[Federal Register Volume 84, Number 180 (Tuesday, September 17, 2019)]
[Notices]
[Pages 48960-48963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20016]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86926; File No. SR-CboeEDGX-2019-056]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Amend Its Fee Schedule

September 11, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 3, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' 
or ``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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. (the ``Exchange'' or ``EDGX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend its Fee Schedule. The text of the proposed rule 
change is attached [sic] as Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://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 for its equity 
options platform (``EDGX Options''), effective September 3, 2019.
    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 24% of the market share and 
currently the Exchange represents only 3% of the market share.\3\ Thus, 
in such a low-concentrated and highly competitive market, no single 
options exchange, including the Exchange, possesses significant pricing 
power in the execution of option order flow. The Exchange believes that 
the ever-shifting market share among the exchanges from month to month 
demonstrates that market participants can shift order flow, or 
discontinue to reduce use of certain categories of products, in 
response to fee changes. Accordingly, competitive forces constrain the 
Exchange's transaction fees, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable. The Exchange's Fees Schedule sets forth standard 
rebates and rates applied per contract. For example, the Exchange 
assesses a standard fee of $0.20 per contract for Market Maker orders 
that add liquidity in both Penny and Non-Penny Securities. 
Additionally, in response to the competitive environment, the Exchange 
also offers tiered pricing which provides Members opportunities to 
qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. Tiered pricing provides an incremental 
incentive for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
(August 30, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
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    For example, the Exchange currently offers seven Market Maker 
Volume Tiers under Footnote 2 of the fee schedule which provide reduced 
fees between $0.17 per contract and $0.01 per contract for qualifying 
Market Maker orders which meet certain add liquidity thresholds and 
yield fee codes PM and NM. Under the current Market Maker Volume Tiers, 
a Member receives a reduced fee between $0.01--$0.17 per contract, 
where the Member has an ADV \4\ in Market Maker orders greater or equal 
to a specified percentage of OCV \5\ (Tiers 1-5). Members also have an 
opportunity to receive a reduced fee of $0.03-$0.04 per contract under 
Tiers 6 and 7 where the Member satisfies alternative criteria 
including, reaching specified ADV thresholds in (i) in Customer orders, 
(ii) Customer or Market Maker orders, (iii) AIM Agency Orders and (iv) 
complex Customer orders. The Exchange proposes to adopt a new Market 
Maker Volume Tier, ``Tier 2'' and renumber the remaining tiers 
accordingly.
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    \4\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day. ADV is calculated 
on a monthly basis. See Cboe EDGX Options Exchange Fee Schedule.
    \5\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close. See 
Cboe EDGX Options Exchange Fee Schedule.
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    The Exchange believes the proposed MM Penny Add Tier will provide 
Members an additional opportunity and alternative means to receive a 
reduced fee for meeting the corresponding proposed criteria. The 
Exchange believes the proposed tier, along with the existing tiers, 
also provide an incremental incentive for Members to strive for the 
highest tier levels, which provide increasingly higher discounts for 
such transactions.
    Particularly, the Exchange proposes to add new Market Maker Volume 
Tier 2, which would provide a reduced fee of $0.13 per contract where a 
Member (i) has an ADV in Market Maker orders greater than or equal to 
0.15% of average OCV, (ii) Member has a Step-Up ADAV \6\ in Market 
Maker orders from

[[Page 48961]]

