Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Concerning Order-to-Trade Ratio Fees for Market Makers, 22509-22512 [2023-07732]
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Federal Register / Vol. 88, No. 71 / Thursday, April 13, 2023 / Notices
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–BOX–2023–10, and should
be submitted on or before May 4, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–07734 Filed 4–12–23; 8:45 am]
BILLING CODE 8011–01–P
publication of the notice for this
proposed rule change is April 16, 2023.
The Commission is extending this 45day time period. The Commission finds
that it is appropriate to designate a
longer period within which to take
action on the proposed rule change so
that it has sufficient time to consider the
proposed rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,5 designates May 31,
2023, as the date by which the
Commission shall either approve or
disapprove, or institute proceedings to
determine whether to disapprove, the
proposed rule change (File No. SR–ISE–
2023–08).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Sherry R. Haywood,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97261; File No. SR–ISE–
2023–08]
[FR Doc. 2023–07731 Filed 4–12–23; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change To Make
Permanent Certain P.M.-Settled Pilots
[Release No. 34–97262; File No. SR–
CboeEDGX–2023–023]
April 7, 2023.
lotter on DSK11XQN23PROD with NOTICES1
SECURITIES AND EXCHANGE
COMMISSION
On February 23, 2023, Nasdaq ISE,
LLC (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
make permanent the pilot to permit the
listing and trading of options based on
1⁄5 the value of the Nasdaq-100 Index
and the Exchange’s nonstandard
expirations pilot program. The proposed
rule change was published for comment
in the Federal Register on March 2,
2023.3
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 96979
(February 24, 2023), 88 FR 13182.
4 15 U.S.C. 78s(b)(2).
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Concerning
Order-to-Trade Ratio Fees for Market
Makers
April 7, 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 March 29,
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 Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend its Fee Schedule.
The text of the proposed rule change is
provided in Exhibit 5.
13 17
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5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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22509
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.4
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 16% of the market share and
currently the Exchange represents only
approximately 6% of the market share.5
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
4 The Exchange initially filed the proposed rule
change on February 1, 2023 (SR–CboeEDGX–2023–
009). On March 29, 2023, the Exchange withdrew
that filing and submitted this proposal.
5 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (March 24, 2023),
available at https://markets.cboe.com/us/options/
market_statistics/.
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Federal Register / Vol. 88, No. 71 / Thursday, April 13, 2023 / Notices
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.6 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:
Tier
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
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The Exchange notes that Market
Makers with incrementally higher orderto-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
6 The term ‘‘quote’’ refers to bids and offers
submitted in bulk messages. A bulk message means
a single electronic message a user submits with an
M (Market-Maker) capacity to the Exchange in
which the User may enter, modify, or cancel up to
an Exchange-specified number of bids and offers. A
User may submit a bulk message through a bulk
port as set forth in Exchange Rule 21.1(j)(3). See
Rule 16.1 (definition of bulk message).
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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
(and in particular the proposed high fee
amounts associated with higher orderto-trade ratios) will reduce the incentive
for Market Makers to engage in
excessive order and trade activity that
may require the Exchange to otherwise
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 Market Maker 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 various fee
programs that assess incrementally
higher fees to Members that have
incrementally higher order-to-trade
ratios for similar reasons.7 There is also
an exchange that adopted a fee
applicable to Market Makers that exceed
a prescribed high threshold of quote
messages.8
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.9 Specifically,
7 See e.g., Securities Exchange Act Release No.
60102 (June 11, 2009), 74 FR 29251 (June 19, 2009)
(SR–NYSEArca–2009–50) (adopting fees applicable
to Members (albeit not just Market Makers) based
on the number of orders entered compared to the
number of executions received in a calendar
month). It appears that Nasdaq similarly assesses a
penalty charge to its members that exceed certain
‘‘weighted order-to-trade ratios’’. See Price List—
Trading Connectivity, NASDAQ, available at
https://www.nasdaqtrader.com/trader.aspx?id=
pricelisttrading2.
