Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Order-to-Trade Ratio Fees, 10574-10577 [2023-03487]
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Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
under section 19(b)(2)(B) 37 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 Number SR–
NYSENAT–2023–07 on the subject line.
lotter on DSK11XQN23PROD with NOTICES1
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–NYSENAT–2023–07. 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–NYSENAT–2023–07 and
37 15
U.S.C. 78s(b)(2)(B).
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should be submitted on or before March
14, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–03472 Filed 2–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96928; File No. SR–
CboeEDGX–2023–009]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt
Order-to-Trade Ratio Fees
February 14, 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 February
1, 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.
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
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
38 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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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 adopt Order-to-Trade
Ratio Fees, effective February 1, 2023.
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.4
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.
The Exchange proposes to adopt
Order-to-Trade Ratio Fees. The
proposed fees will be charged to market
participants registered as Market Makers
on EDGX Options based on the number
of orders (including modification
messages) entered compared to the
number of orders traded in a calendar
month. The calculation of the ratio will
not include quotes or trades resulting
from such quotes. A Market Maker’s
order flow will be aggregated together
with any affiliated Member sharing at
least 75% common ownership. The
proposed fees are as follows:
4 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (January 23, 2023),
available at https://markets.cboe.com/us/options/
market_statistics/.
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Tier
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Tier
Tier
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
6
7
Order-to-trade ratio
....
....
....
....
....
....
....
Fee
0 to 999 ................................
1,000 to 1,999 ......................
2,000 to 4,999 ......................
5,000 to 9,999 ......................
10,000 to 14,999 ..................
15,000 to 19,999 ..................
20,000 and above .................
$0
2,500
5,000
10,500
35,000
100,000
150,000
The Exchange notes that market
participants with incrementally higher
order-to-trade ratios have the potential
residual effect of exhausting system
resources, bandwidth, and capacity.
Higher order-to-trade ratios may, in
turn, create latency and impact other
Members’ ability to receive timely
executions. Recognizing Market Maker
quoting activity is an important source
of liquidity on exchanges, and that
orders and executions often occur in
large numbers, the purpose of this
proposal is to focus on activity that is
truly disproportionate while fairly
allocating costs. The proposed fee
structure has multiple thresholds, and
the proposed fees are incrementally
greater at higher order-to-trade ratios
because the potential impact on
exchange systems, bandwidth and
capacity becomes greater with increased
order-to-trade ratios. The proposal
contemplates that a Market Maker
would have to exceed the high order to
trade ratio of 999 before that Market
Maker would be charged a fee under the
proposed tiers. The Exchange believes
that it is in the interests of all Members
and market participants who access the
Exchange to not allow other market
participants to exhaust System
resources, but to encourage efficient
usage of network capacity. The
Exchange also believes this proposal
will reduce the potential for market
participants to engage in excessive order
and trade activity that may require the
Exchange to increase its storage capacity
and will encourage such activity to be
submitted in good faith for legitimate
purposes.
The Exchange also represents that the
proposed fees are not intended to raise
revenue; rather, as noted above, it is
intended to encourage efficient behavior
so that market participants do not
exhaust System resources. The
Exchange also notes that it intends to
provide Market Makers with daily
reports, free of charge, which will detail
their order and trade activity in order
for those firms to be fully aware of all
order and trade activity they (and their
affiliates) are sending to the Exchange.
This will allow firms to monitor their
behavior and determine whether it is
approaching any of the order-to-trade
thresholds that trigger the proposed
fees.
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The Exchange lastly notes that other
exchanges have adopted similar fee
programs that assesses incrementally
higher fees to Members that have
incrementally higher order-to-trade
ratios for similar reasons.5
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.
First, the Exchange 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. The
Exchange is only one of 16 options
exchanges which market participants
may direct their order flow and/or
participate on as a Market-Maker, and it
represents a small percentage of the
overall market. Competing options
exchanges similarly assess fees based on
a Member’s order-to-trade ratio.9
The Exchange believes adopting
order-to-trade ratio fees is reasonable as
unfettered usage of System capacity and
network resource consumption can have
a detrimental effect on all market
participants who access and use the
Exchange. As discussed, high order-totrade ratios may adversely impact
system resources, bandwidth, and
5 See e.g., Securities Exchange Act Release No.
60102 (June 11, 2009), 74 FR 29251 (June 19, 2009)
(SR–NYSEArca–2009–50).
