Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend its Fee Schedule Related to Physical Port Fees, 68774-68777 [2023-22031]

Download as PDF 68774 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,69 that File No. SR–PEARL–2023–35, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.70 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–22034 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98653; File No. SR– CboeEDGX–2023–057] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend its Fee Schedule Related to Physical Port Fees September 29, 2023. I. Introduction On September 1, 2023, Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) 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 (File Number SR– CboeEDGX–2023–057) to amend its fee schedule to increase the monthly fee for 10 gigabit (‘‘Gb’’) physical ports. The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule change was published for comment in the Federal Register on September 20, 2023.4 Pursuant to Section 19(b)(3)(C) of the Act,5 the Commission is hereby: (1) temporarily suspending the proposed rule change; and (2) 69 15 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 4 See Securities Exchange Act Release No. 98396 (September 14, 2023), 88 FR 64960 (‘‘Notice’’). 5 15 U.S.C. 78s(b)(3)(C). lotter on DSK11XQN23PROD with NOTICES1 70 17 VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 instituting proceedings to determine whether to approve or disapprove the proposed rule change. II. Background and Description of the Proposed Rule Change The Exchange proposes to amend its fee schedule for its equities platform (‘‘EDGX Equities’’) relating to physical connectivity fees. The Exchange proposes to increase the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port. The Exchange currently assesses the following physical connectivity fees for Members 6 and non-Members on a monthly basis: $2,500 per physical port for a 1 Gb circuit and $7,500 per physical port for a 10 Gb circuit.7 According to the Exchange, the physical ports may also be used to access the systems for the following affiliate exchanges and only one monthly fee currently (and will continue) to apply per port: the Exchange’s options platform (EDGX Options), Cboe BZX Exchange, Inc. (options and equities platforms), Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe C2 Exchange, Inc. III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,8 at any time within 60 days of the date of filing of an immediately effective proposed rule change pursuant to Section 19(b)(1) of the Act,9 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization (‘‘SRO’’) 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. The Commission believes a temporary suspension of the proposed rule change is necessary and appropriate to allow for additional analysis of the proposed rule change’s consistency with the Act and the rules thereunder. In support of the proposal, the Exchange states its belief that the proposed fee change is reasonable as it reflects a moderate increase in physical connectivity fees for 10 Gb physical ports.10 The Exchange states that the 6 The term ‘‘Member’’ means any registered broker or dealer that has been admitted to membership in the Exchange. See Exchange Rule 1.5(n). 7 A physical port is utilized by a Member or nonMember to connect to the Exchange at the data centers where the Exchange’s servers are located. 8 15 U.S.C. 78s(b)(3)(C). 9 15 U.S.C. 78s(b)(1). 10 See Notice, supra note 4, at 64960. PO 00000 Frm 00216 Fmt 4703 Sfmt 4703 current 10 Gb physical port fee has remained unchanged since June 2018.11 The Exchange states that during this 5year span there has been an average inflation rate of 3.9%, producing a cumulative price increase of approximately 21.1% inflation since the fee for the 10 Gb physical port was last modified.12 In support of its claim of reasonableness, the Exchange compares its proposed rate increase from the rates adopted five years ago of approximately 13% to the cumulative inflation rate of 21.1%.13 In further support of the proposal, the Exchange states that the proposed fee is reasonable, fair, and equitable, and not unfairly discriminatory.14 The Exchange believes that the proposed fee is reasonable as it is still in line with, or even lower than, amounts assessed by other exchanges for similar connections.15 The Exchange also states its belief that the fee is not unfairly discriminatory, because the fee would be assessed uniformly across all market participants that purchase the physical ports.16 The Exchange states that the fee is equitable because increasing the fee for 10 Gb physical ports and charging a higher fee as compared to the 1 Gb physical port as the 1 Gb physical port is 1/10 the size of the 10 Gb physical port and does not offer access to many of the products and services offered by the Exchange.17 The Exchange also states its belief the proposed fee is reasonably and appropriately allocated because, the Exchange states, market participants that purchase 10 Gb physical ports use the most bandwidth and therefore consume the most resources from the network.18 In further support of its proposed fee, the Exchange states that Members and non-Members will continue to choose the method of connectivity based on their specific needs and no brokerdealer is required to become a Member of, or connect directly to, the Exchange.19 The Exchange also states its belief that substitutable products and services are available to market participants, including, among other things, other equities exchanges that a market participant may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller of connectivity, and/or trading of any equities product, such as 11 See id. id. 13 See id. at 64961. 14 See id. 15 See id. 16 See id. 17 See id. 18 See id. 19 See id. 12 See E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 within the Over-the-Counter markets.20 Additionally, the Exchange believes that low barriers to entry mean that new exchanges may rapidly enter the market and offer additional substitute platforms to further compete with the Exchange and the products it offers.21 According to the Exchange, three new equities exchanges entered the market in 2020 (i.e., Long Term Stock Exchange (LTSE), Members Exchange (MEMX), and MIAX Pearl).22 The Exchange states its belief that participation on the Exchange remains affordable (notwithstanding the proposed fee change) for all market participants, including smaller trading firms that may be able to take advantage of lower costs that result from mutualized connectivity.23 The Exchange states that a market participant may submit orders to the Exchange via a Member broker or a third-party reseller of connectivity.24 The Exchange notes that third-party non-Members also resell exchange connectivity, which the Exchange states is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange’s connectivity fees).25 The Exchange states it does not preclude market participants from reselling its connectivity and has not adopted fees that would be assessed to third-party resellers on a per customer basis (i.e., fee based on number of Members that connect to the Exchange indirectly via the third-party).26 The Exchange notes that multiple Members are able to share a single physical port (and corresponding bandwidth) with other non-affiliated Members if purchased through a third-party reseller.27 The Exchange states its belief that this allows resellers to mutualize the costs of the ports for market participants and provide such ports at a price that may 20 See id. The Exchange states there are currently 16 registered equities exchanges that trade equities (12 of which are not affiliated with Cboe), some of which have similar or lower connectivity fees; and based on publicly available information, no single equities exchange has more than approximately 16% of the market share. 