Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule, 88159-88163 [2023-27919]
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Federal Register / Vol. 88, No. 243 / Wednesday, December 20, 2023 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99177; File No. SR–
CboeEDGX–2023–075]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
December 14, 2023.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
1, 2023, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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.
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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.
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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1. Purpose
The Exchange proposes to amend its
Fee Schedule.3 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
17 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.4 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange, including the Exchange,
possesses significant pricing power in
the execution of option order flow. The
Exchange believes that the ever-shifting
market share among the exchanges from
month to month demonstrates that
market participants can shift order flow
or discontinue to reduce use of certain
categories of products, in response to fee
changes. Accordingly, competitive
forces constrain the Exchange’s
transaction fees, and market participants
can readily trade on competing venues
if they deem pricing levels at those
other venues to be more favorable.
The Exchange’s Fee Schedule sets
forth standard rebates and rates applied
per contract. For example, the Exchange
provides standard rebates ranging from
$0.01 up to $0.21 per contract for
Customer orders in both Penny and
Non-Penny Securities. The Fee Codes
and Associated Fees section of the Fees
Schedule also provides for certain fee
codes associated with certain order
types and market participants that
provide for various other fees or rebates.
For example, the Exchange assesses a
fee of $0.24 per contract for Market
Maker orders that remove liquidity in
Non-Penny Securities, yielding fee code
NT; provides a rebate of $0.01 per
contract for Customer-to-Non-Customer
(i.e., ‘‘Customer (contra NonCustomer)’’) orders (that both add and
remove liquidity) and Customer-toCustomer (i.e., ‘‘Customer (contra
Customer)’’) orders that remove
3 The Exchange initially filed the proposed fee
changes on December 1, 2023 (SR–CboeEDGX–
2023–073). On December 1, 2023, the Exchange
withdrew that filing and submitted SR–CboeEDGX–
2023–075.
4 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (November 29, 2023),
available at https://markets.cboe.com/us/options/
market_statistics/.
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liquidity, in Non-Penny Securities,
yielding fee code NC; and provides a
rebate of $0.01 per contract for
Customer (contra Non-Customer) orders
and Customer (contra Customer) orders
that remove liquidity, in Penny
Securities, yielding fee code PC.
Customer (contra Customer) orders that
add liquidity receive no rebate.
Fee Codes
The Exchange proposes to amend its
Fee Schedule to adopt new fee code CA,
which will apply to Customer (contra
Non-Customer) orders that add
liquidity; the proposed fee code
provides a rebate of $0.01 per contract.5
This is the same rebate these orders
currently receive pursuant to fee codes
NC and PC.
The Exchange also proposes to amend
the definition of current fee code NC to
provide that such fee code (and
corresponding standard rebate of $0.01
per contract) applies to all Simple
Customer (i.e., Customer (contra NonCustomer) and Customer (contra
Customer)) orders that remove liquidity
in Non-Penny Securities. Similarly, the
Exchange proposes to amend the
definition of current fee code PC to
provide that such fee code (and
corresponding standard rebate of $0.01
per contract) applies to all Simple
Customer (i.e., Customer (contra NonCustomer) and Customer (contra
Customer)) orders that remove liquidity
in Penny Securities. These rebates
currently apply to these orders today;
the proposed amendments to these
definitions merely reflect the removal of
Customer (contra Non-Customer) orders
that add liquidity from fee codes NC
and PC (and moving such orders to
proposed fee code CA). The Exchange
also proposes to increase the standard
fee for Market Maker orders that remove
liquidity in Non-Penny Securities (i.e.,
yield fee code NT) from $0.24 to $0.70.
Customer Volume Tiers
The Exchange proposes to amend
Footnote 1 (Customer Volume Tiers),
applicable to orders yielding fee codes
PC and NC. Pursuant to Footnote 1 of
the Fee Schedule, the Exchange
currently offers four Customer Volume
Tiers that provide rebates between $0.10
and $0.21 per contract for qualifying
customer orders yielding fee codes PC
and NC where a Member meets required
criteria. The Exchange proposes to
amend this Customer Volume Tier
program to add orders yielding fee code
CA to the list of qualifying customer
5 The Exchange proposes to amend Footnote 5
(Orders Submitted with a Designated Give Up) to
include orders yielding fee code CA.
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orders that may be eligible for the
Customer Volume Tier program.
The Exchange also proposes to amend
the required criteria for Tiers 3 and 4.
Currently, to qualify for Tier 3, a
Member must have (1) an ADV 6 in
Customer orders greater than or equal to
1.00% of average OCV; 7 and (2) an ADV
in Customer Non-Crossing orders of
greater than or equal to 0.40% of
average OCV. To qualify for Tier 4, a
Member must have (1) an ADV in
Customer orders greater than or equal to
0.75% of average OCV; (2) an ADV in
Customer or Market Maker orders
greater than or equal to 1.50% of
average OCV; (3) an ADV in Customer
Non-Crossing orders greater than or
equal to 0.50% of average OCV; and (4)
an ADAV 8 in Customer Non-Crossing
orders greater than or equal to 0.40% of
average OCV.
The Exchange proposes to amend Tier
3 required criteria to state that a
Member must have (1) an ADV in
Customer orders greater than or equal to
1.00% of average OCV; (2) an ADV in
Customer Non-Crossing orders of greater
than or equal to 0.75% of average OCV;
and (3) an ADAV in Simple Customer
Non-Crossing orders (i.e., yielding fee
code CA) greater than or equal to 0.45%
of average OCV. The Exchange proposes
to amend Tier 4 required criteria to state
that a Member must have (1) an ADV in
Customer orders greater than or equal to
1.50% of average OCV; and (2) an
ADAV in Simple Customer NonCrossing orders (i.e., yielding fee code
CA) greater than or equal to 0.65% of
average OCV.
