Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule Related to Physical Port Fees, 32471-32475 [2024-08941]
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Federal Register / Vol. 89, No. 82 / Friday, April 26, 2024 / Notices
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
Proposed Rule Change should be
approved or disapproved by May 17,
2024. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
May 31, 2024.
The Commission asks that
commenters address the sufficiency of
OCC’s statements in support of the
Proposed Rule Change, which are set
forth in the Notice of Filing,24 in
addition to any other comments they
may wish to submit about the Proposed
Rule Change.
Comments may be submitted by any
of the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–08948 Filed 4–25–24; 8:45 am]
BILLING CODE 8011–01–P
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–
OCC–2024–001 on the subject line.
Paper Comments
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Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection.
All submissions should refer to File
Number SR–OCC–2024–001 and should
be submitted on or before May 17, 2024.
Rebuttal comments should be submitted
by May 31, 2024.
• 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–OCC–2024–001. 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 such filing
also will be available for inspection and
copying at the principal office of OCC
and on OCC’s website at https://
www.theocc.com/CompanyInformation/Documents-and-Archives/
By-Laws-and-Rules.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100001; File No. SR–
CboeEDGX–2024–020]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend its
Fees Schedule Related to Physical
Port Fees
April 22, 2024.
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 April 9,
2024, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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 EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX 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/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
25 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
24 See
Notice of Filing, supra note 4.
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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.
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
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
3 The Exchange initially filed the proposed fee
changes on July 3, 2023 (SR–CboeEDGX–2023–044).
On September 1, 2023, the Exchange withdrew that
filing and submitted SR–CboeEDGX–2023–057. 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–
CboeEDGX–2023–62). On October 13, 2023, the
Exchange withdrew that filing and on business date
October 16, 2023 submitted SR–CboeEDGX–2023–
065. On December 12, the Exchange withdrew that
filing and submitted SR–CboeEDGX–2023–079. On
December 20, the Exchange withdrew that filing
and submitted SR–CboeEDGX–2023–081. On
February 12, 2024, the Exchange withdrew that
filing and submitted SR–CboeEDGX–2024–013. On
April 9, 2024, the Exchange withdrew that filing
and submitted this filing.
4 See e.g., The Nasdaq Stock Market LLC
(‘‘Nasdaq’’), General 8, Connectivity to the
Continued
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also be used to access the Systems for
the following affiliate exchanges and
only one monthly fee currently (and
will continue) to apply per port: the
Exchange’s options platform (EDGX
Options), Cboe BZX Exchange, Inc.
(options and equities platforms), Cboe
BYX Exchange, Inc., Cboe EDGA
Exchange, Inc., and Cboe C2 Exchange,
Inc., (‘‘Affiliate Exchanges’’).5
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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
Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gb Ultra
fiber connection to the respective exchange, which
is analogous to the Exchange’s 10Gb 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.
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).
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physical port fee has remained
unchanged since June 2018.10 Since its
last increase over 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 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, and in any event,
in this instance the increase is well
below the cumulative rate.
Additionally, the Exchange believes
the proposed fee increase is reasonable
in light of recent and anticipated
connectivity-related upgrades and
changes. The Exchange and its affiliated
exchanges recently launched a multiyear initiative to improve Cboe
Exchange Platform performance and
capacity requirements to increase
competitiveness, support growth and
advance a consistent world class
platform. The goal of the project, among
other things, is to provide faster and
more consistent order handling and
matching performance for options,
while ensuring quicker processing time
and supporting increasing volumes and
capacity needs. For example, the
Exchange recently performed switch
hardware upgrades. Particularly, the
Exchange replaced existing customer
access switches with newer models,
which the Exchange believes resulted in
increased determinism. The recent
switch upgrades also increased the
Exchange’s capacity to accommodate
more physical ports by nearly 50%.
Network bandwidth was also increased
nearly two-fold as a result of the
upgrades, which among other things,
can lead to reduce message queuing.
