Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fees Schedule Concerning Membership Fees and Market Maker Appointment Fees, 4054-4057 [2023-01119]
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Federal Register / Vol. 88, No. 14 / Monday, January 23, 2023 / Notices
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–
CboeBZX–2023–001 on the subject line.
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–CboeBZX–2023–001 and
should be submitted on or before
February 13, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–01115 Filed 1–20–23; 8:45 am]
BILLING CODE 8011–01–P
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
khammond on DSKJM1Z7X2PROD with NOTICES
All submissions should refer to File
Number SR–CboeBZX–2023–001. 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
VerDate Sep<11>2014
16:44 Jan 20, 2023
Jkt 259001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96679; File No. SR–
CboeEDGX–2023–003]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Exchange’s Fees Schedule Concerning
Membership Fees and Market Maker
Appointment Fees
January 17, 2023.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on January 3,
2023, 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 and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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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 Fees Schedule.
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those 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 parts 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 adopt new
Membership fees. First, the Exchange
proposes to establish a monthly
Participant Fee for Options Members of
the Exchange of $500. Additionally,
EDGX Options Market Makers would be
assessed a Market Maker Participant Fee
of $750 per month (i.e., Market Makers
would pay a monthly fee of $1,250). The
Participant Fees are non-refundable. If a
firm becomes a Member during a
calendar month after the first trading
day of the month, the participant fee for
the Member for that calendar month
will be prorated based on the remaining
trading days in the calendar month.
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Federal Register / Vol. 88, No. 14 / Monday, January 23, 2023 / Notices
The Exchange also proposes to adopt
fees relating to Market Maker
appointments (set forth in the ‘‘Market
Maker Appointments Sliding Scale’’)
which will be based on an Appointment
Unit Tier schedule that assigns an
appointment weight to each class within
a tier. Particularly, EDGX Options
Market Makers must select class
appointments in the classes they seek to
make markets electronically.4 As
proposed, a Market Maker will be
charged for one or more ‘‘Appointment
Units’’ (which will scale from 1 ‘‘unit’’
to more than 6 ‘‘units’’), depending on
which classes they select appointments
in. All classes will be placed within a
specific tier according to trading volume
statistics (excluding the proposed AA
Tier), and assigned an ‘‘appointment
weight’’ depending upon its tier
location as follows:
Appointment
weight
Appointment unit tier
Option class
AA ...............................................................................................
IWM ............................................................................................
SPY ............................................................................................
VXX ............................................................................................
Classes 1–60 ..............................................................................
Classes 61–120 ..........................................................................
Classes 121–345 ........................................................................
Classes 346–570 ........................................................................
Classes 571–999 ........................................................................
All Remaining Classes ...............................................................
A * ...............................................................................................
B * ...............................................................................................
C * ...............................................................................................
D * ...............................................................................................
E * ...............................................................................................
F * ................................................................................................
4055
.50
.50
.100
.100
.060
.040
.025
.015
.001
* Excludes Tier AA.
The Exchange will rebalance the
above tiers (excluding the ‘‘AA’’ tier
above) once each calendar quarter,
which may result in additions or
deletions to their composition and
announces such rebalances pursuant to
Exchange Rule 16.3 at least 10 business
days before the rebalance takes effect.
The proposed appointment unit tier
assignment and rebalances are based on
national average daily volume. When a
class changes tiers, it will be assigned
the appointment unit of that tier.
Appointment weights for each assigned
class will be summed for each Market
Maker ID used to trade to obtain the
total appointment units. If the sum of
appointments is a fractional amount, the
total will be rounded up to the next
highest whole Appointment Unit. Total
quantity will be determined by the
highest quantity used at any point
during the month. The following lists
the proposed progressive monthly fees
for Appointment Units: 5
Appointment units
1 ............................................
2 ............................................
3–5 ........................................
>6 ..........................................
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.6 Specifically, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 7 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
Monthly fee
the section 6(b)(5) 8 requirement that the
rules of an exchange not be designed to
$0
permit unfair discrimination between
500
350 customers, issuers, brokers, or dealers.