8 See Securities Exchange Act Release No. 91406
(March 25, 2021), 86 FR 16795 (March 31, 2023)
(SR–EMERALD–2021–10) (adopting an ‘‘Excessive
Quoting Fee’’ to ensure that Market Makers do not
over utilize the exchange’s System by sending
messages (albeit quotes instead of orders) to the
MIAX Emerald, to the detriment of all other
Members of the exchange).
9 15 U.S.C. 78f(b).
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the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 10 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 11 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,12 which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
Trading Permit Holders and other
persons using its facilities.
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 to deter
Members, including in some cases only
Market-Makers, from over utilizing the
exchange’s System by sending excessive
messages.13
The Exchange believes the proposed
fees are 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.14 The
Exchange believes it’s reasonable,
equitable and not unfairly
discriminatory to assess higher fees for
10 15
U.S.C. 78f(b)(5).
11 Id.
12 15
U.S.C. 78f(b)(4).
supra note 6.
14 The Exchange is able to identify quoting
activity versus other message activity because
quotes come into the system via bulk messages.
13 See
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greater higher order-to-trade ratios
because the potential impact on
exchange systems, bandwidth and
capacity becomes greater with increased
order-to-trade ratios. This impact may
also require the Exchange to purchase
additional hardware to increase its
storage capacity. The Exchange believes
the proposed high fee amounts are
reasonable as the Exchange believes
them to commensurate with the
proposed thresholds. Particularly, the
proposed fee amounts that correspond
to high order-to-trade ratios are
designed to incentivize Market Makers
to reduce excessive order and trade
activity that the Exchange believes can
be detrimental to all market participants
at those levels 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 Market Markets 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
also believes the proposed fee is one
method of facilitating 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.’’ 15
The Exchange also 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
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
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
15 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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certainty how the proposed changes will
impact Market Maker activity, based on
trading activity from the prior months
the Exchange would expect that, absent
any changes to Member behavior, the
vast majority of Members would 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 to fall
within Tier 2, one Member to fall within
Tier 3, no Members to fall within Tiers
4, 5 or 6 one Member to fall within Tier
7. Since the implementation of the
proposed fee on February 1, 2023, the
Exchange notes that it has observed a
decrease in order-to-trade ratios by
Market Makers, which the Exchange
believes demonstrates that the proposed
fee is working as designed. Particularly,
in February 2023, only two Market
Makers were assessed the proposed
order-to-trade ratio fees; particularly one
Market Maker fell within Tier 2 and one
Market-Maker fell within Tier 4 (down
from anticipated Tier 7). Additionally,
as discussed above, 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 also believes
its equitable and not unfairly
discriminatory to only assess the
proposed fees to Market Makers because
Market Makers on the Exchange are the
only market participants that are
exceeding proposed Tier 1, which is the
only tier in which no fee is assessed
(said another way, no other market
participant has an order-to-trade ratio
high enough to trigger a fee). For
example, most market participants that
route customer orders to the Exchange
currently have order-to-trade ratios
lower than 10. The Exchange also
believes it’s equitable and not unfairly
discriminatory to aggregate a Market
Maker’s order flow with any affiliated
Member sharing at least 75% common
ownership even if such affiliated
Member is not a Market Maker in order
to prevent Market Makers from shifting
their order flow and trading activity to
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22511
their non-Market Maker affiliate in order
to circumvent the proposed fees.
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 Makers 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. As noted above, the
Exchange also believes its not unfairly
discriminatory to only assess the
proposed fees to Market Makers because
Market Makers on the Exchange are the
only market participants that are
exceeding an order-to-trade ratio of
999(i.e., Tier 1). The Exchange believes
it’s equitable and not unfairly
discriminatory to aggregate a Market
Maker’s order flow with any affiliated
Member sharing at least 75% common
ownership even if such affiliated
Member is not a Market Maker in order
to prevent Market Makers from shifting
their order flow and trading activity to
their non-Market Maker affiliate in order
to circumvent the proposed fees. As
such, 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
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Federal Register / Vol. 88, No. 71 / Thursday, April 13, 2023 / Notices
Order-to-Trade Ratio Fees 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
16% 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
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) 16 of the Act and
subparagraph (f)(2) of Rule 19b–4 17
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 18 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2023–023 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–2023–023. 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
17:56 Apr 12, 2023
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U.S.C. 78s(b)(3)(A).
