Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees, 89741-89745 [2023-28609]

Download as PDF Federal Register / Vol. 88, No. 248 / Thursday, December 28, 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. 34–99223; File No. SR– CboeEDGA–2023–022] 1. Purpose Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees December 21, 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 December 12, 2023, Cboe EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) 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 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 EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA Equities’’) proposes to amend its Fees Schedule. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/edga/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. khammond on DSKJM1Z7X2PROD with NOTICES 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 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 The Exchange proposes to amend its fee schedule relating to physical connectivity fees.3 By way of background, 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. The Exchange currently assesses the following physical connectivity fees for Members and nonMembers on a monthly basis: $2,500 per physical port for a 1 gigabit (‘‘Gb’’) circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange proposes to increase the monthly fee for 10 Gb physical ports from $7,500 to $8,500 per port. The Exchange notes the proposed fee change better enables it to continue to maintain and improve its market technology and services and also notes that the proposed fee amount, even as amended, continues to be in line with, or even lower than, amounts assessed by other exchanges for similar connections.4 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 Cboe BZX Exchange, Inc. (options and equities), Cboe EDGX Exchange, Inc. (options and equities platforms), Cboe BYX Exchange, Inc., and Cboe C2 Exchange, Inc. (‘‘Affiliate Exchanges’’).5 3 The Exchange initially filed the proposed fee changes on July 3, 2023 (SR–CboeEDGA–2023–011). On September 1, 2023, the Exchange withdrew that filing and submitted SR–CboeEDGA–2023–015. On September 29, 2023, the Securities and Exchange Commission issued a Suspension of and Order Instituting Proceedings to Determine whether to Approve or Disapprove a Proposed Rule Change to Amend its Fees Schedule Related to Physical Port Fees (the ‘‘OIP’’). On September 29, 2023, the Exchange filed the proposed fee change (SR– CboeEDGA–2023–016). On October 13, 2023, the Exchange withdrew that filing and submitted SR– CboeEDGA–2023–017. On December 12 2023, the Exchange withdrew that filing and submitted this filing. 4 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10 Gb Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10 Gb physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN Circuits (which are analogous to the Exchange’s 10 Gb physical port) are assessed $22,000 per month, per port. 5 The Affiliate Exchanges are also submitting contemporaneous identical rule filings. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 89741 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of section 6(b) of the Act.6 Specifically, the Exchange believes the proposed rule change is consistent with the section 6(b)(5) 7 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the section 6(b)(5) 8 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange also believes the proposed rule change is consistent with section 6(b)(4) 9 of the Act, 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. The Exchange believes the proposed fee change is reasonable as it reflects a moderate increase in physical connectivity fees for 10 Gb physical ports. Further, the current 10 Gb physical port fee has remained unchanged since June 2018.10 Since its last increase 5 years ago however, there has been notable inflation. Particularly, the dollar has had an average inflation rate of 3.9% per year between 2018 and today, producing a cumulative price increase of approximately 21.1% inflation since the fee for the 10 Gb physical port was last modified.11 Moreover, the Exchange historically does not increase fees every year, notwithstanding inflation. Accordingly, the Exchange believes the proposed fee is reasonable as it represents only an approximate 13% increase from the 6 15 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 8 Id. 9 15 U.S.C. 78f(b)(4). Securities and Exchange Release No. 83449 (June 15, 2018), 83 FR 28890 (June 21, 2018) (SR– CboeEDGA–2018–010). 11 See https://www.officialdata.org/us/inflation/ 2010?amount=1. 10 See E:\FR\FM\28DEN1.SGM 28DEN1 89742 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES rates adopted five years ago, notwithstanding the cumulative rate of 21.1%. The Exchange is also unaware of any standard that suggests any fee proposal that exceeds a certain yearly or cumulative inflation rate is unreasonable. The Exchange also believes the proposed fee is reasonable as it is still in line with, or even lower than, amounts assessed by other exchanges for similar connections.12 Indeed, the Exchange believes assessing fees that are a lower rate than fees assessed by other exchanges for analogous connectivity (which were similarly adopted via the rule filing process and filed with the Commission) is reasonable. As noted above, the proposed fee is also the same as is concurrently being proposed for its Affiliate Exchanges. Further, Members are able to utilize a single port to connect to any of the Affiliate Exchanges with no additional fee assessed for that same physical port. Particularly, the Exchange believes the proposed monthly per port fee is reasonable, equitable and not unfairly discriminatory as it is assessed only once, even if it connects with another affiliate exchange since only one port is being used and the Exchange does not wish to charge multiple fees for the same port. Indeed, the Exchange notes that several ports are in fact purchased and utilized across one or more of the Exchange’s affiliated Exchanges (and charged only once). The Exchange also believes that the proposed fee change is not unfairly discriminatory because it would be assessed uniformly across all market participants that purchase the physical ports. The Exchange believes increasing the fee for 10 Gb physical ports and charging a higher fee as compared to the 1 Gb physical port is equitable as the 1 Gb physical port is 1/10th the size of the 10 Gb physical port and therefore does not offer access to many of the products and services offered by the Exchange (e.g., ability to receive certain market data products). Thus, the value of the 1 Gb alternative is lower than the value of the 10 Gb alternative, when measured based on the type of Exchange access it offers. Moreover, market participants 12 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10 Gb Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10 Gb physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gb LX LCN Circuits (which are analogous to the Exchange’s 10 Gb physical port) are assessed $22,000 per month, per port. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 that purchase 10 Gb physical ports utilize the most bandwidth and therefore consume the most resources from the network. As such, the Exchange believes the proposed fee change for 10 Gb physical ports is reasonably and appropriately allocated. The Exchange also notes 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, let alone connect directly to, the Exchange. There is also no regulatory requirement that any market participant connect to any one particular exchange. Moreover, direct connectivity is not a requirement to participate on the Exchange. The Exchange also believes 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 within the Over-the-Counter (OTC) markets which does not require connectivity to the Exchange. Indeed, 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.13 Based on publicly available information, no single equities exchange has more than approximately 16% of the market share.14 Further, 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. For example, in 2020 alone, three new exchanges entered the market: Long Term Stock Exchange (LTSE), Members Exchange (MEMX), and Miami International Holdings (MIAX Pearl). As noted above, there is no regulatory requirement that any market participant connect to any one equities exchange, nor that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. Indeed, the Exchange is unaware of any one equities exchange whose membership includes every registered broker-dealer. By way of 13 Id. 14 See Cboe Global Markets, U.S. Equities Market Volume Summary, Month-to-Date (June 29 2023), available at https://www.cboe.com/us/equities/_ statistics/. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 example, while the Exchange has 103 members that trade equities, Cboe EDGX has 124 members that trade equities, Cboe BYX has 110 members and Cboe BZX has 132 members. There is also no firm that is a Member of EDGA Equities only. Further, based on publicly available information regarding a sample of the Exchange’s competitors, NYSE has 143 members,15 IEX has 129 members,16 and MIAX Pearl has 51 members.17 A market participant may also submit orders to the Exchange via a Member broker or a third-party reseller of connectivity. The Exchange notes that third-party non-Members also resell exchange connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange connectivity fees), which 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.18 The Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. Unlike other exchanges, the Exchange also chooses not to adopt fees that would be assessed to thirdparty resellers on a per customer basis (i.e., fee based on number of Members that connect to the Exchange indirectly via the third-party).19 Particularly, these third-party resellers may purchase the Exchange’s physical ports and resell 15 See https://www.nyse.com/markets/nyse/ membership. 16 See https://www.iexexchange.io/membership. 17 See https://www.miaxglobal.com/sites/default/ files/page-files/20230630_MIAX_Pearl_Equities_ Exchange_Members_June_2023.pdf. 18 Third-party resellers of connectivity play an important role in the capital markets infrastructure ecosystem. For example, third-party resellers can help unify access for customers who want exposure to multiple financial markets that are geographically dispersed by establishing connectivity to all of the different exchanges, so the customers themselves do not have to. Many of the third-party connectivity resellers also act as distribution agents for all of the market data generated by the exchanges as they can use their established connectivity to subscribe to, and redistribute, data over their networks. This may remove barriers that infrastructure requirements may otherwise pose for customers looking to access multiple markets and real-time data feeds. This facilitation of overall access to the marketplace is ultimately beneficial for the entire capital markets ecosystem, including the Exchange, on which such firms transact business. 19 See, e.g., Nasdaq Price List—U.S. Direct Connection and Extranet Fees, available at, US Direct-Extranet Connection (nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 (January 16, 2022), 80 FR 3683 (January 23, 2022) (SR–NASDAQ–2015–002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) (SR– NASDAQ–2017–114). E:\FR\FM\28DEN1.SGM 28DEN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices access to such ports either alone or as part of a package of services. 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.20 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. These thirdparty sellers may also provide an additional value to market participants in addition to the physical port itself as they may also manage and monitor these connections, and clients of these third-parties may also be able to connect from the same colocation facility either from their own racks or using the thirdparty’s managed racks and infrastructure which may provide further cost-savings. The Exchange believes such third-party resellers may also use the Exchange’s connectivity as an incentive for market participants to purchase further services such as hosting services. That is, even firms that wish to utilize a single, dedicated 10 Gbps port (i.e., use one single 10 Gbps port themselves instead of sharing a port with other firms), may still realize cost savings via a third-party reseller as it relates to a physical port because such reseller may be providing a discount on the physical port to incentivize the purchase of additional services and infrastructure support alongside the physical port offering (e.g., providing space, hosting, power, and other longhaul connectivity options). This is similar to cell phone carriers offering a new iPhone at a discount (or even at no cost) if purchased in connection with a new monthly phone plan. These services may reevaluate reselling or offering Cboe’s direct connectivity if they deem the fees to be excessive. Further, as noted above, the Exchange does not receive any connectivity revenue when connectivity is resold by a third-party, which often is resold to multiple customers, some of whom are agency broker-dealers that have numerous customers of their own. Therefore, given