Additionally, the Exchange proposes
to change the rebate for Tier 4.
Specifically, the Exchange proposes to
amend the Tier 4 rebate from $0.21 per
contract to $0.18 per contract.9 The
rebates for Tiers 1, 2, and 4 remain
unchanged.
Finally, the Exchange proposes to add
new Customer Volume Tier 5 to provide
a rebate of $0.22 per contract if a
Member has (1) an ADV in Customer
orders of greater than or equal to 2.00%
of average OCV; (2) an ADAV in Simple
6 ‘‘ADV’’ means average daily volume calculated
as the number of contracts added or removed,
combined, per day.
7 ‘‘OCV’’ means the total equity and ETF options
volume that clears in the Customer range at the
Options Clearing Corporation (‘‘OCC’’) for the
month for which the fees apply, excluding volume
on any day that the Exchange experiences an
Exchange System Disruption and on any day with
a scheduled early market close.
8 ‘‘ADAV’’ means average daily added volume
calculated as the number of contracts added, per
day.
9 The Exchange proposes to amend this tier rebate
as described in the table in Footnote 1 and amend
the amounts of the rebates in the Standard Rates
table.
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Customer Non-Crossing orders (i.e.,
yielding fee code CA) greater than or
equal to 1.25% of average OCV; and (3)
a QCC agency Volume of greater than or
equal to 2,000,000 contracts per month,
with both sides of each transaction
being Non-Customer, NonProfessional.10
The Exchange believes that the
proposed changes to the Customer
Volume Tier program are designed
overall to incentivize more Customer
order flow and to direct an increase of
order flow to the EDGX Options Order
Book. The Exchange believes that an
increase in Customer order flow and
overall order flow to the Exchange’s
Book creates more trading
opportunities, which, in turn attracts
Market Makers. A resulting increase in
Market Maker activity may facilitate
tighter spreads, which may lead to an
additional increase of order flow from
other market participants, further
contributing to a deeper, more liquid
market to the benefit of all market
participants by creating a more robust
and well-balanced market ecosystem.
Supplemental AIM Tiers
The Exchange proposes to amend the
Supplemental AIM 11 Tiers set forth in
Footnote 9 (Automated Improvement
Mechanism (‘‘AIM’’) Penny Tiers). The
Exchange currently offers two tiers
related to Customer volume under
Footnote 9 applicable to orders yielding
fee code ‘‘BC’’, which fee code is
appended to Customer Agency orders
executed in AIM. The AIM Tiers
currently provide enhanced rebates of
$0.09 and $0.10 per contract for
qualifying orders that yield fee code BC
where a Member meets the respective
tier’s volume threshold.
The Exchange also offers two
Supplemental AIM Tiers under
Footnote 9 which provide additional
rebates (i.e., in addition to the standard
rebate or enhanced rebates Members
may receive for Customer Agency orders
executed in AIM). The tiers are
applicable to fee code BC and applied
on an order-by-order basis.
Supplemental AIM Tier 1 provides an
additional rebate of $0.02 per contract
where (i) a Member has an ADV in
Customer Orders greater than or equal to
0.50% of average OCV and (ii) the order
has an Interaction Rate greater than or
equal to 51% and less than 80%.
Supplemental AIM Tier 2 provides an
additional rebate of $0.05 per contract
where (i) a Member has an ADV in
10 The Exchange proposes to add this tier rebate
as described in the table in Footnote 1 and add to
the rebates in the Standard Rates table.
11 The term ‘‘AIM’’ refers to Automated
Improvement Mechanism.
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Customer Orders greater than or equal to
0.50% of average OCV and (ii) the order
has an Interaction Rate greater than or
equal to 0% and less than 51%. The
‘‘Interaction Rate’’ of an order refers to
the percentage of the Agency Order that
traded against the Initiating Order.12
The Exchange proposes to amend
Supplemental AIM Tier 1 criteria to
require that (1) Member has an ADV in
Customer Orders greater than or equal to
0.50% of average OCV; and (2) the order
has an Interaction Rate greater than or
equal to 51% and less than 70%. The
Exchange also proposes to amend
Supplemental AIM Tier 2 criteria to
require that (1) Member has an ADV in
Customer Orders greater than or equal to
0.50% of average OCV; and (2) the order
has an Interaction Rate greater than or
equal to 30% and less than 51%. The
Exchange also proposes to reduce the
current rebate for Supplemental AIM
Tier 2 from $0.05 per contract to $0.03
per contract.
Finally, the Exchange proposes to add
new Supplemental AIM Tier 3, which
would provide an additional rebate of
$0.05 per contract where (i) Member has
an ADV in Customer Orders greater than
or equal to 0.50% of average OCV; and
(ii) the order has an Interaction Rate
greater than or equal to 0% and less
than 30%.
The proposed changes to the
Supplemental AIM Tiers are designed to
incentivize order flow providers to
continue to route AIM orders to the
Exchange, notwithstanding the potential
for such orders to be broken up.
