanges
if they deem fee levels at those other
venues to be more favorable. As noted
above, the Exchange believes that the
proposed fee changes are comparable to
that of other exchanges offering similar
functionality. Moreover, the
Commission has repeatedly expressed
its preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. Specifically, in
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
’fierce.’ . . . As the SEC explained, ’[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . . ’’. Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
jspears on DSK121TN23PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 13 and paragraph (f) of Rule
19b–4 14 thereunder. At any time within
60 days of the filing of the proposed rule
13 15
U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
17:58 Oct 18, 2022
Jkt 259001
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–2022–043 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–2022–043. 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
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
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–2022–043 and
should be submitted on or before
November 9, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–22662 Filed 10–18–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96069; File No. SR–
NASDAQ–2022–056]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Equity 4, Rule 4757
October 13, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
6, 2022, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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
The Exchange proposes to amend
Equity 4, Rule 4757, as described further
below. The text of the proposed rule
change is available on the Exchange’s
website at https://
listingcenter.nasdaq.com/rulebook/
nasdaq/rules, at the principal office of
the Exchange, 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
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\19OCN1.SGM
19OCN1
]]>Agencies
[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63555-63558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22662]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96073; File No. SR-CboeEDGX-2022-043]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
October 13, 2022.
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 October 3, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'')
proposes to amend its Fee Schedule. 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
[[Page 63556]]
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule to modify rebates
related to Automated Improvement Mechanism (``AIM'') transactions,
effective October 3, 2022.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 18% of the market share and
currently the Exchange represents only approximately 6% of the market
share.\3\ Thus, in such a low-concentrated and highly competitive
market, no single options exchange, including the Exchange, possesses
significant pricing power in the execution of option order flow. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain the Exchange's transaction fees, and market participants can
readily trade on competing venues if they deem pricing levels at those
other venues to be more favorable.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (September 30, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
The Exchange's Fees Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides standard
rebates ranging from $0.01 up to $0.21 per contract for Customer orders
in both Penny and Non-Penny Securities. The Fee Codes and Associated
Fees section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates. Fee code BC, for example, is
appended to Customer Agency orders executed in the Automated
Improvement Mechanism (``AIM'' or ``AIM Auction'') and currently offers
a rebate of $0.06 per contract. Additionally, the Fee Schedule offers
tiered pricing which provides Members \4\ opportunities to qualify for
higher rebates or reduced fees where certain volume criteria and
thresholds are met. Additionally, in response to the competitive
environment, the Exchange also offers tiered pricing, which provides
Members with opportunities to qualify for higher rebates or reduced
fees where certain volume criteria and thresholds are met. Tiered
pricing provides an incremental incentive for Members to strive for
higher tier levels, which provides increasingly higher benefits or
discounts for satisfying increasingly more stringent criteria.
---------------------------------------------------------------------------
\4\ See Exchange Rule 1.5(n).
---------------------------------------------------------------------------
For example, the Exchange currently offers two AIM Volume Tiers
which provide enhanced rebates between $0.11 and $0.12 per contract for
qualifying Customer orders that yield fee code BC where a Member meets
the respective tiers' volume threshold.\5\ More specifically, AIM Tier
1 currently offers an enhanced rebate of $0.11 per contract for a
Member's qualifying orders (i.e., yielding fee code BC) if a Member has
an ADV \6\ in Customer Orders greater than or equal to 0.30% of average
OCV.\7\ AIM Tier 2 currently offers an enhanced rebate of $0.12 per
contract for a Member's qualifying orders (i.e., yielding fee code BC)
if a Member has an ADV in Customer Orders greater than or equal to
0.50% of average OCV. The Exchange first proposes to reduce the current
rebates for both AIM Tiers. Specifically, the Exchange proposes to
reduce the current enhanced rebate for AIM Tier 1 from $0.11 per
contract to $0.09 per contract. The Exchange proposes to reduce the
current enhanced rebate for AIM Tier 2 from $0.12 per contract to $0.10
per contract. The Exchange notes that it believes the AIM Tiers
continue to provide Members with an opportunity to receive an enhanced
rebate (albeit at a lower amount), thus providing a continued incentive
to submit Customer order flow to the Exchange.
---------------------------------------------------------------------------
\5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote
9, Automated Improvement Mechanism (``AIM'') Tiers.
\6\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day.
\7\ ``OCC Customer Volume or ``OCV'' means the total equity and
ETF options volume that clears in the Customer range at the Options
Clearing Corporation (``OCC'') for the month for which the fees
apply, excluding volume on any day that the Exchange experiences an
Exchange System Disruption and on any day with a scheduled early
market close.
---------------------------------------------------------------------------
The Exchange also proposes to adopt new supplemental AIM Tiers
(under Footnote 9) which would provide additional rebates (i.e., in
addition to the standard rebate or enhanced rebates Members may receive
for Customer Agency orders executed in AIM). The proposed tiers would
be applicable to fee code BC and applied on an order-by-order basis. In
addition to a volume threshold described below, the proposed tiers
would include criteria based on the ``Interaction Rate'' of the order.
Particularly, the Exchange proposes to add new Supplemental Tier 1,
which would provide an additional rebate of $0.02 per contract where a
Member (i) has an ADV in Customer Orders greater than or equal to 0.50%
of average OCV and (ii) the order has an Interaction Rate greater than
or equal to 51% and less than 80%. The Exchange proposes to add new
Supplemental Tier 2, which would provide an additional rebate of $0.05
per contract where a Member (i) has Member has an ADV in Customer
Orders greater than or equal to 0.50% of average OCV and (ii) the order
has an Interaction Rate greater than or equal to 0% and less than 51%.