July 2019 greater than or equal to 0.10% of average OCV; and (iii) 
Member has on EDGX Equities an ADAV greater than or equal to 0.30% of 
average TCV.\7\ As such, under the proposed Tier, the Exchange is 
adopting an alternative set of criteria that Members must meet in 
addition to the standard ADV in Market Maker orders threshold. 
Particularly, Members must additionally satisfy a (i) cross-asset 
threshold, which is designed to incentivize members to achieve certain 
levels of participation on both the Exchange's options and equities 
platform (``EDGX Equities'') and (ii) a step-up ADAV threshold, which 
is designed to encourage growth (i.e., Members must increase their 
relative liquidity each month over a predetermined baseline (in this 
case the month being July 2019)). Overall, the proposed reduced fee and 
corresponding criteria is designed to encourage Members to increase 
their order flow, thereby contributing to a deeper and more liquid 
market, which benefits all market participants and provides greater 
execution opportunities on the Exchange.
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    \6\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added. ADAV is calculated on a monthly basis. 
See Cboe EDGX Options Exchange Fee Schedule. To alleviate confusion, 
the Exchange also proposes to adopt the definition of ``Step-Up 
ADAV'' in the Fees Schedule, which term shall mean ADAV in the 
relevant baseline month subtracted from current ADAV.
    \7\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply. See Cboe EDGX 
Options Exchange Fee Schedule.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\8\ in general, and furthers the requirements 
of Section 6(b)(4),\9\ in particular, as it is designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers. The Exchange operates in a 
highly-competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or incentives to be insufficient. The 
proposed rule change reflects a competitive pricing structure designed 
to incentivize market participants to direct their order flow to the 
Exchange, which the Exchange believes would enhance market quality to 
the benefit of all Members.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed tier is 
reasonable because it provides an additional opportunity for Members to 
receive lower fees by providing a different set of criteria they can 
reach for. The Exchange notes that volume-based incentives and 
discounts have been widely adopted by exchanges,\10\ including the 
Exchange,\11\ and are reasonable, equitable and non-discriminatory 
because they are open to all members on an equal basis and provide 
additional benefits or discounts that are reasonably related to (i) the 
value to an exchange's market quality and (ii) associated higher levels 
of market activity, such as higher levels of liquidity provision and/or 
growth patterns. Additionally, as noted above, the Exchange operates in 
highly competitive market. The Exchange is only one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including schedules of rebates and fees that apply based upon 
members achieving certain volume and/or growth thresholds. These 
competing pricing schedules, moreover, are presently comparable to 
those that the Exchange provides, including pricing incentives tied to 
comparable tiers.\12\
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    \10\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 6 and 7, Market Maker Penny Pilot and Non-Penny Pilot 
Volume Tiers which provide enhanced rebates for Market Maker orders 
where Members meet certain volume thresholds.
    \11\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers, which provide reduced fees 
between $0.01 and $0.17 per contract for Market Maker Penny and Non-
Penny orders where Members meet certain volume thresholds.
    \12\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 6 and 7, Market Maker Penny Pilot and Non-Penny Pilot Add 
Volume Tiers, which provide enhanced rebates between $0.33-$0.54 per 
contract where Members, among other things including a cross-asset 
threshold, meet a specified level of ADAV in Market Maker orders as 
a percentage of OCV.
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    Moreover, the Exchange believes the proposed Market Maker Tier 2 is 
a reasonable means to encourage Members to increase their liquidity on 
the Exchange and also their participation on EDGX Equities. The 
Exchange believes that adopting a tier with alternative criteria to the 
existing Market Maker Volume Tiers, will encourage those Members who 
could not previously achieve the criteria under the existing Market 
Maker Volume Tiers, to increase their order flow on EDGX options and 
equities. For example, the proposed tier would provide an opportunity 
for Members who have an ADV in Market Makers Orders of at least 0.15% 
of average OCV, but less than 0.25% of average OCV (the requirement 
under current Tier 2), to receive the same lower fee as offered under 
current Tier 2 if they can otherwise meet the threshold requirement 
based on EDGX equities participation and can grow a modest amount since 
July 2019. Similarly, for Market Makers that participate on both EDGX 
Options and Equities, and do not currently meet the ADV threshold under 
current Tier 2 (i.e., 0.25%), but can or do meet the proposed equities 
ADAV threshold, the proposed tier may incentivize those participants to 
grow their options volume in order to receive reduced fees. Increased 
liquidity benefits all investors by deepening the Exchange's liquidity 
pool, offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection. The Exchange also 
believes that proposed reduced fee is reasonable based on the 
difficulty of satisfying the tier's criteria and ensures the proposed 
fee and threshold appropriately reflects the incremental difficulty to 
achieve the existing Market Maker Volume Tiers. The proposed reduced 
fee amount also does not represent a significant departure from the 
reduced fees currently offered under the Exchange's existing Market 
Maker Volume Tiers. Indeed, the proposed reduced fee amount is the same 
offered as the existing Market Maker Volume Tier 2 (i.e., $0.13 per 
contract) and within the range of the reduced fees offered under the 
remaining Market Maker Volume Tiers (i.e., $0.17-$0.01 per contract).
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Market Makers. Additionally a number of Market 
Makers have a reasonable opportunity to satisfy the tier's criteria, 
which the Exchange believe is less stringent than other existing Market 
Maker Volume Tiers. While the Exchange has no way of knowing whether 
this proposed rule change would definitively result in any particular 
Market Maker qualifying for the proposed tier, the Exchange anticipates 
one to three members meeting, or being reasonably able to meet, the 
proposed criteria. The Exchange believes the proposed tier could 
provide an incentive for other Members to submit additional liquidity 
on EDGX Options and Equities to qualify for the proposed reduced fee. 
To the extent a Member participates on the Exchange but not on EDGX 
Equities, the Exchange does believe that the proposal is still 
reasonable, equitably allocated and non-discriminatory with respect to 
such Member based on the overall benefit to the Exchange resulting from

[[Page 48962]]

the success of EDGX Equities. Particularly, the Exchange believes such 
success allows the Exchange to continue to provide and potentially 
expand its existing incentive programs to the benefit of all 
participants on the Exchange, whether they participate on EDGX Equities 
or not. The proposed pricing program is also fair and equitable in that 
membership in EDGX Equities is available to all market participants, 
which would provide them with access to the benefits on EDGX Equities 
provided by the proposed change, even where a member of EDGX Equities 
is not necessarily eligible for the proposed reduced fee on the 
Exchange.
    The Exchange lastly notes that the proposal will not adversely 
impact any Member's pricing or their ability to qualify for other 
tiers. Rather, should a Member not meet the proposed criteria, the 
Member will merely not receive the proposed reduced fee. Furthermore, 
the proposed reduced fee would apply to all Members that meet the 
required criteria under proposed Market Maker Volume Tier 2.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities for all 
Members. As a result, the Exchange believes that the proposed change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \13\
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    \13\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange believes the proposed rule change does impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies uniformly to market participants. As discussed above, to 
the extent a Member participates on the Exchange but not on EDGX 
Equities, the Exchange notes that the proposed change can provide an 
overall benefit to the Exchange resulting from the success of EDGX 
Equities. Such success enables the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on EDGX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in EDGX Equities is available to all 
market participants. Additionally the proposed change is designed to 
attract additional order flow to the Exchange and EDGX Equities. 
Greater liquidity benefits all market participants on the Exchange by 
providing more trading opportunities and encourages Members to send 
orders, thereby contributing to robust levels of liquidity, which 
benefits all market participant.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 24% of the market 
share.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \15\ 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'. . . .''.\16\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \14\ See Cboe Global Markets U.S. Options Market Volume Summary 
(August 30, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \16\ 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 has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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:

[[Page 48963]]

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-2019-056 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-2019-056. 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-2019-056 and should be 
submitted on or before October 8, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20016 Filed 9-16-19; 8:45 am]
 BILLING CODE 8011-01-P