21 See id. 22 See id. 23 See id. at 64962. 24 See id. at 64961. 25 See id. The Exchange states this alternative is already being used by non-Members and further constrains the price that the Exchange is able to charge for connectivity to its Exchange. 26 See id. The Exchange states its belief these third-party resellers may purchase the Exchange’s physical ports and resell access to such ports either alone or as part of a package of services. 27 See id. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 be lower than the Exchange charges due to this mutualized connectivity.28 Finally, the Exchange states that the proposed fees would not cause any unnecessary or inappropriate burden on intermarket competition because proposed fee is lower than some fees for similar connectivity on other exchanges and therefore may stimulate intermarket competition by attracting additional firms to connect to the Exchange or at least should not deter interested participants from connecting directly to the Exchange.29 The Exchange also states that if the changes proposed herein are unattractive to market participants, the Exchange can, and likely will, see a decline in connectivity via 10 Gb physical ports as a result.30 Furthermore, the Exchange states that it operates in a highly competitive market in which market participants can determine whether or not to connect directly to the Exchange based on the value received compared to the cost of doing so.31 The Exchange also states that the proposed rule change would not cause any unnecessary or inappropriate burden on intramarket competition because it will apply to all similarly situated Members equally (i.e., all market participants that choose to purchase the 10 Gb physical port).32 Additionally, the Exchange stated that it does not believe its proposed pricing will impose a barrier to entry to smaller participants and notes that its proposed connectivity pricing is associated with relative usage of the various market participants.33 To date, the Commission has not received any comment letters on the proposed rule change. When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchange’s present proposal, they are required to provide a statement supporting the proposal’s basis under the Act and the rules and regulations thereunder applicable to the exchange.34 The instructions to Form 19b–4, on which exchanges file their proposed rule changes, specify that such statement ‘‘should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with [those] requirements.’’ 35 28 See id. id. at 64962. 30 See id. 31 See id. 32 See id. 33 See id. 34 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change’’). 35 See id. 29 See PO 00000 Frm 00217 Fmt 4703 Sfmt 4703 68775 Section 6 of the Act, including Sections 6(b)(4), (5), and (8), require the rules of an exchange to: (1) provide for the equitable allocation of reasonable fees among members, issuers, and other persons using the exchange’s facilities; 36 (2) perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 37 and (3) not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.38 In temporarily suspending the Exchange’s proposed rule change, the Commission intends to further consider whether the proposal to increase the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port for the Exchange is consistent with the statutory requirements applicable to a national securities exchange under the Act. In particular, the Commission will consider whether the proposed rule change satisfies the standards under the Act and the rules thereunder requiring, among other things, that an exchange’s rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; not permit unfair discrimination between customers, issuers, brokers or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.39 Therefore, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change.40 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 41 and 19(b)(2)(B) 36 15 U.S.C. 78f(b)(4). U.S.C. 78f(b)(5). 38 15 U.S.C. 78f(b)(8). 39 See 15 U.S.C. 78f(b)(4), (5), and (8), respectively. 40 For purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 41 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 37 15 E:\FR\FM\04OCN1.SGM 04OCN1 68776 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices of the Act 42 to determine whether the Exchange’s proposed rule change should be approved or disapproved. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,43 the Commission is providing notice of the grounds for possible disapproval under consideration: • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities’’; 44 • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers’’; 45 and • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ 46 As discussed in Section III above, the Exchange made various arguments in support of their proposal. The Commission believes that there are questions as to whether the Exchange has provided sufficient information to demonstrate that the proposed fees are consistent with the Act and the rules thereunder. Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is 42 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 44 15 U.S.C. 78f(b)(4). 45 15 U.S.C. 78f(b)(5). 46 15 U.S.C. 78f(b)(8). consistent with the [Act] and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule change.’’ 47 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,48 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.49 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposed fees are consistent with the Act, and specifically, with its requirements that exchange fees be reasonable and equitably allocated, not be unfairly discriminatory, and not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.50 V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.51 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Interested persons are invited to submit written data, views and arguments concerning the foregoing, lotter on DSK11XQN23PROD with NOTICES1 43 Id. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 47 17 CFR 201.700(b)(3). id. 49 See id. 50 See 15 U.S.C. 78f(b)(4), (5), and (8). 51 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by an SRO. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 48 See PO 00000 Frm 00218 Fmt 4703 Sfmt 4703 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–2023–057 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–2023–057. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeEDGX–2023–057 and should be submitted on or before October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. VI. Conclusion IT IS THEREFORE ORDERED, pursuant to Section 19(b)(3)(C) of the Act,52 that File No. SR–CboeEDGX– 2023–057, be and hereby is, temporarily 52 15 E:\FR\FM\04OCN1.SGM U.S.C. 78s(b)(3)(C). 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.53 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–22031 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98589; File No. SR–NSCC– 2023–009] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Relating to the Schedule of Haircuts for Eligible Clearing Fund Securities September 28, 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 September 22, 2023, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been primarily prepared by the clearing agency. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of modifications to NSCC’s Rules & Procedures (‘‘Rules’’) 3 in order to modify the schedule of haircuts for Eligible Clearing Fund Securities and remove it from Procedure XV of the Rules (‘‘Procedure XV’’), and make other clarifying changes, as described in greater detail below. lotter on DSK11XQN23PROD with NOTICES1 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the proposed rule change and discussed 53 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Capitalized terms not defined herein are defined in the Rules, available at www.dtcc.com/∼/media/ Files/Downloads/legal/rules/nscc_rules.pdf. 1 15 VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 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 clearing agency has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NSCC is proposing to modify the schedule of haircuts for Eligible Clearing Fund Securities, and to remove it and the related concentration limits from Procedure XV, and make other clarifying changes, as described in greater detail below. Background As part of its market risk management strategy, NSCC manages its credit exposure to members by determining the appropriate Required Fund Deposits to the Clearing Fund and monitoring its sufficiency, as provided for in the Rules.4 The Required Fund Deposit serves as each member’s margin. The objective of a member’s Required Fund Deposit is to mitigate potential losses to NSCC associated with liquidating a member’s portfolio in the event NSCC ceases to act for that member (hereinafter referred to as a ‘‘default’’).5 The aggregate of all members’ Required Fund Deposits constitutes the Clearing Fund of NSCC. NSCC would access its Clearing Fund should a defaulting member’s own Required Fund Deposit be insufficient to satisfy losses to NSCC caused by the liquidation of that member’s portfolio. The Clearing Fund reduces the risk that NSCC would need to mutualize any losses among non-defaulting members during the liquidation process. Under Rule 4 (Clearing Fund), members are required to make deposits to the Clearing Fund, with the amount of each member’s Required Fund Deposit being determined by NSCC in accordance with Rule 4. A member may satisfy its Required Fund Deposit with cash or an open account indebtedness 4 See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund Formula and Other Matters), supra note 3. NSCC’s market risk management strategy is designed to comply with Rule 17Ad–22(e)(4) under the Act, where these risks are referred to as ‘‘credit risks.’’ 17 CFR 240.17Ad–22(e)(4). 5 The Rules identify when NSCC may cease to act for a member and the types of actions NSCC may take. For example, NSCC may suspend a firm’s membership with NSCC or prohibit or limit a member’s access to NSCC’s services in the event that member defaults on a financial or other obligation to NSCC. See Rule 46 (Restrictions on Access to Services), supra note 3. PO 00000 Frm 00219 Fmt 4703 Sfmt 4703 68777 secured by Eligible Clearing Fund Securities.6 Eligible Clearing Fund Securities, comprised of certain agency, mortgage-backed, and Treasury securities, are valued based on the prior Business Day’s closing market price, less a haircut, and may be subject to a concentration limit.7 Haircuts are used to protect NSCC and its members from price fluctuations, i.e., if NSCC is required to liquidate collateral of an insolvent member and such collateral is worth less at the time of liquidation than when it is pledged to NSCC. Concentration limits are intended to reduce NSCC’s risk by limiting the percentage of certain types of Eligible Clearing Fund Securities pledged by members to secure the Clearing Fund deposits. This is because when a member’s portfolio contains large net unsettled positions in a particular group of securities with a similar risk profile or in a particular asset type, such securities could present additional risk to NSCC. Currently, collateral haircuts applicable to relevant security types and remaining maturity terms are specified as fixed percentages in Section III.(A) of Procedure XV (‘‘Section III.(A)’’).8 The sufficiency of collateral haircuts is evaluated through use of back-tests, stress-tests and market observations. To ensure the sufficiency of the collateral haircuts, a backtesting analysis of members’ collateral deposits is conducted daily, and summary reviews are completed quarterly, each by the NSCC market risk group pursuant to NSCC’s internal market risk management policies and procedures. NSCC performs daily backtesting of collateral by comparing the collateral haircut for each member in simulated liquidations with the member’s actual collateral held on deposit at NSCC. Any exceptions noted are escalated to management daily to assess the root cause and determine whether further analysis and/or review would be appropriate. Specifically, if NSCC determines that a particular security may present inherent volatility and/or liquidity risks that could likely result in an erosion in the value of the security exceeding the applicable collateral 6 See Rule 4, Section 1, supra note 3. Rule 1 (Definitions) for applicable definitions, including Eligible Clearing Fund Securities and its components, which are Eligible Clearing Fund Agency Securities, Eligible Clearing Fund Mortgage-Backed Securities, and Eligible Clearing Fund Treasury Securities. Supra note 3. 8 See Section III.(A) of Procedure XV, supra note 3. Section III.(A) was last modified in 2011 in order to conform the haircuts to requirements of NSCC’s lenders under its credit facilities. See Securities Exchange Act Release No. 64487 (May 13, 2011), 76 FR 29019 (May 19, 2011) (SR–NSCC–2011–02). 7 See E:\FR\FM\04OCN1.SGM 04OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68774-68777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22031]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98653; File No. SR-CboeEDGX-2023-057]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove Proposed Rule Change To Amend its Fee Schedule 
Related to Physical Port Fees