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(5).
8 Id.
9 See e.g., NYSE Arca Options Fees and Charges,
Ratio Threshold Fee.
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10575
capacity which may, in turn, create
latency and impact other Members’
ability to receive timely executions. The
Exchange believes the proposed fees are
therefore reasonable as they are
designed to focus on activity that is
truly disproportionate while fairly
allocating costs.
The Exchange believes the proposed
fees are also reasonable as Market
Makers that do not exceed the high
order to trade ratio of 999 will not be
charged any fee under the proposed
tiers. Quoting activity (and trades
resulting from quotes) are also not
included in the order-to-trade ratio,
thereby ensuring Market Makers quoting
activity, which acts as important source
of liquidity, is not impeded by the
proposal. The Exchange believes it’s
reasonable, equitable and not unfairly
discriminatory to assess higher fees for
greater higher order-to-trade ratios
because the potential impact on
exchange systems, bandwidth and
capacity becomes greater with increased
order-to-trade ratios. The Exchange
believes the proposed fee amounts are
reasonable and commensurate with the
proposed thresholds as they are
designed to incentivize Market Makers
to reduce excessive order and trade
activity that can be detrimental to all
market participants and encourage such
activity to be made in good faith and for
legitimate purposes. Indeed, the
Exchange believes that it is in the
interests of all Members and market
participants who access the Exchange to
not allow other market participants to
exhaust System resources, but to
encourage efficient usage of network
capacity. The Exchange therefore also
believes that the proposed order-to-trade
ratio fees appropriately reflect the
benefits to different firms of being able
to send orders into the Exchange’s
System and facilitates the Commission’s
goal of ensuring that critical market
infrastructure has ‘‘levels of capacity,
integrity, resiliency, availability, and
security adequate to maintain their
operational capability and promote the
maintenance of fair and orderly
markets.’’ 10
The Exchange believes the proposed
change is also equitable and not unfairly
discriminatory because it applies
uniformly to all Market Makers
registered on EDGX Options. While the
Exchange has no way of predicting with
certainty how the proposed changes will
impact Member activity, based on
trading activity from the prior months,
10 See Securities Exchange Act Release No. 73639
(November 19, 2014), 79 FR 72251 (December 5,
2014) (File No. S7–01–13) (Regulation SCI Adopting
Release).
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Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
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the Exchange anticipates that, absent
any changes to Member behavior, the
vast majority of Members will fall
within proposed Tier 1 (and thus not be
subject to any new fees). With respect to
Market Makers that exceed this
threshold, the Exchange anticipates,
absent any change in behavior,
approximately two Members will fall
within Tier 2, one Member will fall
within Tier 3, no Members will fall
within Tiers 4 or 5 and one Member will
fall within Tier 6 and no Members will
fall within Tier 7. As discussed above
however, the Exchange believes it’s
equitable and not unfairly
discriminatory to assess incrementally
higher fees for Market Makers that have
higher order-to-trade ratios because the
potential impact on exchange systems,
bandwidth and capacity becomes
greater with increased order-to-trade
ratios. In addition, the Exchange
believes that excluding quoting activity
from the calculation of the ratio for the
proposed fees is not unfairly
discriminatory because it will ensure
Market Makers are able to continue
providing important liquidity to the
Exchange and meet their quoting
obligations.
The Exchange lastly believes that its
proposal is reasonable, equitably
allocated and not unfairly
discriminatory because it is not
intended to raise revenue for the
Exchange; rather, it is intended to
encourage efficient behavior so that
market participants do not exhaust
System resources, while balancing the
increase in order-to-trade ratio has seen
from some market participants.