The Exchange believes that there is
100
value in becoming a Member of the
4 See
EDGX Options Rule 22.3(a).
example, if a Market Maker’s total
appointment units amount to 2.5 units, the Market
Maker will be assessed a total monthly appointment
fee of $850 (1 appointment unit at $0, 1
appointment unit at $500 and 1 appointment unit
at $350).
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(5).
8 Id.
9 See e.g., PHLX Section 8A, Permit and
Registration Fees, which generally assesses monthly
Permit Fees between $4,000 and $6,000. See also,
BOX Options Fee Schedule, Section IX Participant
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2. Statutory Basis
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Fees, which assesses non-Market Makers a
Participant Fee of $1,500 per month and assesses
Market Maker’s Trading Permit fees between $4,000
and $10,000 per month; NYSE American Options
Fees Schedule, Section III(A) Monthly ATP Fees
and NYSE Arca Options Fees and Charges, OTP
Trading Participant Rights, which assesses a
monthly permit (‘‘ATP’’) fee of $1,000 for Clearing
Members and Order Floor Providers, and a monthly
ATP fees up to $8,000 for Market-Makers; and
MIAX Options Fee Schedule, Section 3,
Membership Fees, which assesses an Electronic
Exchange Members Trading Permit fee of $1,500 per
month and a Market Maker Trading Permit Fee
between $7,000 and $22,000 per month.
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Exchange and that the proposed
Participant Fees are reasonable. The
proposed fees are also significantly
lower than the membership fees
imposed by several other options
exchanges that charge such fees.9 They
are also comparable to fees assessed by
the Exchange’s affiliated options
exchange Cboe BZX Exchange, Inc.
(‘‘BZX Options’’).10 Other national
securities exchanges also recently
adopted participant fees for their
exchange members.11 The Exchange
also historically has not, currently does
not, nor does it presently contemplate
charging any application fees for
Membership nor so-called ‘‘headcount
fees,’’ (e.g., fees charged for each Form
U4 filed for registration of a
representative or a principal or the
transfer or re-licensing of such
personnel 12), further highlighting the
reasonableness of the proposed
Participant Fees. Furthermore, EDGX
Options Members have not been
assessed any membership-related fees
since the platform became available
over 7 years ago. The proposed changes
are designed to update fees for the
Exchange’s services to reflect their
current value—rather than their value
when it was a new exchange seven years
10 See Cboe BZX Options Fee Schedule,
Membership Fees, which assesses BZX Options
Members a monthly fee between $500 and $1,000.
11 See e.g., Securities Exchange Act Release No.
93927 (January 7, 2022), 87 FR 2191 (January 13,
2022) (SR–MEMX–2021–19) (introduction of
membership fees by MEMX). See also Securities
Exchange Act Release No. 94894 (May 11, 2022), 87
FR 29987 (May 17, 2022) (SR–BOX–2022–17).
12 See, e.g., ‘‘NASDAQ Membership Fees,’’ ($55
for each Form U–4 filed for the registration of a
Representative or Principal, and $55 for each Form
U–4 filed for the transfer or re-licensing of a
Representative or Principal).
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ago—based on the Exchange’s ability to
deliver value to its customers through
technology, liquidity, and functionality.
Newly-opened exchanges often charge
no fees for certain services such as
membership, in order to attract order
flow to an exchange, and later amend
their fees to reflect the true value of
those services.13 Allowing newlyopened exchanges time to build and
sustain market share before charging
non-transactional fees encourages
market entry and promotes competition.