The ``Interaction Rate'' of an order refers to the percentage of the
Agency Order that traded against the Initiating Order.\8\ By way of
example, if an AIM Agency Order trades 35 out of 40 contracts with the
paired Initiating Order (i.e., 15 [sic] contracts were executed against
a response or unrelated order), the Interaction Rate would be 87.5% (35
/ 40). Because the Interaction Rate was above 80% in this example, that
order would not qualify for either additional rebate. However, if an
AIM Agency Order trades 25 out of 40 contracts with the paired
Initiating Order, the Interaction Rate would be 62.5% (25 / 40), and
that order would be entitled to an additional rebate of $0.02 per
[[Page 63557]]
contract (provided the Member also meets the requirements of the first
prong and has an ADV in Customer Orders greater than or equal to 0.50%
of average OCV). The proposed new tiers are designed to incentivize
order flow providers to continue to route AIM orders to the Exchange,
notwithstanding the potential for such orders to be broken up. The
Exchange also proposes to clarify that the additional proposed rebates
will apply to the Member that submitted a qualifying AIM Agency Order,
including a Member who routed an order to the Exchange with a
Designated Give Up, when the Agency Order trades with a Response Order.
---------------------------------------------------------------------------
\8\ An Options Member may electronically submit for execution in
AIM an order it represents as agent (``Agency Order'') against
principal interest or a solicited order(s) (except for an order for
the account of any Options Market Maker registered in the applicable
series on the Exchange) (an ``Initiating Order''). See EDGX Options
Rule 21.19.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
---------------------------------------------------------------------------
As described above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
Members.
The Exchange believes the proposed reduction in rebate amounts
under AIM Tiers 1 and 2 for orders yielding fee code BC is reasonable
both tiers continue to provide an enhanced rebate (albeit at lower
amounts), which the Exchange believes is still commensurate with the
current criteria. The proposed rule change is equitable and unfairly
[sic] discriminatory as the amended rebate amounts apply uniformly to
all Members' respective qualifying Customer orders. The Exchange
believes that the current AIM Tiers continue to benefit all Members by
contributing towards a robust and well-balanced market ecosystem.
Indeed, the Exchange believes AIM Tiers 1 and 2 will continue to
incentivize increased Customer order flow and overall order flow to the
Exchange's Book, which creates more trading opportunities, which, in
turn attracts Market-Makers. A resulting increase in Market-Maker
activity may facilitate tighter spreads, which may lead to an
additional increase of order flow from other market participants.
Increased overall order flow benefits all investors by deepening the
Exchange's liquidity pool, potentially providing even greater execution
incentives and opportunities, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency, and improving investor
protection.
The Exchange believes the proposed rule change to adopt new AIM
Supplemental Tiers is reasonable because it provides an opportunity for
Members to receive additional rebates for meeting certain thresholds
and based on the Interaction Rate of the AIM order. The Exchange also
believes the proposed additional rebates are commensurate with the
proposed criteria. The Exchange further believes the proposal
encourages the use of AIM. Specifically, the Exchange believes that the
proposed additional rebates for AIM Agency Orders would incentivize
Agency Order flow to AIM Auctions, notwithstanding the potential for
such orders to be broken up. Additional auction order flow provides
market participants with additional trading opportunities at improved
prices. Moreover, exchanges have a history of providing credits when an
auctioned order is broken up.\12\ Lastly, the proposed additional
rebates are not unreasonably discriminatory because such rebates are
equally available to all Members submitting AIM Agency Orders to the
Exchange.
---------------------------------------------------------------------------
\12\ See e.g., Nasdaq ISE Options 7 Pricing Schedule,
Facilitation and Solicitation Break-Up Rebate.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In particular, the Exchange
believes the proposed rule change does not impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, but rather, serves to increase
intra-market competition by incentivizing members to direct their
orders, and, in particular, Customer orders, to the Exchange's AIM
Auction, in turn providing for more opportunities to compete at
improved prices. Moreover, the Exchange notes the proposed change to
AIM Tiers will apply to all Members equally in that all Members will be
eligible to receive the rebates under the tiers, have a reasonable
opportunity to meet the tier's criteria and receive the enhanced
rebates (albeit at a lower amount) on their qualifying orders if such
criteria is met.
Also, as stated above, the proposal to adopt the proposed
Supplemental AIM Tiers will also apply to all Members, in that, such
Tier will be available for any Member that meets the criteria. The
Exchange does not believe the proposed changes burden competition as
all Members will continue to have an opportunity receive enhanced
rebates or additional rebates offered under various tiers, which tiers
are generally designed to increase the competitiveness of EDGX and
attract order flow and incentivize participants to increase their
participation on the Exchange, providing for additional execution
opportunities for market participants and improved price transparency.
Greater overall order flow, trading opportunities, and pricing
transparency benefit all market participants on the Exchange by
enhancing market quality and continuing to encourage Members to send
orders, thereby contributing towards a robust and well-balanced market
ecosystem.
The Exchange also believes the proposed rule change does not impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues they may participate on and
direct their order flow, including 15 other options exchanges.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no
[[Page 63558]]
single options exchange has more than 18% of the market share.
Therefore, no exchange possesses significant pricing power in the
execution of order flow. Indeed, participants can readily choose to
send their orders to other exchanges if they deem fee levels at those
other venues to be more favorable. As noted above, the Exchange
believes that the proposed fee changes are comparable to that of other
exchanges offering similar functionality. Moreover, the Commission has
repeatedly expressed its preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. Specifically, in Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' The fact that this market is competitive has
also long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is 'fierce.' . . . As the SEC
explained, '[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . . ''. Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \13\ and paragraph (f) of Rule 19b-4 \14\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2022-043 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-2022-043. 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-2022-043 and should be
submitted on or before November 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22662 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P