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. Particularly,
the proposed fees applies uniformly to
all Market Makers registered on EDGX
Options. Further, any Market Maker
who exceeds the order-to-trade ratio of
999 will be subject to a fee under the
proposed tiers. The Exchange believes
that the proposed change neither favors
nor penalizes one or more categories of
market participants in a manner that
would impose an undue burden on
competition. Rather, the proposal seeks
to benefit all market participants by
encouraging the efficient utilization of
the Exchange’s network while taking
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into account the important liquidity
provided by Market Makers. As
discussed above potential impact on
exchange systems, bandwidth and
capacity becomes greater with increased
order-to-trade ratios. The Exchange also
anticipates that the vast majority of
Market Makers on the Exchange will not
be subject to any fees under the
proposed tiers. Accordingly, the
Exchange believes that the proposed
Excessive Quoting Fee does not favor
certain categories of market participants
in a manner that would impose a
burden on competition.
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
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. 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
PO 00000
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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 is effective
upon filing pursuant to Section
19(b)(3)(A) 11 of the Act and
subparagraph (f)(2) of Rule 19b–4 12
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) 13 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 Number SR–
CboeEDGX–2023–009 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–2023–009. This
11 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
13 15 U.S.C. 78s(b)(2)(B).
12 17
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Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
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–2023–009, and
should be submitted on or before March
14, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–03487 Filed 2–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96918; File No. SR–GEMX–
2023–03]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend GEMX Pricing
Schedule at Options 7, Section 3 To
Add a New Priority Customer Maker
Rebate
February 14, 2023.
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 February
1, 2023, Nasdaq GEMX, LLC (‘‘GEMX’’
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 the
GEMX Pricing Schedule at Options 7,
Section 3.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/gemx/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
10577
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 purpose of the proposed rule
change is to amend the Exchange’s
Pricing Schedule at Options 7, Section
3 to introduce incentives for Members to
add liquidity in Priority Customer 3
orders and qualify for the Exchange’s
Market Access and Routing Subsidy
(‘‘MARS’’) program.
Background
Today, Members that add liquidity in
Priority Customer orders are currently
eligible for tiered Priority Customer
Maker Rebates of $0.25 (Tier 1), $0.40
(Tier 2), $0.48 (Tier 3), $0.51 (Tier 4),
and $0.53 (Tier 5) in Penny Symbols. In
Non-Penny Symbols (excluding Index
Options),4 the Priority Customer Maker
Rebates are $0.75 (Tier 1), $0.80 (Tier 2),
$0.85 (Tier 3), $0.90 (Tier 4), and $1.05
(Tier 5) in Non-Penny Symbols. The
foregoing rebates are paid per the
highest tier achieved below.
Qualifying Tier Thresholds
TABLE 1
Tier
Percent of customer total consolidated volume
Priority customer maker % of customer total consolidated volume
Tier 1 ..
Executes less than 0.65% of Customer Total Consolidated Volume.
Executes 0.65% to less than 1.5% of Customer Total Consolidated Volume.
Executes 1.5% to less than 2.25% of Customer Total Consolidated Volume.
Executes 2.25% to less than 2.50% of Customer Total Consolidated Volume.
Executes 2.5% or greater of Customer Total Consolidated Volume
Executes Priority Customer Maker volume of less than 0.10% of
Customer Total Consolidated Volume.
Executes Priority Customer Maker volume of 0.10% to less than
0.65% of Customer Total Consolidated Volume.
Executes Priority Customer Maker volume of 0.65% to less than
1.05% of Customer Total Consolidated Volume.
Executes Priority Customer Maker volume of 1.05% to less than
1.20% of Customer Total Consolidated Volume.
Executes Priority Customer Maker volume of 1.20% or greater of
Customer Total Consolidated Volume.
Tier 2 ..
Tier 3 ..
Tier 4 ..
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Tier 5 ..
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 A ‘‘Priority Customer’’ is a person or entity that
is not a broker/dealer in securities, and does not
place more than 390 orders in listed options per day
on average during a calendar month for its own
1 15
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beneficial account(s), as defined in Nasdaq GEMX
Options 1, Section 1(a)(36).
4 Index Options fees are set forth separately in
Options 7, Section 3 and apply only to NDX
executions.
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]]>Agencies
[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10574-10577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03487]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96928; File No. SR-CboeEDGX-2023-009]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Order-to-Trade Ratio Fees
February 14, 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 February 1, 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 Fee Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule to adopt Order-to-
Trade Ratio Fees, effective February 1, 2023.