The Exchange believes that the
proposed Participant Fees are not
unfairly discriminatory because it
would be assessed uniformly across all
Members or firms that seek to become
Members. Additionally, the Exchange
believes that the proposed fees are not
unfairly discriminatory because no
broker-dealer is required to become a
Member of the Exchange. There is also
no regulatory requirement that Market
Makers connect and access any one
options exchange or that any market
participant connect to any one
particular options exchange. Moreover,
a Market Maker membership is not a
requirement to participate on the
Exchange and participation on an
exchange in any capacity is completely
voluntary. Indeed, while the Exchange
currently has 51 members that trade
options, Cboe BZX has 63 members that
trade options, Cboe Options has 98
Trading Permit Holders (‘‘TPHs’’) (i.e.,
members) and Cboe C2 has 52 TPHs.
There is also no firm that is a Member
of EDGX Options only. Further, based
on publicly available information
regarding a sample of the Exchange’s
competitors, NYSE American Options
has 73 members,14 and NYSE Arca
Options has 67 members,15 MIAX
Options has 44 members 16 and MIAX
Pearl Options has 41 members.17 BOX
Exchange, Inc. (‘‘BOX’’) noted in a
recent rule change to adopt Electronic
Market Maker Trading Permit Fees that
it reviewed membership details at three
options exchanges and found that there
are 62 market making firms across those
13 See e.g., Securities Exchange Act Release No.
93927 (January 7, 2022), 87 FR 2191 (January 13,
2022) (SR–MEMX–2021–19) (introduction of
membership fees by MEMX).
14 See https://www.nyse.com/markets/americanoptions/membership#directory.
15 See https://www.nyse.com/markets/arcaoptions/membership#directory.
16 See https://www.miaxoptions.com/sites/
default/files/page-files/MIAX_Options_Exchange_
Members_12222021.pdf.
17 See https://www.miaxoptions.com/sites/
default/files/page-files/MIAX_Pearl_Options_
Exchange_Members_12012021.pdf.
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16:44 Jan 20, 2023
Jkt 259001
three exchanges.18 Particularly, BOX
found that 42 of the 62 market making
firms access only one of the three
exchanges. BOX additionally identified
numerous market makers that are
members of other options exchanges,
but not BOX.
Accordingly, the vigorous
competition among national securities
exchanges provides many alternatives
for firms to voluntarily decide whether
membership to the Exchange is
appropriate and worthwhile, and as
noted above, no broker-dealer is
required to become a Member of the
Exchange. Indeed, there are currently 15
other registered options exchanges that
trade options and one additional
options exchange expected to launch in
2023. Further, low barriers to entry
mean that new exchanges may rapidly
and inexpensively enter the market and
offer additional substitute platforms to
further compete with the Exchange and
the products it offers. For example,
there are 3 exchanges that have been
added in the U.S. options markets in the
last 5 years (i.e., Nasdaq MRX, LLC,
MIAX Pearl, LLC, and MIAX Emerald
LLC) and one additional options
exchange that is expected to launch in
2023 (i.e., MEMX LLC).
Notwithstanding the foregoing, the
Exchange still believes that the
proposed fee of $500 as a monthly
Participant Fee, and additional fee of
$750 for Market Makers is reasonable,
equitably allocated and not unfairly
discriminatory, even for a broker-dealer
that determines it should join the
Exchange for business purposes, as
those business reasons should
presumably result in revenue capable of
covering the proposed fee.
The Exchange believes its proposed
Market Maker Appointments Sliding
Scale fees are also reasonable as its
affiliated exchange, Cboe Exchange, Inc.
(‘‘Cboe Options’’), offers the same
structure with respect to fees for
appointment classes and as the
proposed fees are significantly lower
than the Cboe Options fees that were
adopted recently in 2020.19 The
Exchange believes the proposed tier
compositions, corresponding
appointment weights and rebalance
process are also reasonable as they are
18 See Securities and Exchange Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17).
19 See Securities Exchange Act Release No. 90333
(November 4, 2020), 85 FR 71666 (November 10,
2020) (SR–CBOE–2020–105). See also Cboe Options
Fees Schedule, Market-Maker EAP Appointments
Sliding Scale, which assesses fees between $3,100
to $6,000 per appointment unit versus the proposed
Market Maker Appointments Sliding Scale which
assesses significantly lower rates between $100 to
$500 per appointment unit.
