[Federal Register Volume 84, Number 218 (Tuesday, November 12, 2019)]
[Notices]
[Pages 61084-61088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24496]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87469; File No. SR-CboeEDGX-2019-068]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fee Schedule To Adopt a New Type of Tier Related to Automated 
Improvement Mechanism Customer Volume

November 5, 2019.
    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 November 1, 2019, Cboe EDGX Exchange, Inc. (``Exchange'' or 
``EDGX'') filed with the

[[Page 61085]]

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. (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 provided in 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 November 1, 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 21% 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 
provides a standard rebate of $0.01 per contract for Customer 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 
(October 29, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
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    For example, the Exchange currently offers four non-complex 
Customer Volume Tiers under Footnote 1 of the fee schedule which 
provide enhanced rebates between $0.10 and $0.21 per contract for 
qualifying Customer orders which meet certain total volume thresholds 
and yield fee codes ``PC'' \4\ and ``NM''.\5\ Under the current non-
complex Customer Volume Tiers, a Member receives a reduced fee between 
$0.10 and $0.21 per contract, where the Member has an ADV \6\ in 
Customer orders greater or equal to a specified percentage of OCV \7\ 
(Tiers 1-3). Members also have an opportunity to receive a reduced fee 
of $0.21 per contract under Tier 4 where the Member satisfies an 
additional criteria by also reaching another specified ADV threshold in 
Customer or Market Maker orders. The Exchange now proposes to adopt a 
new type of tier related to Customer volume under proposed footnote 9 
(Automated Improvement Mechanism (``AIM'') Tier) applicable to orders 
yielding fee code ``BC'', which are appended to Customer AIM Agency 
orders. The Exchange notes that orders yielding fee code BC are 
currently provided a rebate of $0.14, and it now proposes to reduce 
this rebate to $0.11 and, instead, offer a rebate of $0.14 for such 
orders where a Member reaches the proposed AIM Tier.
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    \4\ Appended to Customer Penny Pilot orders and provided a 
rebate of $0.01.
    \5\ Appended to Customer non-Penny Pilot orders and provided a 
rebate of $0.01.
    \6\ ``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.
    \7\ ``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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    Specifically, the proposed AIM Tier provides Members an additional 
opportunity and alternative means to receive a rebate for meeting the 
corresponding proposed criteria. Pursuant to the proposed changes, all 
orders yielding the fee code BC would receive a base rebate of $0.11 
and a Member would receive an enhanced rebate of $0.14 on such orders 
where they have an ADV in Customer orders greater than or equal to .35% 
of the OCV. Members that achieve the proposed AIM Tier must therefore 
increase their overall Customer order flow, both adding and/or removing 
liquidity, as a percentage greater than or equal to 0.35% of the TCV. 
The Exchange believes the proposed enhanced rebates for both liquidity 
adding and removing Customer orders incentivizes increased overall 
order flow to the Book. The proposed tier provides both liquidity 
providing Members and liquidity executing Members on the Exchange an 
additional opportunity to receive a rebate. It is designed to provide 
Members that add liquidity by means of Customer orders on the Exchange 
a further incentive to contribute to a deeper, more liquid market, and 
Members executing Customer orders on the Exchange an incentive to 
increase transactions and take the execution opportunities provided by 
such increased liquidity. Increased overall Customer order flow 
benefits all market participants because it continues to attract 
liquidity to the Exchange by providing more trading opportunities, 
which attracts Market Makers. An increase in Market Maker activity, in 
turn, facilitates tighter spreads, signaling additional corresponding 
increase in order flow from other market participants, which

[[Page 61086]]