CFR 240.19b 4(f)(2).
18 15 U.S.C. 78s(b)(2)(B).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–07732 Filed 4–12–23; 8:45 am]
BILLING CODE 8011–01–P
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36688]
Green Mountain Railroad
Corporation—Trackage Rights
Exemption—New England Central
Railroad, Inc.
Green Mountain Railroad Corporation
(GMRC) has filed a verified notice of
exemption under 49 CFR 1180.2(d)(7)
for acquisition of overhead trackage
rights over approximately 61.4 miles of
rail line owned by New England Central
Railroad, Inc. (NECR), between milepost
14.46 at White River Junction, Vt., and
milepost 99.0 at Millers Falls, Mass. (the
Line).1
19 17
CFR 200.30–3(a)(12).
notes that, due to the Line’s history, the
mileposts are not indicative of the Line’s total route
miles and the stated distance is accurate although
the mileposts could suggest otherwise.
1 GMRC
16 15
17 17
VerDate Sep<11>2014
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–2023–023, and
should be submitted on or before May
4, 2023.
Sfmt 4703
E:\FR\FM\13APN1.SGM
13APN1
]]>Agencies
[Federal Register Volume 88, Number 71 (Thursday, April 13, 2023)]
[Notices]
[Pages 22509-22512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07732]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97262; File No. SR-CboeEDGX-2023-023]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Concerning Order-to-Trade Ratio Fees for Market Makers
April 7, 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 March 29, 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
Exchange. 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.\4\
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\4\ The Exchange initially filed the proposed rule change on
February 1, 2023 (SR-CboeEDGX-2023-009). On March 29, 2023, the
Exchange withdrew that filing and submitted this proposal.
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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 16% of the market share and
currently the Exchange represents only approximately 6% of the market
share.\5\ 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
[[Page 22510]]
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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\5\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (March 24, 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.\6\ 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:
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\6\ The term ``quote'' refers to bids and offers submitted in
bulk messages. A bulk message means a single electronic message a
user submits with an M (Market-Maker) capacity to the Exchange in
which the User may enter, modify, or cancel up to an Exchange-
specified number of bids and offers. A User may submit a bulk
message through a bulk port as set forth in Exchange Rule
21.1(j)(3). See Rule 16.1 (definition of bulk message).
------------------------------------------------------------------------
Tier Order-to-trade ratio Fee
------------------------------------------------------------------------
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
------------------------------------------------------------------------
The Exchange notes that Market Makers 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 (and in particular the
proposed high fee amounts associated with higher order-to-trade ratios)
will reduce the incentive for Market Makers to engage in excessive
order and trade activity that may require the Exchange to otherwise
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 Market Maker 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 various
fee programs that assess incrementally higher fees to Members that have
incrementally higher order-to-trade ratios for similar reasons.\7\
There is also an exchange that adopted a fee applicable to Market
Makers that exceed a prescribed high threshold of quote messages.\8\
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\7\ See e.g., Securities Exchange Act Release No. 60102 (June
11, 2009), 74 FR 29251 (June 19, 2009) (SR-NYSEArca-2009-50)
(adopting fees applicable to Members (albeit not just Market Makers)
based on the number of orders entered compared to the number of
executions received in a calendar month). It appears that Nasdaq
similarly assesses a penalty charge to its members that exceed
certain ``weighted order-to-trade ratios''. See Price List--Trading
Connectivity, NASDAQ, available at https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2.