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the same as they are for Cboe Options.
In addition, other exchanges offer a
similar structure with respect to
assessing Market-Maker fees based on
appointment classes and the proposed
fees are again significantly lower than
such fees, including the fees just
recently adopted by BOX.20
Moreover, as discussed above, there is
no regulatory requirement that any
market participant, including Market
Makers, connect to any one particular
options exchange. This is evidenced by
the fact that no firm is an EDGX Options
only member and further illustrated by
the analysis described above by BOX in
which it found 42 of 62 market making
firms across three exchanges access only
one of those three exchanges. Also as
noted, a Market Maker membership is
not a requirement to participate on the
Exchange and participation on an
exchange in any capacity is completely
voluntary. Accordingly, Market Makers
choose if and how to access a particular
exchange and because it is a choice; if
a Market Maker deems a particular
exchange as charging excessive fees to
participate, such Market Maker may not
connect, and existing Market Makers
would disconnect from the Exchange.
The Exchange believes the proposed
Market Maker Appointments Sliding
Scale fees are equitable and not unfairly
discriminatory because they will apply
uniformly to all Market Makers, and all
similarly situated Market Makers (i.e.,
those with same number of
Appointment Units), will be subject to
the same fee. The Exchange also
believes that assessing Market Makers
that quote in fewer classes lower total
fees is reasonable and appropriate as it
will allow the Exchange to retain and
attract smaller-scale Market Makers,
which are an integral component of the
options industry marketplace. The
Exchange believes it’s equitable and not
20 See e.g., NYSE Arca, Inc. (‘‘NYSEArca’’) Fee
Schedule, which assesses Market Makers $6,000 for
up to 175 option issues, an additional $5,000 for up
to 350 option issues, an additional $4,000 for up to
1,000 option issues, and an additional $3,000 for all
option issues traded on the Exchange. See also
Miami International Securities Exchange, LLC
(‘‘MIAX’’) Fee Schedule Fee, which assesses Market
Makers $7,000 for up to 10 classes or up to 20%
of classes by volume, $12,000 for up to 40 classes
or up to 35% of classes by volume, $17,000 for up
to 100 classes or up to 50% or classes by volume,
and $22,000 for over 100 classes or over 50% of
classes by volume up to all classes listed on MIAX.
See Securities and Exchange Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17) and BOX Exchange Fees Schedule,
Section 1. Participant Fees, which assesses Market
Makers $4,000 for up to 10 option classes, $6,000
for up to 40 classes, $8,000 for up to 100 classes
and $10,000 for over 100 classes. By comparison,
the Exchange anticipates that EDGX Options Market
Makers on average would need approximately 9.5
Appointment Units, costing $2,050 per month for
appointment fees.
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unfairly discriminatory to assess higher
fees for Market Makers that have a
higher number of class appointments
since they are likely to utilize more
bandwidth and capacity on the
Exchange’s network. The Exchange also
notes that other options exchanges
assess fees at different rates based upon
a member’s participation on that
exchange, and, as such, this concept is
not new or novel.21 The Exchange lastly
believes that the proposed Market
Maker Participant and Market Maker
Appointments Sliding Scale fees are
equitable and not unfairly
discriminatory because Market Makers
generally consume the most bandwidth
and resources of the Exchange’s
network. As such, the Exchange believes
it’s equitable and not unfairly
discriminatory to assess Market Makers
an additional Participant Fee and
Market Maker Appointments Sliding
Scale fees.
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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. The
proposed fee change will not impact
intramarket competition because it will
apply to all similarly situated Members
equally. The Exchange also believes that
the proposed Market Maker Participant
and Market Maker Appointments
Sliding Scale fees do not place certain
market participants at a relative
disadvantage to other market
participants because the proposed fees
do not favor certain categories of market
participants in a manner that would
impose a burden on competition; rather,
the fee rates are designed in order to
provide objective criteria for Market
Makers of different sizes and business
models that best matches their quoting
activity on the Exchange. Further, as
noted above, Market Makers generally
consume the most bandwidth and
resources of the network.