the availability of third-party providers that also offer connectivity solutions, the Exchange believes participation on the Exchange remains affordable (notwithstanding the proposed fee change) for all market participants, including trading firms 20 For example, a third-party reseller may purchase one 10 Gb physical port from the Exchange and resell that connectivity to three different market participants who may only need 3 Gb each and leverage the same single port. VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 that may be able to take advantage of lower costs that result from mutualized connectivity and/or from other services provided alongside the physical port offerings. Because third-party resellers also act as a viable alternative to direct connectivity to the Exchange, the price that the Exchange is able to charge for direct connectivity to its Exchange is constrained. Moreover, if the Exchange were to assess supracompetitve rates, members and non-members (such as third-party resellers) alike, may decide not to purchase, or to reduce its use of, the Exchange’s direct connectivity. Disincentivizing market participants from purchasing Exchange connectivity would only serve to discourage participation on the Exchange which ultimately does not benefit the Exchange. Further, the Exchange believes its offerings are more affordable as compared to similar offerings at competitor exchanges.21 Accordingly, the vigorous competition among national securities exchanges provides many alternatives for firms to voluntarily decide whether direct connectivity to the Exchange is appropriate and worthwhile, and as noted above, no broker-dealer is required to become a Member of the Exchange, let alone connect directly to it. In the event that a market participant views the Exchange’s proposed fee change as more or less attractive than the competition, that market participant can choose to connect to the Exchange indirectly or may choose not to connect to that exchange and connect instead to one or more of the other 12 non-Cboe affiliated equities markets. Indeed, market participants are free to choose which exchange or reseller to use to satisfy their business needs. Moreover, if the Exchange charges excessive fees, it may stand to lose not only connectivity revenues but also revenues associated with the execution of orders routed to it, and, to the extent applicable, market data revenues. The Exchange believes that this competitive dynamic imposes powerful restraints on the ability of any exchange to charge unreasonable fees for connectivity. Notwithstanding the foregoing, the Exchange still believes that the 21 See e.g., See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10 Gbps Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10 Gbps physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gbps LX LCN Circuits (which are analogous to the Exchange’s 10 Gbps physical port) are assessed $22,000 per month, per port. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 89743 proposed fee increase is reasonable, equitably allocated and not unfairly discriminatory, even for market participants that determine to connect directly to the Exchange for business purposes, as those business reasons should presumably result in revenue capable of covering the proposed fee. The Exchange lastly notes that it is not required by the Exchange Act, nor any other rule or regulation, to undertake a cost-of-service or ratemaking approach with respect to fee proposals. Moreover, Congress’s intent in enacting the 1975 Amendments to the Act was to enable competition—rather than government order—to determine prices. The principal purpose of the amendments was to facilitate the creation of a national market system for the trading of securities. Congress intended that this ‘‘national market system evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed.’’ 22 Other provisions of the Act confirm that intent. For example, the Act provides that an exchange must design its rules ‘‘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.’’ 23 Likewise, the Act grants the Commission authority to amend or repeal ‘‘[t]he rules of [an] exchange [that] impose any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter.’’ 24 In short, the promotion of free and open competition was a core congressional objective in creating the national market system.25 Indeed, the Commission has historically interpreted that mandate to promote competitive forces to determine prices whenever compatible with a national market system. Accordingly, the Exchange believes it has met its burden to demonstrate that its proposed fee change is reasonable and consistent with the immediate filing process chosen by Congress, which created a system whereby market forces determine access fees in the vast majority of cases, subject to oversight 22 See H.R. Rep. No. 94–229, at 92 (1975) (Conf. Rep.) (emphasis added). 23 15 U.S.C. 78f(b)(5). 24 15 U.S.C. 78f(8). 25 See also 15 U.S.C. 78k–l(a)(1)(C)(ii) (purposes of Exchange Act include to promote ‘‘fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets’’); Order, 73 FR at 74781 (‘‘The Exchange Act and its legislative history strongly support the Commission’s reliance on competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.’’). E:\FR\FM\28DEN1.SGM 28DEN1 89744 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES only in particular cases of abuse or market failure. Lastly, and importantly, the Exchange believes that, even if it were possible as a matter of economic theory, cost-based pricing for the proposed fee would be so complicated that it could not be done practically. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed fee change will not impact intramarket competition because it will apply to all similarly situated Members equally (i.e., all market participants that choose to purchase the 10 Gb physical port). Additionally, the Exchange 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. For example, market participants with modest capacity needs can continue to buy the less expensive 1 Gb physical port (which cost is not changing) or may choose to obtain access via a third-party re-seller. While pricing may be increased for the larger capacity physical ports, such options provide far more capacity and are purchased by those that consume more resources from the network. Accordingly, the proposed connectivity fees do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the allocation reflects the network resources consumed by the various size of market participants— lowest bandwidth consuming members pay the least, and highest bandwidth consuming members pays the most. The Exchange’s proposed fee is also still 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. Further, 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. The Exchange 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. Indeed, market participants have numerous alternative venues that they may participate on and direct their VerDate Sep<11>2014 20:14 Dec 27, 2023 Jkt 262001 order flow, including 12 non-Cboe affiliated equities markets, as well as off-exchange venues, where competitive products are available for trading. 