The Exchange also believes these newer
models result in less natural variance in
the processing of messages. The
Exchange notes that it incurred costs
associated with purchasing and
upgrading to these newer models, of
10 See Securities and Exchange Release No. 83450
(June 15, 2018), 83 FR 28884 (June 21, 2018) (SR–
CboeEDGX–2018–016).
11 See https://www.officialdata.org/us/inflation/
2010?amount=1.
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which the Exchange has not otherwise
passed through or offset.
As of April 1, 2024, market
participants also having the option of
connecting to a new data center (i.e.,
Secaucus NY6 Data Center (‘‘NY6’’)), in
addition to the current data centers at
NY4 and NY5. The Exchange made NY6
available in response to customer
requests in connection with their need
for additional space and capacity. In
order to make this space available, the
Exchange expended significant
resources to prepare this space, and will
also incur ongoing costs with respect to
maintaining this offering, including
costs related to power, space, fiber,
cabinets, panels, labor and maintenance
of racks. The Exchange also incurred a
large cost with respect to ensuring NY6
would be latency equalized, as it is for
NY4 and NY5.
The Exchange also has made various
other improvements since the current
physical port rates were adopted in
2018. For example, the Exchange has
updated its customer portal to provide
more transparency with respect to firms’
respective connectivity subscriptions,
enabling them to better monitor,
evaluate and adjust their connections
based on their evolving business needs.
The Exchange also performs proactive
audits on a weekly basis to ensure that
all customer cross connects continue to
fall within allowable tolerances for
Latency Equalized connections.
Accordingly, the Exchange expended,
and will continue to expend, resources
to innovate and modernize technology
so that it may benefit its Members and
continue to compete among other
equities markets. The ability to continue
to innovate with technology and offer
new products to market participants
allows the Exchange to remain
competitive in the equities space which
currently has 16 equities markets and
potential new entrants.
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
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 10Gb Ultra
fiber connection to the respective exchange, which
is analogous to the Exchange’s 10Gb 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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(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
that purchase 10 Gb physical ports
utilize the most bandwidth and
therefore consume the most resources
from the network. The Exchange also
anticipates that firms that utilize 10 Gb
ports will benefit the most from the
Exchange’s investment in offering NY6
as the Exchange anticipates there will be
much higher quantities of 10 Gb
physical ports connecting from NY6 as
compared to 1 Gb ports. Indeed, the
Exchange notes that 10 Gb physical
ports account for approximately 90% of
physical ports across the NY4, NY5, and
NY6 data centers, and to date, 80% of
new port connections in NY6 are 10 Gb
ports. 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
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regulatory requirement that any market
participant connect to any one
particular exchange. Market participants
may voluntarily choose to become a
member of one or more of a number of
different exchanges, of which, the
Exchange is but one choice.
Additionally, any Exchange member
that is dissatisfied with the proposal is
free to choose not to be a member of the
Exchange and send order flow to
another 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 and/or trading
of any equities product, such as within
the Over-the-Counter (OTC) markets
which do 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
example, while the Exchange has 124
members that trade equities, Cboe BZX
has 132 members that trade equities,
Cboe EDGA has103 members and Cboe
BYX has 110 members. There is also no
firm that is a Member of EDGX Equities
only. Further, based on publicly
available information regarding a
13 Id.
14 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (April 4,2024),
available at https://www.cboe.com/us/equities/_
statistics/.
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sample of the Exchange’s competitors,
NYSE has 143 members,15 IEX has 129
members,16 and MIAX Pearl has 51
members.17
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. 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 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.’’ 18
Other provisions of the Act confirm that
intent. For example, the Act provides
that an exchange must design its rules
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 See H.R. Rep. No. 94–229, at 92 (1975) (Conf.
Rep.) (emphasis added)
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‘‘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.’’ 19 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.’’ 20 In short,
the promotion of free and open
competition was a core congressional
objective in creating the national market
system.21 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
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
19 15
U.S.C. 78f(b)(5).
U.S.C. 78f(8).
21 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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changing). 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.’’ 22 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 broker22 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
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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’. . . .’’.23 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 24 and paragraph (f) of Rule
19b–4 25 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeEDGX–2024–020 on the subject
line.
23 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)).
24 15 U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f).