The Exchange’s proposed Participant
Fees, including the Market Maker
Participant Fee, will be lower than the
cost of membership on other exchanges
as described in detail above and
therefore, may stimulate intermarket
competition by attracting additional
firms to become Members on the
Exchange or at least should not deter
interested participants from joining the
Exchange. In addition, as discussed in
the statutory basis section above,
participant fees are subject to
competition from other exchanges.
Accordingly, if the changes proposed
herein are unattractive to market
participants, the Exchange can, and
likely will, see a decline in membership
as a result. The Exchange operates in a
highly competitive market in which
market participants can determine
whether or not to join the Exchange
based on the value received compared
to the cost of joining and maintaining
membership on the Exchange.
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 is effective
upon filing pursuant to section
19(b)(3)(A) 22 of the Act and
subparagraph (f)(2) of Rule 19b–4 23
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) 24 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
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
24 15 U.S.C. 78s(b)(2)(B).
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2023–003 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–2023–003. 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–2023–003, and
should be submitted on or before
February 13, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–01119 Filed 1–20–23; 8:45 am]
BILLING CODE 8011–01–P
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23 17
21 Id.
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 88, Number 14 (Monday, January 23, 2023)]
[Notices]
[Pages 4054-4057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01119]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96679; File No. SR-CboeEDGX-2023-003]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Exchange's Fees Schedule Concerning Membership Fees and
Market Maker Appointment Fees
January 17, 2023.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on January 3, 2023, 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 and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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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 Fees Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 those 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 parts 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 adopt new Membership fees. First, the
Exchange proposes to establish a monthly Participant Fee for Options
Members of the Exchange of $500. Additionally, EDGX Options Market
Makers would be assessed a Market Maker Participant Fee of $750 per
month (i.e., Market Makers would pay a monthly fee of $1,250). The
Participant Fees are non-refundable. If a firm becomes a Member during
a calendar month after the first trading day of the month, the
participant fee for the Member for that calendar month will be prorated
based on the remaining trading days in the calendar month.
[[Page 4055]]
The Exchange also proposes to adopt fees relating to Market Maker
appointments (set forth in the ``Market Maker Appointments Sliding
Scale'') which will be based on an Appointment Unit Tier schedule that
assigns an appointment weight to each class within a tier.
Particularly, EDGX Options Market Makers must select class appointments
in the classes they seek to make markets electronically.\4\ As
proposed, a Market Maker will be charged for one or more ``Appointment
Units'' (which will scale from 1 ``unit'' to more than 6 ``units''),
depending on which classes they select appointments in. All classes
will be placed within a specific tier according to trading volume
statistics (excluding the proposed AA Tier), and assigned an
``appointment weight'' depending upon its tier location as follows:
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\4\ See EDGX Options Rule 22.3(a).
------------------------------------------------------------------------
Appointment
Appointment unit tier Option class weight
------------------------------------------------------------------------
AA................................ IWM................. .50
SPY................. .50
VXX................. .100
A *............................... Classes 1-60........ .100
B *............................... Classes 61-120...... .060
C *............................... Classes 121-345..... .040
D *............................... Classes 346-570..... .025
E *............................... Classes 571-999..... .015
F *............................... All Remaining .001
Classes.
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* Excludes Tier AA.
The Exchange will rebalance the above tiers (excluding the ``AA''
tier above) once each calendar quarter, which may result in additions
or deletions to their composition and announces such rebalances
pursuant to Exchange Rule 16.3 at least 10 business days before the
rebalance takes effect. The proposed appointment unit tier assignment
and rebalances are based on national average daily volume. When a class
changes tiers, it will be assigned the appointment unit of that tier.
