
[Federal Register Volume 83, Number 245 (Friday, December 21, 2018)]
[Notices]
[Pages 65777-65779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84832; File No. SR-CboeEDGX-2018-059]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Amend the Exchange's Fee Schedule Applicable to Its 
Equities Trading Platform

December 17, 2018.
    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 3, 2018, Cboe EDGX Exchange, Inc. (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the Exchange's fee schedule applicable to 
its equities trading platform (``EDGX Equities'') to introduce: (1) A 
``Retail Volume Tier'' for firms that execute a significant volume of 
liquidity providing retail order flow on EDGX, and (2) a ``Step-Up 
Tier'' based on growth in the member's liquidity provided on EDGX.
    The text of the proposed changes to the fee schedule are attached 
as Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatory 
Home.aspx), 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 purpose of the proposed rule change is to amend the EDGX 
Equities fee schedule to introduce: (1) A ``Retail Volume Tier'' for 
firms that execute a significant volume of liquidity providing retail 
order flow on EDGX, and (2) a ``Step-Up Tier'' based on growth in the 
member's liquidity provided on EDGX. The Exchange believes that both of 
the proposed changes would encourage more liquidity and opportunities 
for investors to trade on the Exchange.
I. Retail Volume Tier
    A ``Retail Member Organization'' or ``RMO'' is a member (or a 
division thereof) that has been approved by the Exchange to submit 
Retail Orders.\3\ Due to the intense competition for retail order flow, 
the Exchange provides special pricing for Retail Orders as an incentive 
for members to bring such orders to EDGX instead of another exchange or 
off-exchange venue. Specifically, Retail Orders that add liquidity and 
yield fee code ZA \4\ currently benefit from an enhanced rebate of 
$0.0032 per share. The Exchange is interested in attracting additional 
retail order flow, and therefore proposes to introduce a Retail Volume 
Tier that is designed to encourage more retail participation. The 
Retail Volume Tier would provide further enhanced rebates to liquidity 
providing Retail Orders, provided that the member executes a specified 
average daily volume (``ADV'') \5\ in such orders on EDGX. As proposed, 
a Retail Order that adds liquidity under fee code ZA would be eligible 
for a rebate of $0.0037 per share if the member's ADV in Retail Orders 
that add liquidity (i.e., yielding fee code ZA) is greater than or 
equal to 0.35% of Total Consolidated Volume (``TCV'').\6\
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    \3\ See EDGX Rule 11.21(a)(1). A ``Retail Order'' is an agency 
or riskless principal order that meets the criteria of FINRA Rule 
5320.03 that originates from a natural person and is submitted to 
the Exchange by a Retail Member Organization, provided that no 
change is made to the terms of the order with respect to price or 
side of market and the order does not originate from a trading 
algorithm or any other computerized methodology. See EDGX Rule 
11.21(a)(2).
    \4\ ``ZA'' is associated with Retail Orders that add liquidity.
    \5\ ADAV means average daily added volume calculated as the 
number of shares added per day and ADV means average daily volume 
calculated as the number of shares added to, removed from, or routed 
by, the Exchange, or any combination or subset thereof, per day. 
ADAV and ADV is calculated on a monthly basis.
    The Exchange excludes from its calculation of ADAV and ADV 
shares added, removed, or routed on any day that the Exchange's 
system experiences a disruption that lasts for more than 60 minutes 
during Regular Trading Hours (``Exchange System Disruption''), on 
any day with a scheduled early market close, and on the last Friday 
in June (the ``Russell Reconstitution Day'').
    With prior notice to the Exchange, a Member may aggregate ADAV 
and ADV with other Members that control, are controlled by, or are 
under common control with such Member (as evidenced on such Member's 
Form BD).
    \6\ TCV means total consolidated volume calculated as the volume 
reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
    The Exchange excludes from its calculation of TCV volume on any 
day that the Exchange experiences an Exchange System Disruption, on 
any day with a scheduled early market close, and the Russell 
Reconstitution Day.
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II. Step-Up Tier
    Currently, the EDGX Equities fee schedule contains six Add Volume 
Tiers that provide enhanced rebates, ranging from of $0.0025 to $0.0032 
per share, for displayed orders that add liquidity in Tapes A, B, and C 
and yield fee codes B,\7\ V,\8\ Y,\9\ 3 \10\ and 4.\11\ To encourage 
market participants to provide more liquidity on EDGX, the Exchange 
proposes to introduce a seventh Add Volume Tier that is based on the 
growth in liquidity providing orders that the member executes on EDGX--
i.e., the ``Step-Up Tier.'' As proposed, the Exchange would provide 
rebate of $0.0033 per share for displayed orders that add liquidity to 
members that execute a Step-Up Add TCV from October 2018 that is equal 
to or greater

[[Page 65778]]