E:\FR\FM\26APN1.SGM
26APN1
Federal Register / Vol. 89, No. 82 / Friday, April 26, 2024 / Notices
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeEDGX–2024–020. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeEDGX–2024–020 and should be
submitted on or before May 17, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–08941 Filed 4–25–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100006; File No. SR–
FINRA–2024–004]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Amend FINRA Rule
6730 (Transaction Reporting) To
Reduce the 15-Minute TRACE
Reporting Timeframe to One Minute
April 22, 2024.
I. Introduction
On January 11, 2024, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend FINRA Rule 6730 to reduce the
15-minute reporting timeframe for
transactions reported to FINRA’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’) system to one minute, with
exceptions for FINRA member firms
with de minimis reporting activity and
for manual trades. The proposed rule
change was published for comment in
the Federal Register on January 25,
2024.3 The Commission received
comments in response to the proposal.4
On February 29, 2024, the Commission
extended until April 24, 2024, the time
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
This order institutes proceedings
pursuant to Section 19(b)(2)(B) of the
Exchange Act 6 to determine whether to
approve or disapprove the proposed
rule change.
II. Summary of the Proposed Rule
Change
As described in more detail in the
Notice, FINRA rules currently specify
the applicable outer-limit reporting
timeframe for different types of TRACE-
ddrumheller on DSK120RN23PROD with NOTICES1
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4
3 See Securities Exchange Act Release No. 99404
(January 19, 2024), 89 FR 5034 (January 25, 2024)
(‘‘Notice’’).
4 Comments received on the proposed rule change
are available at: https://www.sec.gov/comments/srfinra-2024-004/srfinra2024004.htm.
5 See Securities Exchange Act Release No. 99640
(February 29, 2024), 89 FR 16042 (March 6, 2024).
6 15 U.S.C. 78s(b)(2)(B).
2 17
26 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:31 Apr 25, 2024
Jkt 262001
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Fmt 4703
Sfmt 4703
32475
Eligible Securities.7 Most transactions in
corporate bonds, agency debt
securities,8 asset-backed securities
(‘‘ABS’’),9 and agency pass-through
mortgage-backed securities (‘‘MBS’’)
traded to-be-announced (‘‘TBA’’) for
good delivery (‘‘GD’’) 10 must be
reported within 15 minutes.11 The 157 ‘‘TRACE-Eligible Security’’ means a debt
security that is United States (‘‘U.S.’’) dollardenominated and is: (1) issued by a U.S. or foreign
private issuer, and, if a ‘‘restricted security’’ as
defined in Rule 144(a)(3) under the Securities Act
of 1933 (‘‘Securities Act’’), sold pursuant to
Securities Act Rule 144A; (2) issued or guaranteed
by an Agency as defined in Rule 6710(k) or a
Government-Sponsored Enterprise as defined in
Rule 6710(n); (3) a U.S. Treasury Security as
defined in Rule 6710(p); or (4) a Foreign Sovereign
Debt Security as defined in Rule 6710(kk). ‘‘TRACEEligible Security’’ does not include a debt security
that is a Money Market Instrument as defined in
Rule 6710(o). See Rule 6710(a).
8 ‘‘Agency Debt Security’’ means a debt security
(i) issued or guaranteed by an Agency as defined in
Rule 6710(k); (ii) issued or guaranteed by a
Government-Sponsored Enterprise as defined in
Rule 6710(n); or (iii) issued by a trust or other entity
that was established or sponsored by a GovernmentSponsored Enterprise for the purpose of issuing
debt securities, where such enterprise provides
collateral to the trust or other entity or retains a
material net economic interest in the reference
tranches associated with the securities issued by the
trust or other entity. The term excludes a U.S.
Treasury Security as defined in Rule 6710(p) and
a Securitized Product as defined in Rule 6710(m),
where an Agency or a Government-Sponsored
Enterprise is the Securitizer as defined in Rule
6710(s) (or similar person), or the guarantor of the
Securitized Product. See Rule 6710(l).