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.’’ 26 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’. . . .’’.27 Accordingly, the Exchange does not believe its proposed change imposes any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act 28 and paragraph (f) of Rule 19b–4 29 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 26 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 27 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)). 28 15 U.S.C. 78s(b)(3)(A). 29 17 CFR 240.19b–4(f). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 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: 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– CboeEDGA–2023–022 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–CboeEDGA–2023–022. 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 E:\FR\FM\28DEN1.SGM 28DEN1 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeEDGA–2023–022 and should be submitted on or before January 18, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Christina Z. Milnor, Assistant Secretary. [FR Doc. 2023–28609 Filed 12–27–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99224; File No. SR– CboeBZX–2023–102] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.22 To Introduce a New Data Product To Be Known as the Short Interest Report December 21, 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 December 11, 2023, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. khammond on DSKJM1Z7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) proposes to amend Rule 11.22 to introduce a new data product to be known as the Short Interest Report. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Rules of Cboe BZX Exchange, Inc. * * * * * 30 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)(iii). 4 17 CFR 240.19b–4(f)(6). Rule 11.22. Data Products The Exchange offers the following data products free of charge, except as otherwise noted in the Exchange’s fee schedule: (a)–(m) No change. (n) Short Interest Report. The Short Interest Report contains a summary of consolidated market short interest positions in all BZX-listed securities. * * * * * The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), 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 Rule 11.22 to adopt new subparagraph (n) to include the Short Interest Report as an Exchange data product. The Exchange currently makes available via its website, without charge, a Short Interest Report.5 By way of background, pursuant to the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule 4560, each FINRA member firm is required to report its ‘‘total’’ short interest positions in all customer and proprietary firm accounts.6 FINRA uses the short interest data to, among other things, assess its members’ short selling activity and compliance with Regulation SHO. The short interest data provided by FINRA members also provides analytical and investment data that the brokerage industry, academic institutions and investors use in developing riskassessment tools and trading models. 1 15 VerDate Sep<11>2014 20:14 Dec 27, 2023 5 https://www.cboe.com/us/equities/market_ statistics/short_interest/ 6 See FINRA Rule 4560. Jkt 262001 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 89745 The Short Interest Report that the Exchange currently makes available is a summary of consolidated market short interest positions in all BZX-listed securities 7 only as reported by FINRA. The file is provided daily, for each business day, but values are only updated twice per month. Proposed Rule 11.22(n) provides that the Short Interest Report contains a summary of consolidated market short interest positions in all BZX-listed securities. The report data fields include Cycle Settlement Date,8 BATS-Symbol,9 Security Name, Number of Shares Net Short Current Cycle,10 Number of Shares Net Short Previous Cycle,11 Cycle Average Daily Trade Volume,12 Minimum Number of Trade Days to Cover Shorts,13 Split Indicator,14 Manual Revision Indicator,15 Percent Change in Short Position,16 and Change in Short Position from Previous.17 Cboe LiveVol, LLC (‘‘LiveVol’’), a wholly owned subsidiary of the Exchange’s parent company, Cboe Global Markets, Inc., will make the Short Interest Reports available for purchase 18 to Members and nonMembers on the LiveVol DataShop website.19 The Exchange notes that the data fields included in the Short Interest Report are substantially similar to the 7 A BZX-listed security is a security listed on the Exchange pursuant to Chapter 14 of the Exchange’s Rules and includes both corporate listed securities and Exchange Traded Products (‘‘ETPs’’). 8 ‘‘Cycle Settlement Date’’ is the reporting period date. 9 ‘‘BATS-Symbol’’ is the Exchange-assigned symbol for the given security. 10 ‘‘Number Shares Net Short Current Cycle’’ is the total of uncovered open short interest positions in a particular security in shares, for the current reporting period. 11 ‘‘Number of Shares Net Short Previous Cycle’’ is the total number of uncovered open short interest positions in a particular security in shares, for the previous reporting period. 12 ‘‘Cycle Average Daily Trade Volume’’ is the number of shares traded on average per day in a particular security in shares. 13 ‘‘Minimum Number of Trade Days to Cover Shorts’’ is the ratio of the current short interest position over the average daily volume for the current settlement date. 14 ‘‘Split Indicator’’ indicates whether the security has undergone a stock split during the current reporting period. 15 ‘‘Manual Revision Indicator’’ indicates whether the security’s short interest for the previous reporting period has been revised. 16 ‘‘Percent Change in Short Position’’ is the percent change from the current reporting period’s short interest compared to the previous reporting period’s short interest. 17 ‘‘Change in Short Position from Previous’’ is the difference between the current and previous reporting period of uncovered short interest positions in a particular security in shares. 18 The Exchange intends to submit a separate filing to establish fees for the Short Interest Report. 19 See https://datashop.cboe.com/. E:\FR\FM\28DEN1.SGM 28DEN1