than 0.35%. As currently defined in the EDGX Equities fee schedule, 
Step-Up Add TCV means ADAV as a percentage of TCV in the relevant 
baseline month subtracted from current ADAV as a percentage of TCV. 
Members that achieve the proposed Step-Up Tier must therefore increase 
the amount of liquidity that they provide on EDGX, thereby contributing 
to a deeper and more liquid market.
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    \7\ ``B'' is associated with displayed orders that add liquidity 
on EDGX for Tape B.
    \8\ ``V'' is associated with displayed orders that add liquidity 
on EDGX for Tape A.
    \9\ ``Y'' is associated with displayed orders that add liquidity 
on EDGX for Tape C.
    \10\ ``3'' is associated with displayed orders that add 
liquidity on EDGX for Tape A or C during the post-market or pre-
market trading sessions.
    \11\ ``4'' is associated with displayed orders that add 
liquidity on EDGX for Tape B during the post-market or pre-market 
trading sessions.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\12\ in general, and furthers the 
requirements of Section 6(b)(4),\13\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its members and other persons using its facilities. 
Specifically, the Exchange believes that the proposed changes to the 
EDGX Equities fee schedule are appropriately designed to encourage 
market participants to send additional liquidity providing orders to 
the Exchange, and thereby contribute to a vibrant and competitive 
market. Volume-based rebates such as those proposed herein have been 
widely adopted by equities exchanges, and provide benefits to market 
participants that are reasonably related to: (i) The value to an 
exchange's market quality; (ii) associated higher levels of market 
activity, such as higher levels of liquidity provision and/or growth 
patterns; and (iii) introduction of higher volumes of orders into the 
price and volume discovery processes. As described in more detail 
below, the Exchange believes that the proposed tiers are reasonable, 
equitable, and not unfairly discriminatory as they will continue to 
provide members with an incentive to provide more liquidity on EDGX, to 
the benefit of investors.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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I. Retail Volume Tier
    The Exchange currently provides pricing incentives to Retail Member 
Organizations that execute liquidity providing Retail Orders on EDGX, 
and desires to further enhance those incentives in order to encourage 
additional retail participation. The proposed Retail Volume Tier would 
achieve that result by providing a higher rebate to Retail Orders that 
provide liquidity if submitted by a member that executes a significant 
volume of liquidity providing Retail Orders on EDGX. NYSE Arca, Inc. 
(``Arca'') also operates a similar volume-based rebate program that 
provides tiered rebates of up to $0.0035 [sic] per share to attract 
retail order flow.\14\
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    \14\ See Arca Equities Fees and Charges, Trade Related Fees and 
Credits, Retail Order Tier and Retail Order Step-Up Tiers.
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    The Exchange believes that the proposed Retail Volume Tier is 
reasonable and equitable as it would allow EDGX to effectively compete 
for retail order flow with Arca as well as other exchanges and the many 
off-exchange venues that execute the majority of retail order flow 
today. The Exchange previously offered volume based incentives for 
Retail Orders. That program, which was discontinued in March 2016 when 
the Exchange increased the base rebate for Retail Orders that add 
liquidity,\15\ was substantially similar to the one proposed herein, 
except that both the rebate amount and the volume required to achieve 
that rebate were lower than proposed today. The Exchange believes that 
the current proposal is appropriately designed to attract Retail Orders 
to EDGX given the high degree of competition for such orders in today's 
market. The Exchange believes that attracting liquidity in Retail 
Orders would incentivize other members to send order flow to EDGX to 
trade with such Retail Orders. In addition, the Exchange believes that 
this increased liquidity would potentially stimulate further price 
competition for Retail Orders, thereby deepening the Exchange's 
liquidity pool in both and retail and other orders, supporting the 
quality of price discovery, and promoting market transparency.
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    \15\ See Securities Exchange Act Release No. 77394 (March 17, 
2016), 81 FR 15596 (March 23, 2016) (SR-BatsEDGX-2016-02).
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    The Exchange also believes that the proposed Retail Volume Tier is 
not unfairly discriminatory because it applies equally to all members 
that execute liquidity providing Retail Orders and meet the specified 
volume threshold. Retail Member Organizations that do not meet the 
proposed volume threshold would continue to earn the current rebate, 
which already provides a significant incentive for executing retail 
order flow on EDGX. The Exchange believes that it is appropriate to 
limit the proposed enhanced rebates to Retail Orders as the Exchange is 
attempting to increase retail participation. Retail participation is 
more likely to reflect long-term investment intentions, and may 
therefore positively impact market quality. Accordingly, the presence 
of Retail Orders on EDGX has the potential to benefit all market 
participants. As explained in the purpose section of this proposed rule 
change, competition for retail order flow is particularly fierce, with 
Arca also providing a high rebate to market participants that execute a 
significant amount of such orders on that exchange. In that context, 
the Exchange believes that it is appropriate to provide additional 
incentives to Retail Orders in order to attract that order flow.
II. Step-Up Tier
    The Exchange believes the proposed Step-Up Tier is a reasonable 
means to encourage members to increase the liquidity that they provide 
on EDGX based on increasing their volume above a predetermined 
baseline. The Exchange has previously offered similar incentives that 
were designed to encourage additional growth in liquidity provided on 
EDGX,\16\ and believes that introducing such a tier again would be 
helpful in attracting liquidity to the Exchange to the benefit of all 
market participants. Deepening the Exchange's liquidity pool benefits 
investors by encouraging more price competition and providing 
additional opportunities to trade. The Exchange believes that the 
proposed new tier represents an equitable allocation of reasonable 
dues, fees, and other charges because the thresholds necessary to 
achieve the tier encourages members to add increased liquidity to EDGX 
each month. Furthermore, the Exchange believes that the proposed Step-
Up Tier is not unfairly discriminatory as it applies uniformly to all 
members that increase the volume of liquidity that they provide on 
EDGX.
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    \16\ See Securities Exchange Act Release No. 80034 (February 14, 
2017), 82 FR 11275 (February 21, 2017) (SR-BatsEDGX-2017-09).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Rather, the 
proposed changes are designed to enhance competition by attracting 
additional liquidity and increasing the competitiveness of the 
Exchange. The proposed rebate tiers would apply to all members 
uniformly based on the amount and type of order flow that they route to 
EDGX. The Exchange operates in a highly-competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive. The 
proposed rule change reflects a competitive pricing structure designed 
to encourage market participants to direct their order flow to the 
Exchange.

[[Page 65779]]

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

    No written comments were either solicited or received.

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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeEDGX-2018-059 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeEDGX-2018-059. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeEDGX-2018-059 and should be 
submitted on or before January 11, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27611 Filed 12-20-18; 8:45 am]
BILLING CODE 8011-01-P