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.13 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 14 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
12 An Options Member may electronically submit
for execution in AIM an order it represents as agent
(‘‘Agency Order’’) against principal interest or a
solicited order(s) (except for an order for the
account of any Options Market Maker registered in
the applicable series on the Exchange) (an
‘‘Initiating Order’’). See EDGX Options Rule 21.19.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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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) 15 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,16 which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
Members and other persons using its
facilities.
As described above, the Exchange
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. The
proposed rule change reflects a
competitive pricing structure designed
to incentivize market participants to
direct their order flow to the Exchange,
which the Exchange believes would
enhance market quality to the benefit of
all market participants. The Exchange is
only one of several options venues to
which market participants may direct
their order flow, and it represents a
small percentage of the overall market.
The proposed fee changes reflect a
competitive pricing structure designed
to incentivize market participants to
direct their order flow, which the
Exchange believes would enhance
market quality to the benefit of all
Members.
Fee Codes
The Exchange believes its proposed
adoption of new fee code CA, which
applies to Customer (contra NonCustomer) orders that add liquidity and
which provides a rebate of $0.01 per
contract, and its proposal to amend the
definition of current fee code NC and PC
is consistent with Section 6(b)(4) of the
Act in that the proposed changes are
reasonable, equitable and not unfairly
discriminatory. Previously, Customer
(contra Non-Customer) orders that add
liquidity were assigned fee code PC or
NC, depending on whether the order
was in Penny Securities or Non-Penny
Securities, respectively, and received a
rebate of $0.01 per contract. Under the
proposed changes, Customers executing
an order in Penny and Non-Penny
Securities with a Non-Customer on the
15 Id.
16 15
U.S.C. 78f(b)(4).
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liquidity adding side of orders executed
in Penny and Non-Penny Securities will
still be eligible for a rebate of $0.01 per
contract, merely using a different fee
code. Thus, the Exchange believes that
the proposed change will continue to
incentivize Customer order flow in
Penny and Non-Penny Securities, which
may lead to an increase in liquidity on
the Exchange. An overall increase in
liquidity benefits all market participants
by providing more trading
opportunities, which attracts Market
Makers. An increase in Market Maker
activity in turn facilitates tighter
spreads, which may cause an additional
corresponding increase in order flow
from other market participants. The
Exchange believes the proposed changes
are equitable and not unfairly
discriminatory because they will apply
equally to all liquidity adding sides of
Customer-to-Non-Customer transactions
in Penny and Non-Penny Securities, i.e.
all Customers will continue to receive a
$0.01 rebate for these transactions.
Further, the changes to fee codes NC
and PC are reasonable, as the Exchange
will, under the proposed rule changes,
still offer a rebate of $0.01 for Simple
Customer orders (including both
Customer (contra Non-Customer) and
Customer (contra-Customer), as is
currently the case) that remove liquidity
in Non-Penny and Penny Securities,
respectively.17
The Exchange also believes the
proposed change to increase the
standard fee for Market Maker orders
that remove liquidity in Non-Penny
Securities (i.e., yield fee code NT) from
$0.24 to $0.70 is reasonable, equitable,
and not unfairly discriminatory. The
Exchange believes the proposed rate
change is reasonable because, as stated
above, in order to operate in the highly
competitive options markets, the
Exchange and its competing exchanges
seek to offer similar pricing structures,
including assessing comparable rates for
various types of orders. Thus, the
Exchange believes the proposed rates
are reasonable as they are generally
aligned with and competitive with the
amounts assessed for similar Market
Maker orders on other options
exchanges.18 The Exchange also
believes that amending the standard fee
amount associated with fee code NT
represents an equitable allocation of fees
17 Customer (contra Customer) trades that add
liquidity in Penny and Non-Penny Securities will
continue to not be subject to fees. See EDGX
Options Fee Schedule, Fee Codes and Associated
Fees, Fee Codes TP and TN.
18 See e.g., MEMX Options Exchange Fee
Schedule, Transactions Fees, which assesses a
charge of $1.10 for Market Maker orders that
remove liquidity in Non-Penny Securities.
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and is not unfairly discriminatory
because the fee will continue to
automatically and uniformly apply to all
Members’ respective qualifying Market
Maker orders.
Customer Volume Tiers
The Exchange believes the proposed
changes to the Customer Volume Tier
program are reasonable because they
continue to provide opportunities for
Members to receive higher rebates by
providing for incrementally increasing
volume-based criteria they can reach
for. The Exchange believes the tiers, as
modified, continue to serve as a
reasonable means to encourage
Members to increase their liquidity on
the Exchange, particularly in connection
with additional Customer Order flow to
the Exchange in order to benefit from
the proposed enhanced rebates. The
Exchange also notes that any overall
increased liquidity that may result from
the proposed tier incentives benefits all
investors by offering additional
flexibility for all investors to enjoy cost
savings, supporting the quality of price
discovery, promoting market
transparency and improving investor
protection.
The Exchange believes that the
proposed changes to the Customer
Volume Tier program represent an
equitable allocation of fees and is not
unfairly discriminatory because
Members will be eligible for these tiers
and the corresponding enhanced rebates
will apply uniformly to all Members
that reach the proposed tier criteria. The
Exchange believes that a number of
market participants have a reasonable
opportunity to satisfy the tiers’ criteria
as modified. While the Exchange has no
way of knowing whether this proposed
rule change would definitively result in
any particular Member qualifying for
the tiers as amended, the Exchange
anticipates at least one Member
meeting, or being reasonably able to
meet, the revised Tier 1 criteria;
approximately three Members being
reasonably able to meet the revised Tier
2 criteria; approximately one Member
being reasonably able to meet the
revised Tier 3 criteria; approximately
two Members being reasonably able to
meet the revised Tier 4 criteria; and
currently no Members meeting the
revised Tier 5 criteria. However, the
proposed tiers, as amended, are open to
any Member that satisfies the tier’s
criteria. The Exchange also notes that
the proposed changes will not adversely
impact any Member’s pricing or their
ability to qualify for other rebate tiers.