\8\ See Securities Exchange Act Release No. 91406 (March 25,
2021), 86 FR 16795 (March 31, 2023) (SR-EMERALD-2021-10) (adopting
an ``Excessive Quoting Fee'' to ensure that Market Makers do not
over utilize the exchange's System by sending messages (albeit
quotes instead of orders) to the MIAX Emerald, to the detriment of
all other Members of the exchange).
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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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) of the Act,\12\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Trading Permit
Holders and other persons using its facilities.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
\12\ 15 U.S.C. 78f(b)(4).
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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 to deter Members, including in some cases only Market-
Makers, from over utilizing the exchange's System by sending excessive
messages.\13\
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\13\ See supra note 6.
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The Exchange believes the proposed fees are 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.\14\ The Exchange believes it's reasonable, equitable and not
unfairly discriminatory to assess higher fees for
[[Page 22511]]
greater higher order-to-trade ratios because the potential impact on
exchange systems, bandwidth and capacity becomes greater with increased
order-to-trade ratios. This impact may also require the Exchange to
purchase additional hardware to increase its storage capacity. The
Exchange believes the proposed high fee amounts are reasonable as the
Exchange believes them to commensurate with the proposed thresholds.
Particularly, the proposed fee amounts that correspond to high order-
to-trade ratios are designed to incentivize Market Makers to reduce
excessive order and trade activity that the Exchange believes can be
detrimental to all market participants at those levels 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
Market Markets 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 also believes the proposed fee is one method of
facilitating 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.''
\15\
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\14\ The Exchange is able to identify quoting activity versus
other message activity because quotes come into the system via bulk
messages.
\15\ 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 also 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 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 Market
Maker activity, based on trading activity from the prior months the
Exchange would expect that, absent any changes to Member behavior, the
vast majority of Members would 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 to fall within Tier 2, one Member
to fall within Tier 3, no Members to fall within Tiers 4, 5 or 6 one
Member to fall within Tier 7. Since the implementation of the proposed
fee on February 1, 2023, the Exchange notes that it has observed a
decrease in order-to-trade ratios by Market Makers, which the Exchange
believes demonstrates that the proposed fee is working as designed.
Particularly, in February 2023, only two Market Makers were assessed
the proposed order-to-trade ratio fees; particularly one Market Maker
fell within Tier 2 and one Market-Maker fell within Tier 4 (down from
anticipated Tier 7). Additionally, as discussed above, 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 also believes its equitable and
not unfairly discriminatory to only assess the proposed fees to Market
Makers because Market Makers on the Exchange are the only market
participants that are exceeding proposed Tier 1, which is the only tier
in which no fee is assessed (said another way, no other market
participant has an order-to-trade ratio high enough to trigger a fee).
For example, most market participants that route customer orders to the
Exchange currently have order-to-trade ratios lower than 10. The
Exchange also believes it's equitable and not unfairly discriminatory
to aggregate a Market Maker's order flow with any affiliated Member
sharing at least 75% common ownership even if such affiliated Member is
not a Market Maker in order to prevent Market Makers from shifting
their order flow and trading activity to their non-Market Maker
affiliate in order to circumvent the proposed fees.
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 Makers 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. As noted above, the
Exchange also believes its not unfairly discriminatory to only assess
the proposed fees to Market Makers because Market Makers on the
Exchange are the only market participants that are exceeding an order-
to-trade ratio of 999(i.e., Tier 1). The Exchange believes it's
equitable and not unfairly discriminatory to aggregate a Market Maker's
order flow with any affiliated Member sharing at least 75% common
ownership even if such affiliated Member is not a Market Maker in order
to prevent Market Makers from shifting their order flow and trading
activity to their non-Market Maker affiliate in order to circumvent the
proposed fees. As such, 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
[[Page 22512]]
Order-to-Trade Ratio Fees 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 16% 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) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 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-2023-023 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-2023-023. 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-2023-023, and
should be submitted on or before May 4, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07732 Filed 4-12-23; 8:45 am]
BILLING CODE 8011-01-P