September 29, 2023.

I. Introduction

    On September 1, 2023, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 (File Number SR-CboeEDGX-2023-057) to amend its 
fee schedule to increase the monthly fee for 10 gigabit (``Gb'') 
physical ports. The proposed rule change was immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ The proposed rule change was published for comment in the 
Federal Register on September 20, 2023.\4\ Pursuant to Section 
19(b)(3)(C) of the Act,\5\ the Commission is hereby: (1) temporarily 
suspending the proposed rule change; and (2) instituting proceedings to 
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release No. 98396 (September 14, 
2023), 88 FR 64960 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Background and Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule for its equities 
platform (``EDGX Equities'') relating to physical connectivity fees. 
The Exchange proposes to increase the monthly fee for 10 Gb physical 
ports from $7,500 to $8,500 per port. The Exchange currently assesses 
the following physical connectivity fees for Members \6\ and non-
Members on a monthly basis: $2,500 per physical port for a 1 Gb circuit 
and $7,500 per physical port for a 10 Gb circuit.\7\ According to the 
Exchange, the physical ports may also be used to access the systems for 
the following affiliate exchanges and only one monthly fee currently 
(and will continue) to apply per port: the Exchange's options platform 
(EDGX Options), Cboe BZX Exchange, Inc. (options and equities 
platforms), Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe 
C2 Exchange, Inc.
---------------------------------------------------------------------------