Rather, should a Member not meet the
proposed criteria, the Member will
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merely not receive the corresponding
enhanced rebates.
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Supplemental AIM Tiers
The Exchange believes its proposed
changes related to the Supplemental
AIM Tiers are reasonable, equitable and
not unfairly discriminatory. The
Exchange believes the proposed changes
to Supplemental AIM Tiers 1 and 2 for
orders yielding fee code BC are
reasonable because the tiers continue to
provide an enhanced rebate opportunity
(albeit at a lower amount in the case of
Supplemental AIM Tier 2), which the
Exchange believes is still commensurate
with the amended criteria. The
Exchange also believes the proposed
rule change to adopt new Supplemental
AIM Tier 3 is reasonable because it
provides an additional opportunity for
Members to receive enhanced rebates
for meeting certain thresholds, based on
the Interaction Rate of the AIM order.
The Exchange also believes the
proposed enhanced rebate is
commensurate with the proposed
criteria. The proposed rule change is
equitable and unfairly discriminatory as
the amended criteria for Supplemental
AIM Tiers 1 and 2, the amended rebate
amount for Supplemental AIM Tier 2,
and new Supplemental AIM Tier 3
apply uniformly to all Members
submitting AIM Agency Orders to the
Exchange. While the Exchange has no
way of knowing whether this proposed
rule change would definitively result in
any particular Member qualifying for
the tiers, as amended, the Exchange
anticipates at least six Members
meeting, or being reasonably able to
meet, the revised Tier 1 criteria; at least
six Members meeting, or being
reasonably able to meet, the revised Tier
2 criteria; and at least six Members
meeting, or being reasonably able to
meet, new Tier 3 criteria. However, the
proposed tiers are open to any Member
that satisfies the tiers’ criteria.
Overall, the Exchange believes the
proposal encourages the use of AIM. As
noted, the Exchange believes that the
proposed changes would incentivize
Agency Order flow to AIM Auctions,
notwithstanding the potential for such
orders to be broken up. Additional
auction order flow provides market
participants with additional trading
opportunities at improved prices.
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. Particularly,
the proposed fee code changes apply
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uniformly and automatically to all
Members’ respective qualifying orders.
As noted above, under the proposed
changes, Customers executing an order
in Penny and Non-Penny Securities
with a Non-Customer on the liquidity
adding side of orders executed in Penny
and Non-Penny Securities will still be
eligible for a rebate of $0.01 per
contract, merely using a different fee
code. Further, the Exchange will, under
the proposed rule changes, still offer a
rebate of $0.01 for Simple Customer
orders (including both Customer (contra
Non-Customer) and Customer (contraCustomer), as is currently the case) that
remove liquidity in Non-Penny and
Penny Securities, respectively. Thus,
orders assigned to current fee code NC
and PC will continue to receive the
same rebate of $0.01, under fee codes
CA, NC, and PC. Additionally, the
proposed Customer Volume Tier and
Supplement AIM Tier changes apply to
all Members equally in that all Members
are eligible to achieve the tiers’
proposed criteria, have a reasonable
opportunity to meet the tiers’ proposed
criteria and will all receive the
corresponding enhanced rebates
(existing and as amended) if such
criteria is met. Overall, the proposed
change is designed to attract additional
Customer order flow to the Exchange
and overall order flow directly to the
Exchange’s Book. The Exchange
believes that the modified and new tier
criteria will incentivize market
participants to strive to increase such
order flow to the Exchange to receive
the corresponding enhanced rebates
and, as a result, increase trading
opportunities, attract further Market
Maker activity, further incentivize the
provision of liquidity and continued
order flow to the Book, and improve
price transparency on the Exchange.
Greater overall order flow and pricing
transparency benefits all market
participants on the Exchange by
generally providing a cycle of more
trading opportunities, enhancing market
quality, and continuing to encourage
Members to submit order flow and
continue to contribute towards a robust
and well-balanced market ecosystem to
the benefit of all market participants.
Next, the Exchange 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 that they may participate on and
direct their order flow, including 16
other options exchanges and off-
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exchange venues and alternative trading
systems. 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.19 Therefore, no exchange
possesses significant pricing power in
the execution of order flow. Indeed,
participants can readily choose to send
their orders to other exchange and offexchange venues 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.’’ 20 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’. . . .’’.21 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.
19 See
supra note 3.
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
21 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
20 See
E:\FR\FM\20DEN1.SGM
20DEN1
Federal Register / Vol. 88, No. 243 / Wednesday, December 20, 2023 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 22 and paragraph (f) of Rule
19b–4 23 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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:
ddrumheller on DSK120RN23PROD with NOTICES1
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–2023–075 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–2023–075. 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
22 15
23 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
VerDate Sep<11>2014
18:02 Dec 19, 2023
Jkt 262001
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–2023–075 and should be
submitted on or before January 10, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–27919 Filed 12–19–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99169; File No. SR–OCC–
2023–008]
Self-Regulatory Organizations; the
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Concerning
Amendments to the Options Clearing
Corporation’s Collateral Risk
Management Policy and Margin Policy
December 14, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on December 4, 2023, The
Options Clearing Corporation (‘‘OCC’’ or
‘‘Corporation’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by OCC. OCC filed
the proposed rule change pursuant to
Section 19(b)(3)(A)(i) 3 of the Act and
Rule 19b–4(f)(1) 4 thereunder, such that
the proposed rule change was
immediately effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
1 15
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
88163
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change would
amend OCC’s Collateral Risk
Management Policy (‘‘CRM Policy’’) and
Margin Policy (collectively, ‘‘OCC
Policies’’). The proposed changes are
designed to update the OCC Policies to
better align the descriptions therein
with OCC’s current practices, delete
extraneous information, and make other
non-substantive clarifying, conforming
and administrative changes.