Appointment weights for each assigned class will be summed for each
Market Maker ID used to trade to obtain the total appointment units. If
the sum of appointments is a fractional amount, the total will be
rounded up to the next highest whole Appointment Unit. Total quantity
will be determined by the highest quantity used at any point during the
month. The following lists the proposed progressive monthly fees for
Appointment Units: \5\
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\5\ For example, if a Market Maker's total appointment units
amount to 2.5 units, the Market Maker will be assessed a total
monthly appointment fee of $850 (1 appointment unit at $0, 1
appointment unit at $500 and 1 appointment unit at $350).
------------------------------------------------------------------------
Appointment units Monthly fee
------------------------------------------------------------------------
1....................................................... $0
2....................................................... 500
3-5..................................................... 350
>6...................................................... 100
------------------------------------------------------------------------
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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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The Exchange believes that there is value in becoming a Member of
the Exchange and that the proposed Participant Fees are reasonable. The
proposed fees are also significantly lower than the membership fees
imposed by several other options exchanges that charge such fees.\9\
They are also comparable to fees assessed by the Exchange's affiliated
options exchange Cboe BZX Exchange, Inc. (``BZX Options'').\10\ Other
national securities exchanges also recently adopted participant fees
for their exchange members.\11\ The Exchange also historically has not,
currently does not, nor does it presently contemplate charging any
application fees for Membership nor so-called ``headcount fees,''
(e.g., fees charged for each Form U4 filed for registration of a
representative or a principal or the transfer or re-licensing of such
personnel \12\), further highlighting the reasonableness of the
proposed Participant Fees. Furthermore, EDGX Options Members have not
been assessed any membership-related fees since the platform became
available over 7 years ago. The proposed changes are designed to update
fees for the Exchange's services to reflect their current value--rather
than their value when it was a new exchange seven years
[[Page 4056]]
ago--based on the Exchange's ability to deliver value to its customers
through technology, liquidity, and functionality. Newly-opened
exchanges often charge no fees for certain services such as membership,
in order to attract order flow to an exchange, and later amend their
fees to reflect the true value of those services.\13\ Allowing newly-
opened exchanges time to build and sustain market share before charging
non-transactional fees encourages market entry and promotes
competition.
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\9\ See e.g., PHLX Section 8A, Permit and Registration Fees,
which generally assesses monthly Permit Fees between $4,000 and
$6,000. See also, BOX Options Fee Schedule, Section IX Participant
Fees, which assesses non-Market Makers a Participant Fee of $1,500
per month and assesses Market Maker's Trading Permit fees between
$4,000 and $10,000 per month; NYSE American Options Fees Schedule,
Section III(A) Monthly ATP Fees and NYSE Arca Options Fees and
Charges, OTP Trading Participant Rights, which assesses a monthly
permit (``ATP'') fee of $1,000 for Clearing Members and Order Floor
Providers, and a monthly ATP fees up to $8,000 for Market-Makers;
and MIAX Options Fee Schedule, Section 3, Membership Fees, which
assesses an Electronic Exchange Members Trading Permit fee of $1,500
per month and a Market Maker Trading Permit Fee between $7,000 and
$22,000 per month.
\10\ See Cboe BZX Options Fee Schedule, Membership Fees, which
assesses BZX Options Members a monthly fee between $500 and $1,000.
\11\ See e.g., Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(introduction of membership fees by MEMX). See also Securities
Exchange Act Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17,
2022) (SR-BOX-2022-17).
\12\ See, e.g., ``NASDAQ Membership Fees,'' ($55 for each Form
U-4 filed for the registration of a Representative or Principal, and
$55 for each Form U-4 filed for the transfer or re-licensing of a
Representative or Principal).
\13\ See e.g., Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(introduction of membership fees by MEMX).