9 ‘‘Asset-Backed Security’’ means a type of
Securitized Product where the Asset-Backed
Security is collateralized by any type of financial
asset, such as a consumer or student loan, a lease,
or a secured or unsecured receivable, and excludes:
(i) a Securitized Product that is backed by
residential or commercial mortgage loans, mortgagebacked securities, or other financial assets
derivative of mortgage-backed securities; (ii) an
SBA-Backed ABS as defined in Rule 6710(bb)
traded To Be Announced as defined in Rule 6710(u)
or in a Specified Pool Transaction as defined in
Rule 6710(x); and (iii) a collateralized debt
obligation. See Rule 6710(cc).
10 ‘‘Agency Pass-Through Mortgage-Backed
Security’’ means a type of Securitized Product
issued in conformity with a program of an Agency
as defined in Rule 6710(k) or a GovernmentSponsored Enterprise (‘‘GSE’’) as defined in Rule
6710(n), for which the timely payment of principal
and interest is guaranteed by the Agency or GSE,
representing ownership interest in a pool (or pools)
of mortgage loans structured to ‘‘pass through’’ the
principal and interest payments to the holders of
the security on a pro rata basis. See Rule 6710(v).
‘‘To Be Announced’’ means a transaction in an
Agency Pass-Through Mortgage-Backed Security or
an SBA-Backed ABS as defined in Rule 6710(bb)
where the parties agree that the seller will deliver
to the buyer a pool or pool(s) of a specified face
amount and meeting certain other criteria but the
specific pool or pool(s) to be delivered at settlement
is not specified at the Time of Execution, and
includes TBA transactions ‘‘for good delivery’’ and
TBA transactions ‘‘not for good delivery’’ (‘‘NGD’’).
See Rule 6710(u).
11 See Rule 6730(a). However, a ‘‘List or Fixed
Offering Price Transaction,’’ as defined in Rule
6710(q), and a ‘‘Takedown Transaction,’’ as defined
in Rule 6710(r) are required to be reported to
E:\FR\FM\26APN1.SGM
Continued
26APN1
Agencies
[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32471-32475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08941]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100001; File No. SR-CboeEDGX-2024-020]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend its Fees Schedule Related to Physical Port Fees
April 22, 2024.
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 April 9, 2024, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX 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/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule relating to
physical connectivity fees.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
July 3, 2023 (SR-CboeEDGX-2023-044). On September 1, 2023, the
Exchange withdrew that filing and submitted SR-CboeEDGX-2023-057. 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-CboeEDGX-
2023-62). On October 13, 2023, the Exchange withdrew that filing and
on business date October 16, 2023 submitted SR-CboeEDGX-2023-065. On
December 12, the Exchange withdrew that filing and submitted SR-
CboeEDGX-2023-079. On December 20, the Exchange withdrew that filing
and submitted SR-CboeEDGX-2023-081. On February 12, 2024, the
Exchange withdrew that filing and submitted SR-CboeEDGX-2024-013. On
April 9, 2024, 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
[[Page 32472]]
also be used to access the Systems for the following affiliate
exchanges and only one monthly fee currently (and will continue) to
apply per port: the Exchange's options platform (EDGX Options), Cboe
BZX Exchange, Inc. (options and equities platforms), Cboe BYX Exchange,
Inc., Cboe EDGA Exchange, Inc., and Cboe C2 Exchange, Inc.,
(``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 10Gb Ultra fiber connection
to the respective exchange, which is analogous to the Exchange's
10Gb 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 over 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 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, and in any
event, in this instance the increase is well below the cumulative rate.
---------------------------------------------------------------------------
\10\ See Securities and Exchange Release No. 83450 (June 15,
2018), 83 FR 28884 (June 21, 2018) (SR-CboeEDGX-2018-016).
\11\ See https://www.officialdata.org/us/inflation/2010?amount=1.