The proposed changes to the OCC
Policies are included in confidential
Exhibits 5A and 5B to File No. SR–
OCC–2023–008. Material proposed to be
added to the OCC Policies as currently
in effect is underlined and material
proposed to be deleted is marked in
strikethrough text. All capitalized terms
not defined herein have the same
meaning as set forth in the OCC ByLaws and Rules.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
As the sole clearing agency for
standardized equity options listed on
national securities exchanges registered
with the Commission (‘‘listed options’’),
OCC is exposed to certain risks,
including credit risk arising from its
relationships with the Clearing
Members for which OCC becomes the
buyer to every seller and the seller to
ever buyer with respect to listed
options. In order to manage
counterparty credit risk and mitigate
related systemic risks, OCC requires
Clearing Members to collateralize
financial obligations that result from
maintaining options, futures and stock
loan positions at OCC.
OCC maintains policies filed with the
Commission as OCC rules that are
designed to address such credit risk,
5 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://www.theocc.com/
Company-Information/Documents-and-Archives/
By-Laws-and-Rules.
E:\FR\FM\20DEN1.SGM
20DEN1
]]>Agencies
[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88159-88163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27919]
[[Page 88159]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99177; File No. SR-CboeEDGX-2023-075]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule
December 14, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 1, 2023, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') 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.\3\ 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 17 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.\4\ Thus, in such a low-
concentrated and highly competitive market, no single options exchange,
including the Exchange, possesses significant pricing power in the
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow or
discontinue to reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable.
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
December 1, 2023 (SR-CboeEDGX-2023-073). On December 1, 2023, the
Exchange withdrew that filing and submitted SR-CboeEDGX-2023-075.
\4\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (November 29, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
The Exchange's Fee Schedule sets forth standard rebates and rates
applied per contract. For example, the Exchange provides standard
rebates ranging from $0.01 up to $0.21 per contract for Customer orders
in both Penny and Non-Penny Securities. The Fee Codes and Associated
Fees section of the Fees Schedule also provides for certain fee codes
associated with certain order types and market participants that
provide for various other fees or rebates. For example, the Exchange
assesses a fee of $0.24 per contract for Market Maker orders that
remove liquidity in Non-Penny Securities, yielding fee code NT;
provides a rebate of $0.01 per contract for Customer-to-Non-Customer
(i.e., ``Customer (contra Non-Customer)'') orders (that both add and
remove liquidity) and Customer-to-Customer (i.e., ``Customer (contra
Customer)'') orders that remove liquidity, in Non-Penny Securities,
yielding fee code NC; and provides a rebate of $0.01 per contract for
Customer (contra Non-Customer) orders and Customer (contra Customer)
orders that remove liquidity, in Penny Securities, yielding fee code
PC. Customer (contra Customer) orders that add liquidity receive no
rebate.
Fee Codes
The Exchange proposes to amend its Fee Schedule to adopt new fee
code CA, which will apply to Customer (contra Non-Customer) orders that
add liquidity; the proposed fee code provides a rebate of $0.01 per
contract.\5\ This is the same rebate these orders currently receive
pursuant to fee codes NC and PC.
---------------------------------------------------------------------------
\5\ The Exchange proposes to amend Footnote 5 (Orders Submitted
with a Designated Give Up) to include orders yielding fee code CA.
---------------------------------------------------------------------------
The Exchange also proposes to amend the definition of current fee
code NC to provide that such fee code (and corresponding standard
rebate of $0.01 per contract) applies to all Simple Customer (i.e.,
Customer (contra Non-Customer) and Customer (contra Customer)) orders
that remove liquidity in Non-Penny Securities. Similarly, the Exchange
proposes to amend the definition of current fee code PC to provide that
such fee code (and corresponding standard rebate of $0.01 per contract)
applies to all Simple Customer (i.e., Customer (contra Non-Customer)
and Customer (contra Customer)) orders that remove liquidity in Penny
Securities. These rebates currently apply to these orders today; the
proposed amendments to these definitions merely reflect the removal of
Customer (contra Non-Customer) orders that add liquidity from fee codes
NC and PC (and moving such orders to proposed fee code CA). The
Exchange also proposes to increase the standard fee for Market Maker
orders that remove liquidity in Non-Penny Securities (i.e., yield fee
code NT) from $0.24 to $0.70.
Customer Volume Tiers
The Exchange proposes to amend Footnote 1 (Customer Volume Tiers),
applicable to orders yielding fee codes PC and NC. Pursuant to Footnote
1 of the Fee Schedule, the Exchange currently offers four Customer
Volume Tiers that provide rebates between $0.10 and $0.21 per contract
for qualifying customer orders yielding fee codes PC and NC where a
Member meets required criteria. The Exchange proposes to amend this
Customer Volume Tier program to add orders yielding fee code CA to the
list of qualifying customer
[[Page 88160]]
orders that may be eligible for the Customer Volume Tier program.