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.\4\ 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.
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\4\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (January 23, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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The Exchange proposes to adopt Order-to-Trade Ratio Fees. The
proposed fees will be charged to market participants registered as
Market Makers on EDGX Options based on the number of orders (including
modification messages) entered compared to the number of orders traded
in a calendar month. The calculation of the ratio will not include
quotes or trades resulting from such quotes. A Market Maker's order
flow will be aggregated together with any affiliated Member sharing at
least 75% common ownership. The proposed fees are as follows:
[[Page 10575]]
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Tier Order-to-trade ratio Fee
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Tier 1..................... 0 to 999........................ $0
Tier 2..................... 1,000 to 1,999.................. 2,500
Tier 3..................... 2,000 to 4,999.................. 5,000
Tier 4..................... 5,000 to 9,999.................. 10,500
Tier 5..................... 10,000 to 14,999................ 35,000
Tier 6..................... 15,000 to 19,999................ 100,000
Tier 7..................... 20,000 and above................ 150,000
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The Exchange notes that market participants with incrementally
higher order-to-trade ratios have the potential residual effect of
exhausting system resources, bandwidth, and capacity. Higher order-to-
trade ratios may, in turn, create latency and impact other Members'
ability to receive timely executions. Recognizing Market Maker quoting
activity is an important source of liquidity on exchanges, and that
orders and executions often occur in large numbers, the purpose of this
proposal is to focus on activity that is truly disproportionate while
fairly allocating costs. The proposed fee structure has multiple
thresholds, and the proposed fees are incrementally greater at higher
order-to-trade ratios because the potential impact on exchange systems,
bandwidth and capacity becomes greater with increased order-to-trade
ratios. The proposal contemplates that a Market Maker would have to
exceed the high order to trade ratio of 999 before that Market Maker
would be charged a fee under the proposed tiers. The Exchange believes
that it is in the interests of all Members and market participants who
access the Exchange to not allow other market participants to exhaust
System resources, but to encourage efficient usage of network capacity.
The Exchange also believes this proposal will reduce the potential for
market participants to engage in excessive order and trade activity
that may require the Exchange to increase its storage capacity and will
encourage such activity to be submitted in good faith for legitimate
purposes.
The Exchange also represents that the proposed fees are not
intended to raise revenue; rather, as noted above, it is intended to
encourage efficient behavior so that market participants do not exhaust
System resources. The Exchange also notes that it intends to provide
Market Makers with daily reports, free of charge, which will detail
their order and trade activity in order for those firms to be fully
aware of all order and trade activity they (and their affiliates) are
sending to the Exchange. This will allow firms to monitor their
behavior and determine whether it is approaching any of the order-to-
trade thresholds that trigger the proposed fees.
The Exchange lastly notes that other exchanges have adopted similar
fee programs that assesses incrementally higher fees to Members that
have incrementally higher order-to-trade ratios for similar reasons.\5\
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\5\ See e.g., Securities Exchange Act Release No. 60102 (June
11, 2009), 74 FR 29251 (June 19, 2009) (SR-NYSEArca-2009-50).
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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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First, the Exchange 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. The Exchange is only one of
16 options exchanges which market participants may direct their order
flow and/or participate on as a Market-Maker, and it represents a small
percentage of the overall market. Competing options exchanges similarly
assess fees based on a Member's order-to-trade ratio.\9\
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\9\ See e.g., NYSE Arca Options Fees and Charges, Ratio
Threshold Fee.
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The Exchange believes adopting order-to-trade ratio fees is
reasonable as unfettered usage of System capacity and network resource
consumption can have a detrimental effect on all market participants
who access and use the Exchange. As discussed, high order-to-trade
ratios may adversely impact system resources, bandwidth, and capacity
which may, in turn, create latency and impact other Members' ability to
receive timely executions. The Exchange believes the proposed fees are
therefore reasonable as they are designed to focus on activity that is
truly disproportionate while fairly allocating costs.