Agencies

[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89741-89745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28609]



[[Page 89741]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99223; File No. SR-CboeEDGA-2023-022]


Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fees Schedule Related to Physical Port Fees

December 21, 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 December 12, 2023, Cboe EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA Equities'') 
proposes to amend its Fees Schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/edga/), 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 relating to 
physical connectivity fees.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed fee changes on 
July 3, 2023 (SR-CboeEDGA-2023-011). On September 1, 2023, the 
Exchange withdrew that filing and submitted SR-CboeEDGA-2023-015. On 
September 29, 2023, the Securities and Exchange Commission issued a 
Suspension of and Order Instituting Proceedings to Determine whether 
to Approve or Disapprove a Proposed Rule Change to Amend its Fees 
Schedule Related to Physical Port Fees (the ``OIP''). On September 
29, 2023, the Exchange filed the proposed fee change (SR-CboeEDGA-
2023-016). On October 13, 2023, the Exchange withdrew that filing 
and submitted SR-CboeEDGA-2023-017. On December 12 2023, the 
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

    By way of background, 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. The Exchange currently assesses the 
following physical connectivity fees for Members and non-Members on a 
monthly basis: $2,500 per physical port for a 1 gigabit (``Gb'') 
circuit and $7,500 per physical port for a 10 Gb circuit. The Exchange 
proposes to increase the monthly fee for 10 Gb physical ports from 
$7,500 to $8,500 per port. The Exchange notes the proposed fee change 
better enables it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee amount, 
even as amended, continues to be in line with, or even lower than, 
amounts assessed by other exchanges for similar connections.\4\ 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 Cboe BZX Exchange, Inc. (options and 
equities), Cboe EDGX Exchange, Inc. (options and equities platforms), 
Cboe BYX Exchange, Inc., and Cboe C2 Exchange, Inc. (``Affiliate 
Exchanges'').\5\
---------------------------------------------------------------------------

    \4\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10 Gb Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10 Gb physical port. See also New York Stock Exchange 
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE 
National, Inc. Connectivity Fee Schedule, which provides that 10 Gb 
LX LCN Circuits (which are analogous to the Exchange's 10 Gb 
physical port) are assessed $22,000 per month, per port.
    \5\ The Affiliate Exchanges are also submitting contemporaneous 
identical rule filings.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \7\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with section 6(b)(4) \9\ of the Act, 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity fees for 10 Gb 
physical ports. Further, the current 10 Gb physical port fee has 
remained unchanged since June 2018.\10\ Since its last increase 5 years 
ago however, there has been notable inflation. Particularly, the dollar 
has had an average inflation rate of 3.9% per year between 2018 and 
today, producing a cumulative price increase of approximately 21.1% 
inflation since the fee for the 10 Gb physical port was last 
modified.\11\ Moreover, the Exchange historically does not increase 
fees every year, notwithstanding inflation. Accordingly, the Exchange 
believes the proposed fee is reasonable as it represents only an 
approximate 13% increase from the