---------------------------------------------------------------------------
Additionally, the Exchange believes the proposed fee increase is
reasonable in light of recent and anticipated connectivity-related
upgrades and changes. The Exchange and its affiliated exchanges
recently launched a multi-year initiative to improve Cboe Exchange
Platform performance and capacity requirements to increase
competitiveness, support growth and advance a consistent world class
platform. The goal of the project, among other things, is to provide
faster and more consistent order handling and matching performance for
options, while ensuring quicker processing time and supporting
increasing volumes and capacity needs. For example, the Exchange
recently performed switch hardware upgrades. Particularly, the Exchange
replaced existing customer access switches with newer models, which the
Exchange believes resulted in increased determinism. The recent switch
upgrades also increased the Exchange's capacity to accommodate more
physical ports by nearly 50%. Network bandwidth was also increased
nearly two-fold as a result of the upgrades, which among other things,
can lead to reduce message queuing. The Exchange also believes these
newer models result in less natural variance in the processing of
messages. The Exchange notes that it incurred costs associated with
purchasing and upgrading to these newer models, of which the Exchange
has not otherwise passed through or offset.
As of April 1, 2024, market participants also having the option of
connecting to a new data center (i.e., Secaucus NY6 Data Center
(``NY6'')), in addition to the current data centers at NY4 and NY5. The
Exchange made NY6 available in response to customer requests in
connection with their need for additional space and capacity. In order
to make this space available, the Exchange expended significant
resources to prepare this space, and will also incur ongoing costs with
respect to maintaining this offering, including costs related to power,
space, fiber, cabinets, panels, labor and maintenance of racks. The
Exchange also incurred a large cost with respect to ensuring NY6 would
be latency equalized, as it is for NY4 and NY5.
The Exchange also has made various other improvements since the
current physical port rates were adopted in 2018. For example, the
Exchange has updated its customer portal to provide more transparency
with respect to firms' respective connectivity subscriptions, enabling
them to better monitor, evaluate and adjust their connections based on
their evolving business needs. The Exchange also performs proactive
audits on a weekly basis to ensure that all customer cross connects
continue to fall within allowable tolerances for Latency Equalized
connections. Accordingly, the Exchange expended, and will continue to
expend, resources to innovate and modernize technology so that it may
benefit its Members and continue to compete among other equities
markets. The ability to continue to innovate with technology and offer
new products to market participants allows the Exchange to remain
competitive in the equities space which currently has 16 equities
markets and potential new entrants.
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
[[Page 32473]]
(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 10Gb Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10Gb 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. The Exchange also anticipates that
firms that utilize 10 Gb ports will benefit the most from the
Exchange's investment in offering NY6 as the Exchange anticipates there
will be much higher quantities of 10 Gb physical ports connecting from
NY6 as compared to 1 Gb ports. Indeed, the Exchange notes that 10 Gb
physical ports account for approximately 90% of physical ports across
the NY4, NY5, and NY6 data centers, and to date, 80% of new port
connections in NY6 are 10 Gb ports. 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. Market
participants may voluntarily choose to become a member of one or more
of a number of different exchanges, of which, the Exchange is but one
choice. Additionally, any Exchange member that is dissatisfied with the
proposal is free to choose not to be a member of the Exchange and send
order flow to another 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 and/or
trading of any equities product, such as within the Over-the-Counter
(OTC) markets which do 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 (April 4,2024), 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 124 members that
trade equities, Cboe BZX has 132 members that trade equities, Cboe EDGA
has103 members and Cboe BYX has 110 members. There is also no firm that
is a Member of EDGX 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.
---------------------------------------------------------------------------
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. 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.'' \18\ Other provisions of the Act confirm that intent.
For example, the Act provides that an exchange must design its rules
[[Page 32474]]
``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.'' \19\ 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.'' \20\ In short, the
promotion of free and open competition was a core congressional
objective in creating the national market system.\21\ 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 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.
---------------------------------------------------------------------------
\18\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.)
(emphasis added)
\19\ 15 U.S.C. 78f(b)(5).
\20\ 15 U.S.C. 78f(8).
\21\ 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). 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.'' \22\ 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'. . . .''.\23\ 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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\22\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\23\ 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 \24\ and paragraph (f) of Rule 19b-4 \25\
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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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeEDGX-2024-020 on the subject line.
[[Page 32475]]
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeEDGX-2024-020. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeEDGX-2024-020 and should
be submitted on or before May 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08941 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P