The Exchange believes the proposed fees are also reasonable as
Market Makers that do not exceed the high order to trade ratio of 999
will not be charged any fee under the proposed tiers. Quoting activity
(and trades resulting from quotes) are also not included in the order-
to-trade ratio, thereby ensuring Market Makers quoting activity, which
acts as important source of liquidity, is not impeded by the proposal.
The Exchange believes it's reasonable, equitable and not unfairly
discriminatory to assess higher fees for greater higher order-to-trade
ratios because the potential impact on exchange systems, bandwidth and
capacity becomes greater with increased order-to-trade ratios. The
Exchange believes the proposed fee amounts are reasonable and
commensurate with the proposed thresholds as they are designed to
incentivize Market Makers to reduce excessive order and trade activity
that can be detrimental to all market participants and encourage such
activity to be made in good faith and for legitimate purposes. Indeed,
the Exchange believes that it is in the interests of all Members and
market participants who access the Exchange to not allow other market
participants to exhaust System resources, but to encourage efficient
usage of network capacity. The Exchange therefore also believes that
the proposed order-to-trade ratio fees appropriately reflect the
benefits to different firms of being able to send orders into the
Exchange's System and facilitates the Commission's goal of ensuring
that critical market infrastructure has ``levels of capacity,
integrity, resiliency, availability, and security adequate to maintain
their operational capability and promote the maintenance of fair and
orderly markets.'' \10\
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\10\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72251 (December 5, 2014) (File No. S7-01-13)
(Regulation SCI Adopting Release).
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The Exchange believes the proposed change is also equitable and not
unfairly discriminatory because it applies uniformly to all Market
Makers registered on EDGX Options. While the Exchange has no way of
predicting with certainty how the proposed changes will impact Member
activity, based on trading activity from the prior months,
[[Page 10576]]
the Exchange anticipates that, absent any changes to Member behavior,
the vast majority of Members will fall within proposed Tier 1 (and thus
not be subject to any new fees). With respect to Market Makers that
exceed this threshold, the Exchange anticipates, absent any change in
behavior, approximately two Members will fall within Tier 2, one Member
will fall within Tier 3, no Members will fall within Tiers 4 or 5 and
one Member will fall within Tier 6 and no Members will fall within Tier
7. As discussed above however, the Exchange believes it's equitable and
not unfairly discriminatory to assess incrementally higher fees for
Market Makers that have higher order-to-trade ratios because the
potential impact on exchange systems, bandwidth and capacity becomes
greater with increased order-to-trade ratios. In addition, the Exchange
believes that excluding quoting activity from the calculation of the
ratio for the proposed fees is not unfairly discriminatory because it
will ensure Market Makers are able to continue providing important
liquidity to the Exchange and meet their quoting obligations.
The Exchange lastly believes that its proposal is reasonable,
equitably allocated and not unfairly discriminatory because it is not
intended to raise revenue for the Exchange; rather, it is intended to
encourage efficient behavior so that market participants do not exhaust
System resources, while balancing the increase in order-to-trade ratio
has seen from some market participants.
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. Particularly, the proposed fees
applies uniformly to all Market Makers registered on EDGX Options.
Further, any Market Maker who exceeds the order-to-trade ratio of 999
will be subject to a fee under the proposed tiers. The Exchange
believes that the proposed change neither favors nor penalizes one or
more categories of market participants in a manner that would impose an
undue burden on competition. Rather, the proposal seeks to benefit all
market participants by encouraging the efficient utilization of the
Exchange's network while taking into account the important liquidity
provided by Market Makers. As discussed above potential impact on
exchange systems, bandwidth and capacity becomes greater with increased
order-to-trade ratios. The Exchange also anticipates that the vast
majority of Market Makers on the Exchange will not be subject to any
fees under the proposed tiers. Accordingly, the Exchange believes that
the proposed Excessive Quoting Fee does not favor certain categories of
market participants in a manner that would impose a burden on
competition.
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 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. 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 is effective upon filing pursuant to
Section 19(b)(3)(A) \11\ of the Act and subparagraph (f)(2) of Rule
19b-4 \12\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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) \13\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\13\ 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-2023-009 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-2023-009. This
[[Page 10577]]
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-2023-009, and should be
submitted on or before March 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03487 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