[[Page 89742]]

rates adopted five years ago, notwithstanding the cumulative rate of 
21.1%. The Exchange is also unaware of any standard that suggests any 
fee proposal that exceeds a certain yearly or cumulative inflation rate 
is unreasonable.
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Release No. 83449 (June 15, 
2018), 83 FR 28890 (June 21, 2018) (SR-CboeEDGA-2018-010).
    \11\ See https://www.officialdata.org/us/inflation/2010?amount=1.
---------------------------------------------------------------------------

    The Exchange also believes the proposed fee is reasonable as it is 
still in line with, or even lower than, amounts assessed by other 
exchanges for similar connections.\12\ Indeed, the Exchange believes 
assessing fees that are a lower rate than fees assessed by other 
exchanges for analogous connectivity (which were similarly adopted via 
the rule filing process and filed with the Commission) is reasonable. 
As noted above, the proposed fee is also the same as is concurrently 
being proposed for its Affiliate Exchanges. Further, Members are able 
to utilize a single port to connect to any of the Affiliate Exchanges 
with no additional fee assessed for that same physical port. 
Particularly, the Exchange believes the proposed monthly per port fee 
is reasonable, equitable and not unfairly discriminatory as it is 
assessed only once, even if it connects with another affiliate exchange 
since only one port is being used and the Exchange does not wish to 
charge multiple fees for the same port. Indeed, the Exchange notes that 
several ports are in fact purchased and utilized across one or more of 
the Exchange's affiliated Exchanges (and charged only once).
---------------------------------------------------------------------------

    \12\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10 Gb Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10 Gb physical port. See also New York Stock Exchange 
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE 
National, Inc. Connectivity Fee Schedule, which provides that 10 Gb 
LX LCN Circuits (which are analogous to the Exchange's 10 Gb 
physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed fee change is not 
unfairly discriminatory because it would be assessed uniformly across 
all market participants that purchase the physical ports. The Exchange 
believes increasing the fee for 10 Gb physical ports and charging a 
higher fee as compared to the 1 Gb physical port is equitable as the 1 
Gb physical port is 1/10th the size of the 10 Gb physical port and 
therefore does not offer access to many of the products and services 
offered by the Exchange (e.g., ability to receive certain market data 
products). Thus, the value of the 1 Gb alternative is lower than the 
value of the 10 Gb alternative, when measured based on the type of 
Exchange access it offers. Moreover, market participants that purchase 
10 Gb physical ports utilize the most bandwidth and therefore consume 
the most resources from the network. As such, the Exchange believes the 
proposed fee change for 10 Gb physical ports is reasonably and 
appropriately allocated.
    The Exchange also notes 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, let alone connect 
directly to, the Exchange. There is also no regulatory requirement that 
any market participant connect to any one particular exchange. 
Moreover, direct connectivity is not a requirement to participate on 
the Exchange. The Exchange also believes 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 within the Over-the-Counter (OTC) markets which does 
not require connectivity to the Exchange. Indeed, 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.\13\ Based on publicly available information, no 
single equities exchange has more than approximately 16% of the market 
share.\14\ Further, 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. For 
example, in 2020 alone, three new exchanges entered the market: Long 
Term Stock Exchange (LTSE), Members Exchange (MEMX), and Miami 
International Holdings (MIAX Pearl).
---------------------------------------------------------------------------

    \13\ Id.
    \14\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (June 29 2023), available at https://www.cboe.com/us/equities/_statistics/.
---------------------------------------------------------------------------

    As noted above, there is no regulatory requirement that any market 
participant connect to any one equities exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on the Exchange, or trade any particular product 
offered on an exchange. Moreover, membership is not a requirement to 
participate on the Exchange. Indeed, the Exchange is unaware of any one 
equities exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 103 members that 
trade equities, Cboe EDGX has 124 members that trade equities, Cboe BYX 
has 110 members and Cboe BZX has 132 members. There is also no firm 
that is a Member of EDGA Equities only. Further, based on publicly 
available information regarding a sample of the Exchange's competitors, 
NYSE has 143 members,\15\ IEX has 129 members,\16\ and MIAX Pearl has 
51 members.\17\
---------------------------------------------------------------------------

    \15\ See https://www.nyse.com/markets/nyse/membership.
    \16\ See https://www.iexexchange.io/membership.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/20230630_MIAX_Pearl_Equities_Exchange_Members_June_2023.pdf.
---------------------------------------------------------------------------