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The Exchange believes that the proposed Participant Fees are not
unfairly discriminatory because it would be assessed uniformly across
all Members or firms that seek to become Members. Additionally, the
Exchange believes that the proposed fees are not unfairly
discriminatory because no broker-dealer is required to become a Member
of the Exchange. There is also no regulatory requirement that Market
Makers connect and access any one options exchange or that any market
participant connect to any one particular options exchange. Moreover, a
Market Maker membership is not a requirement to participate on the
Exchange and participation on an exchange in any capacity is completely
voluntary. Indeed, while the Exchange currently has 51 members that
trade options, Cboe BZX has 63 members that trade options, Cboe Options
has 98 Trading Permit Holders (``TPHs'') (i.e., members) and Cboe C2
has 52 TPHs. There is also no firm that is a Member of EDGX Options
only. Further, based on publicly available information regarding a
sample of the Exchange's competitors, NYSE American Options has 73
members,\14\ and NYSE Arca Options has 67 members,\15\ MIAX Options has
44 members \16\ and MIAX Pearl Options has 41 members.\17\ BOX
Exchange, Inc. (``BOX'') noted in a recent rule change to adopt
Electronic Market Maker Trading Permit Fees that it reviewed membership
details at three options exchanges and found that there are 62 market
making firms across those three exchanges.\18\ Particularly, BOX found
that 42 of the 62 market making firms access only one of the three
exchanges. BOX additionally identified numerous market makers that are
members of other options exchanges, but not BOX.
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\14\ See https://www.nyse.com/markets/american-options/membership#directory.
\15\ See https://www.nyse.com/markets/arca-options/membership#directory.
\16\ See https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_12222021.pdf.
\17\ See https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Pearl_Options_Exchange_Members_12012021.pdf.
\18\ See Securities and Exchange Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
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Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether membership to the Exchange is appropriate and worthwhile, and
as noted above, no broker-dealer is required to become a Member of the
Exchange. Indeed, there are currently 15 other registered options
exchanges that trade options and one additional options exchange
expected to launch in 2023. Further, low barriers to entry mean that
new exchanges may rapidly and inexpensively enter the market and offer
additional substitute platforms to further compete with the Exchange
and the products it offers. For example, there are 3 exchanges that
have been added in the U.S. options markets in the last 5 years (i.e.,
Nasdaq MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one
additional options exchange that is expected to launch in 2023 (i.e.,
MEMX LLC). Notwithstanding the foregoing, the Exchange still believes
that the proposed fee of $500 as a monthly Participant Fee, and
additional fee of $750 for Market Makers is reasonable, equitably
allocated and not unfairly discriminatory, even for a broker-dealer
that determines it should join the Exchange for business purposes, as
those business reasons should presumably result in revenue capable of
covering the proposed fee.
The Exchange believes its proposed Market Maker Appointments
Sliding Scale fees are also reasonable as its affiliated exchange, Cboe
Exchange, Inc. (``Cboe Options''), offers the same structure with
respect to fees for appointment classes and as the proposed fees are
significantly lower than the Cboe Options fees that were adopted
recently in 2020.\19\ The Exchange believes the proposed tier
compositions, corresponding appointment weights and rebalance process
are also reasonable as they are the same as they are for Cboe Options.
In addition, other exchanges offer a similar structure with respect to
assessing Market-Maker fees based on appointment classes and the
proposed fees are again significantly lower than such fees, including
the fees just recently adopted by BOX.\20\
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\19\ See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). See also
Cboe Options Fees Schedule, Market-Maker EAP Appointments Sliding
Scale, which assesses fees between $3,100 to $6,000 per appointment
unit versus the proposed Market Maker Appointments Sliding Scale
which assesses significantly lower rates between $100 to $500 per
appointment unit.
