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]
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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.
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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
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
section 6(b) of the Act.6 Specifically, the
Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 7 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the section 6(b)(5) 8 requirement that the
rules of an exchange not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
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
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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.
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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/.
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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).
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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.
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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.
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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.’’).
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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
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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).
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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]]
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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.
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\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.'').
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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.
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\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)).
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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.
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.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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-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\
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\30\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28609 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P