    A market participant may also submit orders to the Exchange via a 
Member broker or a third-party reseller of connectivity. The Exchange 
notes that third-party non-Members also resell exchange connectivity. 
This indirect connectivity is another viable alternative for market 
participants to trade on the Exchange without connecting directly to 
the Exchange (and thus not pay the Exchange connectivity fees), which 
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.\18\ The Exchange notes that it could, but chooses not to, 
preclude market participants from reselling its connectivity. Unlike 
other exchanges, the Exchange also chooses not to adopt 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).\19\ Particularly, these third-party resellers may 
purchase the Exchange's physical ports and resell

[[Page 89743]]

access to such ports either alone or as part of a package of services. 
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 re-seller.\20\ 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. These third-party sellers 
may also provide an additional value to market participants in addition 
to the physical port itself as they may also manage and monitor these 
connections, and clients of these third-parties may also be able to 
connect from the same colocation facility either from their own racks 
or using the third-party's managed racks and infrastructure which may 
provide further cost-savings. The Exchange believes such third-party 
resellers may also use the Exchange's connectivity as an incentive for 
market participants to purchase further services such as hosting 
services. That is, even firms that wish to utilize a single, dedicated 
10 Gbps port (i.e., use one single 10 Gbps port themselves instead of 
sharing a port with other firms), may still realize cost savings via a 
third-party reseller as it relates to a physical port because such 
reseller may be providing a discount on the physical port to 
incentivize the purchase of additional services and infrastructure 
support alongside the physical port offering (e.g., providing space, 
hosting, power, and other long-haul connectivity options). This is 
similar to cell phone carriers offering a new iPhone at a discount (or 
even at no cost) if purchased in connection with a new monthly phone 
plan. These services may reevaluate reselling or offering Cboe's direct 
connectivity if they deem the fees to be excessive. Further, as noted 
above, the Exchange does not receive any connectivity revenue when 
connectivity is resold by a third-party, which often is resold to 
multiple customers, some of whom are agency broker-dealers that have 
numerous customers of their own. Therefore, given the availability of 
third-party providers that also offer connectivity solutions, the 
Exchange believes participation on the Exchange remains affordable 
(notwithstanding the proposed fee change) for all market participants, 
including trading firms that may be able to take advantage of lower 
costs that result from mutualized connectivity and/or from other 
services provided alongside the physical port offerings. Because third-
party resellers also act as a viable alternative to direct connectivity 
to the Exchange, the price that the Exchange is able to charge for 
direct connectivity to its Exchange is constrained. Moreover, if the 
Exchange were to assess supracompetitve rates, members and non-members 
(such as third-party resellers) alike, may decide not to purchase, or 
to reduce its use of, the Exchange's direct connectivity. 
Disincentivizing market participants from purchasing Exchange 
connectivity would only serve to discourage participation on the 
Exchange which ultimately does not benefit the Exchange. Further, the 
Exchange believes its offerings are more affordable as compared to 
similar offerings at competitor exchanges.\21\
---------------------------------------------------------------------------

    \18\ Third-party resellers of connectivity play an important 
role in the capital markets infrastructure ecosystem. For example, 
third-party resellers can help unify access for customers who want 
exposure to multiple financial markets that are geographically 
dispersed by establishing connectivity to all of the different 
exchanges, so the customers themselves do not have to. Many of the 
third-party connectivity resellers also act as distribution agents 
for all of the market data generated by the exchanges as they can 
use their established connectivity to subscribe to, and 
redistribute, data over their networks. This may remove barriers 
that infrastructure requirements may otherwise pose for customers 
looking to access multiple markets and real-time data feeds. This 
facilitation of overall access to the marketplace is ultimately 
beneficial for the entire capital markets ecosystem, including the 
Exchange, on which such firms transact business.
    \19\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, US Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \20\ For example, a third-party reseller may purchase one 10 Gb 
physical port from the Exchange and resell that connectivity to 
three different market participants who may only need 3 Gb each and 
leverage the same single port.
    \21\ See e.g., See e.g., The Nasdaq Stock Market LLC 
(``Nasdaq''), General 8, Connectivity to the Exchange. Nasdaq and 
its affiliated exchanges charge a monthly fee of $15,000 for each 10 
Gbps Ultra fiber connection to the respective exchange, which is 
analogous to the Exchange's 10 Gbps physical port. See also New York 
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago 
Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides 
that 10 Gbps LX LCN Circuits (which are analogous to the Exchange's 
10 Gbps physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------