    \6\ The term ``Member'' means any registered broker or dealer 
that has been admitted to membership in the Exchange. See Exchange 
Rule 1.5(n).
    \7\ A physical port is utilized by a Member or non-Member to 
connect to the Exchange at the data centers where the Exchange's 
servers are located.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\8\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\9\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. The Commission believes a temporary suspension of the proposed 
rule change is necessary and appropriate to allow for additional 
analysis of the proposed rule change's consistency with the Act and the 
rules thereunder.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(C).
    \9\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    In support of the proposal, the Exchange states its belief that the 
proposed fee change is reasonable as it reflects a moderate increase in 
physical connectivity fees for 10 Gb physical ports.\10\ The Exchange 
states that the current 10 Gb physical port fee has remained unchanged 
since June 2018.\11\ The Exchange states that during this 5-year span 
there has been an average inflation rate of 3.9%, producing a 
cumulative price increase of approximately 21.1% inflation since the 
fee for the 10 Gb physical port was last modified.\12\ In support of 
its claim of reasonableness, the Exchange compares its proposed rate 
increase from the rates adopted five years ago of approximately 13% to 
the cumulative inflation rate of 21.1%.\13\
---------------------------------------------------------------------------

    \10\ See Notice, supra note 4, at 64960.
    \11\ See id.
    \12\ See id.
    \13\ See id. at 64961.
---------------------------------------------------------------------------

    In further support of the proposal, the Exchange states that the 
proposed fee is reasonable, fair, and equitable, and not unfairly 
discriminatory.\14\ The Exchange believes that the proposed fee is 
reasonable as it is still in line with, or even lower than, amounts 
assessed by other exchanges for similar connections.\15\ The Exchange 
also states its belief that the fee is not unfairly discriminatory, 
because the fee would be assessed uniformly across all market 
participants that purchase the physical ports.\16\ The Exchange states 
that the fee is equitable because increasing the fee for 10 Gb physical 
ports and charging a higher fee as compared to the 1 Gb physical port 
as the 1 Gb physical port is 1/10 the size of the 10 Gb physical port 
and does not offer access to many of the products and services offered 
by the Exchange.\17\ The Exchange also states its belief the proposed 
fee is reasonably and appropriately allocated because, the Exchange 
states, market participants that purchase 10 Gb physical ports use the 
most bandwidth and therefore consume the most resources from the 
network.\18\
---------------------------------------------------------------------------

    \14\ See id.
    \15\ See id.
    \16\ See id.
    \17\ See id.
    \18\ See id.
---------------------------------------------------------------------------

    In further support of its proposed fee, the Exchange states that 
Members and non-Members will continue to choose the method of 
connectivity based on their specific needs and no broker-dealer is 
required to become a Member of, or connect directly to, the 
Exchange.\19\ The Exchange also states its belief that substitutable 
products and services are available to market participants, including, 
among other things, other equities exchanges that a market participant 
may connect to in lieu of the Exchange, indirect connectivity to the 
Exchange via a third-party reseller of connectivity, and/or trading of 
any equities product, such as

[[Page 68775]]

within the Over-the-Counter markets.\20\ Additionally, the Exchange 
believes that low barriers to entry mean that new exchanges may rapidly 
enter the market and offer additional substitute platforms to further 
compete with the Exchange and the products it offers.\21\ According to 
the Exchange, three new equities exchanges entered the market in 2020 
(i.e., Long Term Stock Exchange (LTSE), Members Exchange (MEMX), and 
MIAX Pearl).\22\
---------------------------------------------------------------------------

    \19\ See id.
    \20\ See id. The Exchange states there are currently 16 
registered equities exchanges that trade equities (12 of which are 
not affiliated with Cboe), some of which have similar or lower 
connectivity fees; and based on publicly available information, no 
single equities exchange has more than approximately 16% of the 
market share.
    \21\ See id.
    \22\ See id.
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    The Exchange states its belief that participation on the Exchange 
remains affordable (notwithstanding the proposed fee change) for all 
market participants, including smaller trading firms that may be able 
to take advantage of lower costs that result from mutualized 
connectivity.\23\ The Exchange states that a market participant may 
submit orders to the Exchange via a Member broker or a third-party 
reseller of connectivity.\24\ The Exchange notes that third-party non-
Members also resell exchange connectivity, which the Exchange states is 
another viable alternative for market participants to trade on the 
Exchange without connecting directly to the Exchange (and thus not pay 
the Exchange's connectivity fees).\25\ The Exchange states it does not 
preclude market participants from reselling its connectivity and has 
not adopted fees that would be assessed to third-party resellers on a 
per customer basis (i.e., fee based on number of Members that connect 
to the Exchange indirectly via the third-party).\26\ The Exchange notes 
that multiple Members are able to share a single physical port (and 
corresponding bandwidth) with other non-affiliated Members if purchased 
through a third-party reseller.\27\ The Exchange states its belief that 
this allows resellers to mutualize the costs of the ports for market 
participants and provide such ports at a price that may be lower than 
the Exchange charges due to this mutualized connectivity.\28\
---------------------------------------------------------------------------