contributes towards a robust, well-balanced market ecosystem. In 
addition to this, although the proposed based rebate for orders 
yielding fee code BC is lower than the current base rebate for such 
orders, Members still have an opportunity to receive a base rebate for 
such orders, which is in line with similar fees for Customer orders in 
place on other options exchanges.\8\ Members will now be able to 
achieve the higher rebate for orders yield fee code BC pursuant to the 
proposed AIM Tier described above, which is tied to the levels of a 
Member's Customer order flow. Therefore, the reduced base rebate for 
orders yielding fee code BC is balanced by the rebate opportunity 
pursuant to the proposed AIM Tier and helps support the Exchange's 
objective in implementing the proposed tier to encourage an overall 
increase in Customer order flow and facilitate improved market quality 
on the Exchange.
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    \8\ See MIAX Options Section 1(a)(iii), Priority Customer Rebate 
Program, which provides a base rebate of $0.10 for Customer Price 
Improvement Mechanism (``PRIME'') Agency orders, which are 
comparable to orders yielding fee code BC on the Exchange (i.e., 
Customer AIM Agency orders).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\9\ in general, and furthers the requirements 
of Section 6(b)(4),\10\ 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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    \9\ 15 U.S.C. 78f.
    \10\ 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 a rebate by providing a different set of criteria they for 
which they can compete. The Exchange notes that volume-based incentives 
and discounts have been widely adopted by exchanges,\11\ including the 
Exchange,\12\ 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.\13\
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    \11\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 1 and 12, Customer Penny Pilot and Non-Penny Pilot Add 
Volume Tiers which provide enhanced rebates for Customer orders 
where Members meet certain volume thresholds; see also supra note 8.
    \12\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 1, Customer Volume Tiers, which provide enhanced rebates 
between $0.10 and $0.21 per contract for non-complex Customer Penny 
and Non-Penny orders where Members meet certain volume thresholds.
    \13\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnotes 1 and 12, Customer Penny Pilot and Non-Penny Pilot Add 
Volume Tiers, which provide enhanced rebates between $0.35-$1.05 per 
contract where Members, among other things including a cross-asset 
threshold, meet a specified level of ADAV in Customer orders as a 
percentage of OCV.
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    Moreover, the Exchange believes the proposed AIM Tier is a 
reasonable means to encourage Members to increase Customer volume on 
the Exchange. Particularly, the Exchange believes the proposed tier is 
reasonable because it will encourage increased Customer volume, thus a 
deeper, more liquid market, and an increase in transaction 
opportunities for all market participants provided by the increased 
Customer liquidity. As stated, increased Customer order flow provides 
continued liquidity to the Exchange, in that it provides additional 
transaction opportunities which attract Market Makers. Increased Market 
Maker activity facilitates tighter spreads and signals an increase in 
additional order flow from other market participants. In turn, these 
increases benefit all Members by contributing towards a robust and 
well-balanced market ecosystem. Also, increased overall order flow 
benefits all investors by deepening the Exchange's liquidity pool, 
providing greater execution incentives and opportunities, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency, and improving investor protection. Additionally, the 
Exchange believes the proposed reduction in the base rebate for orders 
yielding fee code BC is reasonable because Members still have an 
opportunity to receive a rebate for such orders, albeit at a lesser 
amount. Moreover, the reduced base rebate is still higher than offered 
at other exchanges for similar transactions.\14\ As described above, 
the Exchange will continue to offer an opportunity to receive the $0.14 
rebate, but will now tie it to a requirement to increase Members' 
Customer order flow. Accordingly, balancing the reduced base rebate for 
orders yielding fee code BC with the higher rebate opportunity for such 
orders helps support Exchange's objective in implementing an incentive 
to encourage an increase in Customer order flow and contribution to 
enhanced market quality on the Exchange.
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    \14\ See supra note 8.
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    The Exchange also believes that the proposed rebate amount and 
criteria under the AIM Tier does not represent a significant departure 
from the rebates currently offered, or required criteria, under the 
Exchange's existing Customer Volume Tiers. For example, under existing 
non-complex Customer Volume Tier 1 (applicable to orders yielding fee 
code PC or NC which are provided a standard rebate of $0.01), if a 
Member has a daily average volume (ADV) of 0.35% or greater than the 
OCV the Member receives a rebate of $0.10 per share. The Exchange 
believes the proposed tier criteria and rebate of $0.14 is comparable 
to this existing tier, especially given that orders yielding fees code 
PC or NC receive a standard rebate of $0.01 as compared to the $0.11 
base rebate (as proposed) for orders yielding fee code BC.
    The Exchange believes that the proposed tier represents an 
equitable allocation of fees and is not unfairly discriminatory because 
it applies uniformly to all Members. All Members are eligible for the 
proposed AIM tier, would have the opportunity to meet the tier's 
criteria (which the Exchange believes is less stringent that other 
existing Customer Volume tiers),\15\ and would receive the proposed 
rebate if such criteria is met. While the Exchange has no way of 
knowing whether this

[[Page 61087]]

proposed rule change would definitively result in any particular Member 
qualifying for the proposed tier or if it would otherwise impact Member 
activity, the Exchange anticipates at least three Members meeting, or 
being reasonably able to meet, the proposed criteria. Accordingly, the 
Exchange believes the proposed tier is reasonably designed to provide 
an incentive for Members interested in meeting the tier criteria to 
submit additional Customer volume to achieve the proposed rebate. The 
Exchange lastly notes that the proposed tier 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 
rebate would uniformly apply to all Members that meet the required 
criteria under proposed AIM Tier. Likewise, the Exchange believes that 
the proposed reduction in the base rebate for orders yielding fee code 
BC represents an equitable allocation of rebates and is not unfairly 
discriminatory because it is balanced by the higher rebate for such 
orders provided under the proposed AIM Tier and Members will continue 
to have the opportunity to receive a base rebate on such orders which 
will also continue to uniformly apply to all such orders.
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    \15\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 1, Customer Volume Tiers 2-4, which require a Member to 
have an ADV of over 0.35% (as proposed in the AIM Tier) of the OCV.
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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 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.'' \16\
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    \16\ 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 to all Members equally in that all Members are eligible 
for the proposed tier, have a reasonable opportunity to meet the tier's 
criteria and will all receive the proposed rebate if such criteria is 
met. Additionally, the proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposed tier would incentivize market participants to direct both 
liquidity providing and executable order flow to the Exchange. Greater 
overall order flow benefits all market participants on the Exchange by 
providing more trading opportunities and continuing to encourage 
Members to send orders, thereby contributing towards a robust and well-
balanced market ecosystem, which benefits all market participants.
    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 21% of the market 
share.\17\ 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.'' \18\ 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'. . . .''.\19\ 
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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    \17\ See supra note 3.
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \19\ 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 \20\ and paragraph (f) of Rule 19b-4 \21\ 
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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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

[[Page 61088]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeEDGX-2019-068 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-2019-068. 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-2019-068 and should be 
submitted on or before December 3, 2019.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24496 Filed 11-8-19; 8:45 am]
 BILLING CODE 8011-01-P