\20\ See e.g., NYSE Arca, Inc. (``NYSEArca'') Fee Schedule,
which assesses Market Makers $6,000 for up to 175 option issues, an
additional $5,000 for up to 350 option issues, an additional $4,000
for up to 1,000 option issues, and an additional $3,000 for all
option issues traded on the Exchange. See also Miami International
Securities Exchange, LLC (``MIAX'') Fee Schedule Fee, which assesses
Market Makers $7,000 for up to 10 classes or up to 20% of classes by
volume, $12,000 for up to 40 classes or up to 35% of classes by
volume, $17,000 for up to 100 classes or up to 50% or classes by
volume, and $22,000 for over 100 classes or over 50% of classes by
volume up to all classes listed on MIAX. See Securities and Exchange
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17) and BOX Exchange Fees Schedule, Section 1. Participant
Fees, which assesses Market Makers $4,000 for up to 10 option
classes, $6,000 for up to 40 classes, $8,000 for up to 100 classes
and $10,000 for over 100 classes. By comparison, the Exchange
anticipates that EDGX Options Market Makers on average would need
approximately 9.5 Appointment Units, costing $2,050 per month for
appointment fees.
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Moreover, as discussed above, there is no regulatory requirement
that any market participant, including Market Makers, connect to any
one particular options exchange. This is evidenced by the fact that no
firm is an EDGX Options only member and further illustrated by the
analysis described above by BOX in which it found 42 of 62 market
making firms across three exchanges access only one of those three
exchanges. Also as noted, a Market Maker membership is not a
requirement to participate on the Exchange and participation on an
exchange in any capacity is completely voluntary. Accordingly, Market
Makers choose if and how to access a particular exchange and because it
is a choice; if a Market Maker deems a particular exchange as charging
excessive fees to participate, such Market Maker may not connect, and
existing Market Makers would disconnect from the Exchange.
The Exchange believes the proposed Market Maker Appointments
Sliding Scale fees are equitable and not unfairly discriminatory
because they will apply uniformly to all Market Makers, and all
similarly situated Market Makers (i.e., those with same number of
Appointment Units), will be subject to the same fee. The Exchange also
believes that assessing Market Makers that quote in fewer classes lower
total fees is reasonable and appropriate as it will allow the Exchange
to retain and attract smaller-scale Market Makers, which are an
integral component of the options industry marketplace. The Exchange
believes it's equitable and not
[[Page 4057]]
unfairly discriminatory to assess higher fees for Market Makers that
have a higher number of class appointments since they are likely to
utilize more bandwidth and capacity on the Exchange's network. The
Exchange also notes that other options exchanges assess fees at
different rates based upon a member's participation on that exchange,
and, as such, this concept is not new or novel.\21\ The Exchange lastly
believes that the proposed Market Maker Participant and Market Maker
Appointments Sliding Scale fees are equitable and not unfairly
discriminatory because Market Makers generally consume the most
bandwidth and resources of the Exchange's network. As such, the
Exchange believes it's equitable and not unfairly discriminatory to
assess Market Makers an additional Participant Fee and Market Maker
Appointments Sliding Scale fees.
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\21\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated Members equally. The Exchange also believes that the
proposed Market Maker Participant and Market Maker Appointments Sliding
Scale fees do not place certain market participants at a relative
disadvantage to other market participants because the proposed fees do
not favor certain categories of market participants in a manner that
would impose a burden on competition; rather, the fee rates are
designed in order to provide objective criteria for Market Makers of
different sizes and business models that best matches their quoting
activity on the Exchange. Further, as noted above, Market Makers
generally consume the most bandwidth and resources of the network.
The Exchange's proposed Participant Fees, including the Market
Maker Participant Fee, will be lower than the cost of membership on
other exchanges as described in detail above and therefore, may
stimulate intermarket competition by attracting additional firms to
become Members on the Exchange or at least should not deter interested
participants from joining the Exchange. In addition, as discussed in
the statutory basis section above, participant fees are subject to
competition from other exchanges. Accordingly, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in membership as a result. The Exchange
operates in a highly competitive market in which market participants
can determine whether or not to join the Exchange based on the value
received compared to the cost of joining and maintaining membership on
the Exchange.
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 is effective upon filing pursuant to
section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(2).
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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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 15 U.S.C. 78s(b)(2)(B).
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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-2023-003 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-2023-003. 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-2023-003, and should be
submitted on or before February 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01119 Filed 1-20-23; 8:45 am]
BILLING CODE 8011-01-P