    \23\ See id. at 64962.
    \24\ See id. at 64961.
    \25\ See id. The Exchange states this alternative is already 
being used by non-Members and further constrains the price that the 
Exchange is able to charge for connectivity to its Exchange.
    \26\ See id. The Exchange states its belief these third-party 
resellers may purchase the Exchange's physical ports and resell 
access to such ports either alone or as part of a package of 
services.
    \27\ See id.
    \28\ See id.
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    Finally, the Exchange states that the proposed fees would not cause 
any unnecessary or inappropriate burden on intermarket competition 
because proposed fee is lower than some fees for similar connectivity 
on other exchanges and therefore may stimulate intermarket competition 
by attracting additional firms to connect to the Exchange or at least 
should not deter interested participants from connecting directly to 
the Exchange.\29\ The Exchange also states that if the changes proposed 
herein are unattractive to market participants, the Exchange can, and 
likely will, see a decline in connectivity via 10 Gb physical ports as 
a result.\30\ Furthermore, the Exchange states that it operates in a 
highly competitive market in which market participants can determine 
whether or not to connect directly to the Exchange based on the value 
received compared to the cost of doing so.\31\ The Exchange also states 
that the proposed rule change would not cause any unnecessary or 
inappropriate burden on intramarket competition because it will apply 
to all similarly situated Members equally (i.e., all market 
participants that choose to purchase the 10 Gb physical port).\32\ 
Additionally, the Exchange stated that it does not believe its proposed 
pricing will impose a barrier to entry to smaller participants and 
notes that its proposed connectivity pricing is associated with 
relative usage of the various market participants.\33\
---------------------------------------------------------------------------

    \29\ See id. at 64962.
    \30\ See id.
    \31\ See id.
    \32\ See id.
    \33\ See id.
---------------------------------------------------------------------------

    To date, the Commission has not received any comment letters on the 
proposed rule change.
    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\34\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \35\
---------------------------------------------------------------------------

    \34\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \35\ See id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \36\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \37\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\38\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(4).
    \37\ 15 U.S.C. 78f(b)(5).
    \38\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to increase 
the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port 
for the Exchange is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\39\
---------------------------------------------------------------------------

    \39\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\40\
---------------------------------------------------------------------------

    \40\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\41\ and 19(b)(2)(B)

[[Page 68776]]

of the Act \42\ to determine whether the Exchange's proposed rule 
change should be approved or disapproved. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \42\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\43\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \43\ Id. Section 19(b)(2)(B) of the Act also provides that 
proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding, or if the exchange consents to 
the longer period. See id.
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(4) of the Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities''; \44\
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers''; \45\ and
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    \45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(8) of the Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Act].'' \46\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchange made various 
arguments in support of their proposal. The Commission believes that 
there are questions as to whether the Exchange has provided sufficient 
information to demonstrate that the proposed fees are consistent with 
the Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \47\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\48\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\49\
---------------------------------------------------------------------------

    \47\ 17 CFR 201.700(b)(3).
    \48\ See id.
    \49\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated, not be unfairly discriminatory, and not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.\50\
---------------------------------------------------------------------------

    \50\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 25, 2023. 
Rebuttal comments should be submitted by November 8, 2023. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\51\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    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-2023-057 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-2023-057. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeEDGX-2023-057 and should 
be submitted on or before October 25, 2023. Rebuttal comments should be 
submitted by November 8, 2023.

VI. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(3)(C) of the 
Act,\52\ that File No. SR-CboeEDGX-2023-057, be and hereby is, 
temporarily

[[Page 68777]]

suspended. In addition, the Commission is instituting proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \52\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22031 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P

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