The Exchange also proposes to amend the required criteria for Tiers
3 and 4. Currently, to qualify for Tier 3, a Member must have (1) an
ADV \6\ in Customer orders greater than or equal to 1.00% of average
OCV; \7\ and (2) an ADV in Customer Non-Crossing orders of greater than
or equal to 0.40% of average OCV. To qualify for Tier 4, a Member must
have (1) an ADV in Customer orders greater than or equal to 0.75% of
average OCV; (2) an ADV in Customer or Market Maker orders greater than
or equal to 1.50% of average OCV; (3) an ADV in Customer Non-Crossing
orders greater than or equal to 0.50% of average OCV; and (4) an ADAV
\8\ in Customer Non-Crossing orders greater than or equal to 0.40% of
average OCV.
---------------------------------------------------------------------------
\6\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day.
\7\ ``OCV'' means the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
\8\ ``ADAV'' means average daily added volume calculated as the
number of contracts added, per day.
---------------------------------------------------------------------------
The Exchange proposes to amend Tier 3 required criteria to state
that a Member must have (1) an ADV in Customer orders greater than or
equal to 1.00% of average OCV; (2) an ADV in Customer Non-Crossing
orders of greater than or equal to 0.75% of average OCV; and (3) an
ADAV in Simple Customer Non-Crossing orders (i.e., yielding fee code
CA) greater than or equal to 0.45% of average OCV. The Exchange
proposes to amend Tier 4 required criteria to state that a Member must
have (1) an ADV in Customer orders greater than or equal to 1.50% of
average OCV; and (2) an ADAV in Simple Customer Non-Crossing orders
(i.e., yielding fee code CA) greater than or equal to 0.65% of average
OCV.
Additionally, the Exchange proposes to change the rebate for Tier
4. Specifically, the Exchange proposes to amend the Tier 4 rebate from
$0.21 per contract to $0.18 per contract.\9\ The rebates for Tiers 1,
2, and 4 remain unchanged.
---------------------------------------------------------------------------
\9\ The Exchange proposes to amend this tier rebate as described
in the table in Footnote 1 and amend the amounts of the rebates in
the Standard Rates table.
---------------------------------------------------------------------------
Finally, the Exchange proposes to add new Customer Volume Tier 5 to
provide a rebate of $0.22 per contract if a Member has (1) an ADV in
Customer orders of greater than or equal to 2.00% of average OCV; (2)
an ADAV in Simple Customer Non-Crossing orders (i.e., yielding fee code
CA) greater than or equal to 1.25% of average OCV; and (3) a QCC agency
Volume of greater than or equal to 2,000,000 contracts per month, with
both sides of each transaction being Non-Customer, Non-
Professional.\10\
---------------------------------------------------------------------------
\10\ The Exchange proposes to add this tier rebate as described
in the table in Footnote 1 and add to the rebates in the Standard
Rates table.
---------------------------------------------------------------------------
The Exchange believes that the proposed changes to the Customer
Volume Tier program are designed overall to incentivize more Customer
order flow and to direct an increase of order flow to the EDGX Options
Order Book. The Exchange believes that an increase in Customer order
flow and overall order flow to the Exchange's Book creates more trading
opportunities, which, in turn attracts Market Makers. A resulting
increase in Market Maker activity may facilitate tighter spreads, which
may lead to an additional increase of order flow from other market
participants, further contributing to a deeper, more liquid market to
the benefit of all market participants by creating a more robust and
well-balanced market ecosystem.
Supplemental AIM Tiers
The Exchange proposes to amend the Supplemental AIM \11\ Tiers set
forth in Footnote 9 (Automated Improvement Mechanism (``AIM'') Penny
Tiers). The Exchange currently offers two tiers related to Customer
volume under Footnote 9 applicable to orders yielding fee code ``BC'',
which fee code is appended to Customer Agency orders executed in AIM.
The AIM Tiers currently provide enhanced rebates of $0.09 and $0.10 per
contract for qualifying orders that yield fee code BC where a Member
meets the respective tier's volume threshold.
---------------------------------------------------------------------------
\11\ The term ``AIM'' refers to Automated Improvement Mechanism.
---------------------------------------------------------------------------
The Exchange also offers two Supplemental AIM Tiers under Footnote
9 which provide additional rebates (i.e., in addition to the standard
rebate or enhanced rebates Members may receive for Customer Agency
orders executed in AIM). The tiers are applicable to fee code BC and
applied on an order-by-order basis.
Supplemental AIM Tier 1 provides an additional rebate of $0.02 per
contract where (i) a Member has an ADV in Customer Orders greater than
or equal to 0.50% of average OCV and (ii) the order has an Interaction
Rate greater than or equal to 51% and less than 80%. Supplemental AIM
Tier 2 provides an additional rebate of $0.05 per contract where (i) a
Member has an ADV in Customer Orders greater than or equal to 0.50% of
average OCV and (ii) the order has an Interaction Rate greater than or
equal to 0% and less than 51%. The ``Interaction Rate'' of an order
refers to the percentage of the Agency Order that traded against the
Initiating Order.\12\
---------------------------------------------------------------------------
\12\ An Options Member may electronically submit for execution
in AIM an order it represents as agent (``Agency Order'') against
principal interest or a solicited order(s) (except for an order for
the account of any Options Market Maker registered in the applicable
series on the Exchange) (an ``Initiating Order''). See EDGX Options
Rule 21.19.