    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether direct connectivity to the Exchange is appropriate and 
worthwhile, and as noted above, no broker-dealer is required to become 
a Member of the Exchange, let alone connect directly to it. In the 
event that a market participant views the Exchange's proposed fee 
change as more or less attractive than the competition, that market 
participant can choose to connect to the Exchange indirectly or may 
choose not to connect to that exchange and connect instead to one or 
more of the other 12 non-Cboe affiliated equities markets. Indeed, 
market participants are free to choose which exchange or reseller to 
use to satisfy their business needs. Moreover, if the Exchange charges 
excessive fees, it may stand to lose not only connectivity revenues but 
also revenues associated with the execution of orders routed to it, 
and, to the extent applicable, market data revenues. The Exchange 
believes that this competitive dynamic imposes powerful restraints on 
the ability of any exchange to charge unreasonable fees for 
connectivity. Notwithstanding the foregoing, the Exchange still 
believes that the proposed fee increase is reasonable, equitably 
allocated and not unfairly discriminatory, even for market participants 
that determine to connect directly to the Exchange for business 
purposes, as those business reasons should presumably result in revenue 
capable of covering the proposed fee.
    The Exchange lastly notes that it is not required by the Exchange 
Act, nor any other rule or regulation, to undertake a cost-of-service 
or rate-making approach with respect to fee proposals. Moreover, 
Congress's intent in enacting the 1975 Amendments to the Act was to 
enable competition--rather than government order--to determine prices. 
The principal purpose of the amendments was to facilitate the creation 
of a national market system for the trading of securities. Congress 
intended that this ``national market system evolve through the 
interplay of competitive forces as unnecessary regulatory restrictions 
are removed.'' \22\ Other provisions of the Act confirm that intent. 
For example, the Act provides that an exchange must design its rules 
``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.'' \23\ Likewise, the Act grants the 
Commission authority to amend or repeal ``[t]he rules of [an] exchange 
[that] impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of this chapter.'' \24\ In short, the 
promotion of free and open competition was a core congressional 
objective in creating the national market system.\25\ Indeed, the 
Commission has historically interpreted that mandate to promote 
competitive forces to determine prices whenever compatible with a 
national market system. Accordingly, the Exchange believes it has met 
its burden to demonstrate that its proposed fee change is reasonable 
and consistent with the immediate filing process chosen by Congress, 
which created a system whereby market forces determine access fees in 
the vast majority of cases, subject to oversight

[[Page 89744]]

only in particular cases of abuse or market failure. Lastly, and 
importantly, the Exchange believes that, even if it were possible as a 
matter of economic theory, cost-based pricing for the proposed fee 
would be so complicated that it could not be done practically.
---------------------------------------------------------------------------

    \22\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.) 
(emphasis added).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(8).
    \25\ See also 15 U.S.C. 78k-l(a)(1)(C)(ii) (purposes of Exchange 
Act include to promote ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets''); Order, 73 FR at 74781 (``The 
Exchange Act and its legislative history strongly support the 
Commission's reliance on competition, whenever possible, in meeting 
its regulatory responsibilities for overseeing the SROs and the 
national market system.'').
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed fee change will 
not impact intramarket competition because it will apply to all 
similarly situated Members equally (i.e., all market participants that 
choose to purchase the 10 Gb physical port). Additionally, the Exchange 
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. 
For example, market participants with modest capacity needs can 
continue to buy the less expensive 1 Gb physical port (which cost is 
not changing) or may choose to obtain access via a third-party re-
seller. While pricing may be increased for the larger capacity physical 
ports, such options provide far more capacity and are purchased by 
those that consume more resources from the network. Accordingly, the 
proposed connectivity fees do not favor certain categories of market 
participants in a manner that would impose a burden on competition; 
rather, the allocation reflects the network resources consumed by the 
various size of market participants--lowest bandwidth consuming members 
pay the least, and highest bandwidth consuming members pays the most.
    The Exchange's proposed fee is also still 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. Further, 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. The Exchange 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. Indeed, market participants have numerous alternative venues that 
they may participate on and direct their order flow, including 12 non-
Cboe affiliated equities markets, as well as off-exchange venues, where 
competitive products are available for trading. 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.'' \26\ 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'. . . .''.\27\ Accordingly, the Exchange 
does not believe its proposed change imposes any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \26\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \27\ 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)).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \28\ and paragraph (f) of Rule 19b-4 \29\ 
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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-CboeEDGA-2023-022 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-CboeEDGA-2023-022. 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

[[Page 89745]]

submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-CboeEDGA-2023-022 and 
should be submitted on or before January 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28609 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.