---------------------------------------------------------------------------
The Exchange proposes to amend Supplemental AIM Tier 1 criteria to
require that (1) Member has an ADV in Customer Orders greater than or
equal to 0.50% of average OCV; and (2) the order has an Interaction
Rate greater than or equal to 51% and less than 70%. The Exchange also
proposes to amend Supplemental AIM Tier 2 criteria to require that (1)
Member has an ADV in Customer Orders greater than or equal to 0.50% of
average OCV; and (2) the order has an Interaction Rate greater than or
equal to 30% and less than 51%. The Exchange also proposes to reduce
the current rebate for Supplemental AIM Tier 2 from $0.05 per contract
to $0.03 per contract.
Finally, the Exchange proposes to add new Supplemental AIM Tier 3,
which would provide an additional rebate of $0.05 per contract where
(i) Member has an ADV in Customer Orders greater than or equal to 0.50%
of average OCV; and (ii) the order has an Interaction Rate greater than
or equal to 0% and less than 30%.
The proposed changes to the Supplemental AIM Tiers are designed to
incentivize order flow providers to continue to route AIM orders to the
Exchange, notwithstanding the potential for such orders to be broken
up.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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
[[Page 88161]]
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) \15\ 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,\16\ which requires that
Exchange rules provide for the equitable allocation of reasonable dues,
fees, and other charges among its Members and other persons using its
facilities.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
\16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
As described above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The proposed rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
market participants. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The proposed fee
changes reflect a competitive pricing structure designed to incentivize
market participants to direct their order flow, which the Exchange
believes would enhance market quality to the benefit of all Members.
Fee Codes
The Exchange believes its proposed adoption of new fee code CA,
which applies to Customer (contra Non-Customer) orders that add
liquidity and which provides a rebate of $0.01 per contract, and its
proposal to amend the definition of current fee code NC and PC is
consistent with Section 6(b)(4) of the Act in that the proposed changes
are reasonable, equitable and not unfairly discriminatory. Previously,
Customer (contra Non-Customer) orders that add liquidity were assigned
fee code PC or NC, depending on whether the order was in Penny
Securities or Non-Penny Securities, respectively, and received a rebate
of $0.01 per contract. Under the proposed changes, Customers executing
an order in Penny and Non-Penny Securities with a Non-Customer on the
liquidity adding side of orders executed in Penny and Non-Penny
Securities will still be eligible for a rebate of $0.01 per contract,
merely using a different fee code. Thus, the Exchange believes that the
proposed change will continue to incentivize Customer order flow in
Penny and Non-Penny Securities, which may lead to an increase in
liquidity on the Exchange. An overall increase in liquidity benefits
all market participants by providing more trading opportunities, which
attracts Market Makers. An increase in Market Maker activity in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange believes the proposed changes are equitable and not
unfairly discriminatory because they will apply equally to all
liquidity adding sides of Customer-to-Non-Customer transactions in
Penny and Non-Penny Securities, i.e. all Customers will continue to
receive a $0.01 rebate for these transactions. Further, the changes to
fee codes NC and PC are reasonable, as the Exchange will, under the
proposed rule changes, still offer a rebate of $0.01 for Simple
Customer orders (including both Customer (contra Non-Customer) and
Customer (contra-Customer), as is currently the case) that remove
liquidity in Non-Penny and Penny Securities, respectively.\17\
---------------------------------------------------------------------------
\17\ Customer (contra Customer) trades that add liquidity in
Penny and Non-Penny Securities will continue to not be subject to
fees. See EDGX Options Fee Schedule, Fee Codes and Associated Fees,
Fee Codes TP and TN.
---------------------------------------------------------------------------
The Exchange also believes the proposed change to increase the
standard fee for Market Maker orders that remove liquidity in Non-Penny
Securities (i.e., yield fee code NT) from $0.24 to $0.70 is reasonable,
equitable, and not unfairly discriminatory. The Exchange believes the
proposed rate change is reasonable because, as stated above, in order
to operate in the highly competitive options markets, the Exchange and
its competing exchanges seek to offer similar pricing structures,
including assessing comparable rates for various types of orders. Thus,
the Exchange believes the proposed rates are reasonable as they are
generally aligned with and competitive with the amounts assessed for
similar Market Maker orders on other options exchanges.\18\ The
Exchange also believes that amending the standard fee amount associated
with fee code NT represents an equitable allocation of fees and is not
unfairly discriminatory because the fee will continue to automatically
and uniformly apply to all Members' respective qualifying Market Maker
orders.
---------------------------------------------------------------------------
\18\ See e.g., MEMX Options Exchange Fee Schedule, Transactions
Fees, which assesses a charge of $1.10 for Market Maker orders that
remove liquidity in Non-Penny Securities.
---------------------------------------------------------------------------
Customer Volume Tiers
The Exchange believes the proposed changes to the Customer Volume
Tier program are reasonable because they continue to provide
opportunities for Members to receive higher rebates by providing for
incrementally increasing volume-based criteria they can reach for. The
Exchange believes the tiers, as modified, continue to serve as a
reasonable means to encourage Members to increase their liquidity on
the Exchange, particularly in connection with additional Customer Order
flow to the Exchange in order to benefit from the proposed enhanced
rebates. The Exchange also notes that any overall increased liquidity
that may result from the proposed tier incentives benefits all
investors by offering additional flexibility for all investors to enjoy
cost savings, supporting the quality of price discovery, promoting
market transparency and improving investor protection.
The Exchange believes that the proposed changes to the Customer
Volume Tier program represent an equitable allocation of fees and is
not unfairly discriminatory because Members will be eligible for these
tiers and the corresponding enhanced rebates will apply uniformly to
all Members that reach the proposed tier criteria. The Exchange
believes that a number of market participants have a reasonable
opportunity to satisfy the tiers' criteria as modified. While the
Exchange has no way of knowing whether this proposed rule change would
definitively result in any particular Member qualifying for the tiers
as amended, the Exchange anticipates at least one Member meeting, or
being reasonably able to meet, the revised Tier 1 criteria;
approximately three Members being reasonably able to meet the revised
Tier 2 criteria; approximately one Member being reasonably able to meet
the revised Tier 3 criteria; approximately two Members being reasonably
able to meet the revised Tier 4 criteria; and currently no Members
meeting the revised Tier 5 criteria. However, the proposed tiers, as
amended, are open to any Member that satisfies the tier's criteria. The
Exchange also notes that the proposed changes will not adversely impact
any Member's pricing or their ability to qualify for other rebate
tiers. Rather, should a Member not meet the proposed criteria, the
Member will
[[Page 88162]]
merely not receive the corresponding enhanced rebates.
Supplemental AIM Tiers
The Exchange believes its proposed changes related to the
Supplemental AIM Tiers are reasonable, equitable and not unfairly
discriminatory. The Exchange believes the proposed changes to
Supplemental AIM Tiers 1 and 2 for orders yielding fee code BC are
reasonable because the tiers continue to provide an enhanced rebate
opportunity (albeit at a lower amount in the case of Supplemental AIM
Tier 2), which the Exchange believes is still commensurate with the
amended criteria. The Exchange also believes the proposed rule change
to adopt new Supplemental AIM Tier 3 is reasonable because it provides
an additional opportunity for Members to receive enhanced rebates for
meeting certain thresholds, based on the Interaction Rate of the AIM
order. The Exchange also believes the proposed enhanced rebate is
commensurate with the proposed criteria. The proposed rule change is
equitable and unfairly discriminatory as the amended criteria for
Supplemental AIM Tiers 1 and 2, the amended rebate amount for
Supplemental AIM Tier 2, and new Supplemental AIM Tier 3 apply
uniformly to all Members submitting AIM Agency Orders to the Exchange.
While the Exchange has no way of knowing whether this proposed rule
change would definitively result in any particular Member qualifying
for the tiers, as amended, the Exchange anticipates at least six
Members meeting, or being reasonably able to meet, the revised Tier 1
criteria; at least six Members meeting, or being reasonably able to
meet, the revised Tier 2 criteria; and at least six Members meeting, or
being reasonably able to meet, new Tier 3 criteria. However, the
proposed tiers are open to any Member that satisfies the tiers'
criteria.
Overall, the Exchange believes the proposal encourages the use of
AIM. As noted, the Exchange believes that the proposed changes would
incentivize Agency Order flow to AIM Auctions, notwithstanding the
potential for such orders to be broken up. Additional auction order
flow provides market participants with additional trading opportunities
at improved prices.
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. Particularly, the proposed
fee code changes apply uniformly and automatically to all Members'
respective qualifying orders. As noted above, under the proposed
changes, Customers executing an order in Penny and Non-Penny Securities
with a Non-Customer on the liquidity adding side of orders executed in
Penny and Non-Penny Securities will still be eligible for a rebate of
$0.01 per contract, merely using a different fee code. Further, the
Exchange will, under the proposed rule changes, still offer a rebate of
$0.01 for Simple Customer orders (including both Customer (contra Non-
Customer) and Customer (contra-Customer), as is currently the case)
that remove liquidity in Non-Penny and Penny Securities, respectively.
Thus, orders assigned to current fee code NC and PC will continue to
receive the same rebate of $0.01, under fee codes CA, NC, and PC.
Additionally, the proposed Customer Volume Tier and Supplement AIM Tier
changes apply to all Members equally in that all Members are eligible
to achieve the tiers' proposed criteria, have a reasonable opportunity
to meet the tiers' proposed criteria and will all receive the
corresponding enhanced rebates (existing and as amended) if such
criteria is met. Overall, the proposed change is designed to attract
additional Customer order flow to the Exchange and overall order flow
directly to the Exchange's Book. The Exchange believes that the
modified and new tier criteria will incentivize market participants to
strive to increase such order flow to the Exchange to receive the
corresponding enhanced rebates and, as a result, increase trading
opportunities, attract further Market Maker activity, further
incentivize the provision of liquidity and continued order flow to the
Book, and improve price transparency on the Exchange. Greater overall
order flow and pricing transparency benefits all market participants on
the Exchange by generally providing a cycle of more trading
opportunities, enhancing market quality, and continuing to encourage
Members to submit order flow and continue to contribute towards a
robust and well-balanced market ecosystem to the benefit of all market
participants.
Next, the Exchange 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 that they may participate on
and direct their order flow, including 16 other options exchanges and
off-exchange venues and alternative trading systems. 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.\19\ Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other exchange
and off-exchange venues 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.'' \20\ 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'. . . .''.\21\ 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.
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\19\ See supra note 3.
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\21\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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.
[[Page 88163]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \22\ and paragraph (f) of Rule 19b-4 \23\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f).
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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-2023-075 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-2023-075. 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-2023-075 and should
be submitted on or before January 10, 2024.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27919 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P
