[Federal Register Volume 84, Number 223 (Tuesday, November 19, 2019)]
[Notices]
[Pages 63942-63944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24975]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87520; File No. SR-CboeEDGX-2019-067]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Amend the Fee Schedule Applicable to the EDGX Equities 
Trading Platform as It Relates to Pricing for Orders Routed to Cboe 
EDGA Exchange, Inc. Using the ALLB, ROUC, ROUE, or DIRC Routing 
Strategy

November 13, 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 November 1, 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 and II 
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 fee schedule applicable to the EDGX 
equities trading platform (``EDGX Equities'') as it relates to pricing 
for orders routed to Cboe EDGA Exchange, Inc. (``EDGA'') using the 
ALLB, ROUC, ROUE, or DIRC routing strategy. 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 the EDGX Equities fee schedule to 
change the pricing applicable to orders routed to EDGA using the ALLB, 
ROUC, ROUE, or DIRC routing strategy in securities priced at or above 
$1.00, as a result of a pricing change by EDGA effective on November 1, 
2019. The Exchange proposes to implement the proposed change to its fee 
schedule on November 1, 2019. Currently, the Exchange provides a rebate 
of $0.0024 per share for orders routed to EDGA using the ALLB, ROUC, 
ROUE, or DIRC routing strategy (yielding fee codes AA, I, and RR), 
which was a pass-through of the standard rebate EDGA had previously 
provided to orders that removed liquidity from EDGA. Effective November 
1, 2019, EDGA reduced its standard rebate per share for orders that 
remove liquidity in securities priced at or above $1.00 from $0.0024 to 
$0.0018. As such, the Exchange proposes to similarly reduce the per 
share rebate for orders routed to EDGA (yielding fee codes AA, I and 
RR) in securities priced at or above $1.00 from $0.0024 to $0.0018 in 
order to reflect the reduction in the rebate available for orders 
removing liquidity on EDGA.
    Currently, routed orders from the Exchange to EDGA using the ROUC, 
ROUE, or DIRC routing strategy (yielding fee codes I and RR) in 
securities priced below $1.00 result in a fee of 0.30% of the dollar 
value.\3\ However, the fee schedule applicable to Cboe BZX Exchange, 
Inc. (``BZX Equities'') and the Cboe BYX Exchange, Inc. (``BYX'') have 
no fee or charge for orders routed to EDGA,\4\ and EDGA imposes no fee 
for liquidity removing orders entered directly on EDGA.\5\ Therefore, 
the Exchange also proposes to eliminate such fee on the Exchange so 
that the fee applied to orders on the Exchange routed to EDGA are 
consistent with orders routed to EDGA from BZX Equities or BYX and with 
removing liquidity orders entered directly on EDGA.
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    \3\ Orders routed from the Exchange to EDGA using the ALLB 
routing strategy in securities priced below $1.00 are currently 
free.
    \4\ See footnotes 5, 10, and 11 of the BYX Exchange Fee 
Schedule. See also footnotes 10, 11, and 15 of the BZX Equities 
Exchange Fee Schedule.
    \5\ See fee codes N, W, 6, and BB from the EDGA Exchange Fee 
Schedule.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\7\ 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 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

[[Page 63943]]

excessive or incentives to be insufficient.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes that the proposed change to 
orders in securities priced equal to or greater than $1.00 is 
reasonable because it reflects a pass-through of a recent pricing 
change by EDGA for liquidity removing orders, as described above. The 
Exchange believes that the proposed change is reasonable because it 
will maintain proportionality with the standard corresponding rebate 
offered by EDGA, thereby encouraging additional order flow to be 
entered on the EDGX Book. The Exchange also believes the proposed 
change to orders in securities priced less than $1.00 is reasonable 
because it consistently removes fees from orders routed to EDGA from 
the Exchange, BYX, and BZX Equities, and aligns with the fee of 
liquidity removing orders entered directly on EDGA in securities priced 
less than $1.00, while also maintaining Member interest in routing 
orders through the Exchange by providing better pricing to Members that 
choose to enter such orders on the Exchange, thereby encouraging 
additional order flow to be entered on the EDGX Book. The Exchange 
believes that additional order flow through the EDGX Book will result 
in greater liquidity to the benefit of all market participants on the 
Exchange by providing more trading opportunities.
    The Exchange also believes that the proposed change constitutes an 
equitable allocation of reasonable fees that is not unfairly 
discriminatory because the proposed rebate for orders in securities 
priced equal to or greater than $1.00 is designed to continue to 
reflect the rebate offered (and recently updated) by EDGA to orders 
that remove liquidity and would apply equally to all Members that 
choose to use the Exchange to route orders to EDGA. Similarly, the 
Exchange believes that the proposed change constitutes an equitable 
allocation of reasonable fees that is not unfairly discriminatory 
because the proposed fee for orders in securities priced less than 
$1.00 is designed to consistently eliminate fees applied to orders 
routed to EDGA from the Exchange, BZX Equities, and BYX, as well as 
liquidity removing orders entered directly on EDGA, and would apply 
equally to all Members that choose to use the Exchange to route orders 
to EDGA. Furthermore, the Exchange notes that routing through the 
Exchange is voluntary, and, because the Exchange operates in a highly 
competitive environment as discussed below, Members that do not favor 
the proposed pricing can readily direct order flow directly to EDGA or 
through competing venues or providers of routing services.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange believes the proposed routing fee change to orders in 
securities priced equal to or greater than $1.00 will not impose an 
undue burden on competition because the proposed change is merely 
intended to maintain consistency between the Exchange's rebates for 
orders routed to EDGA with the recently updated rebates offered by EDGA 
for liquidity removing orders. Similarly, the Exchange believes the 
proposed routing fee change to orders in securities priced less than 
$1.00 will not impose an undue burden on competition because the 
proposed change is intended to maintain consistency between the 
Exchange's fees and similar fees applied by BZX Equities and BYX to 
orders routed to EDGA and fees applied to liquidity removing orders 
entered directly on EDGA.
    The Exchange does not believe the proposed fee change will impose 
any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As stated, the 
Exchange will uniformly assess the proposed routing fee on all Members 
who choose to route orders through the Exchange to EDGA. As noted 
above, the proposed fee intends to pass through the same rebates for 
liquidity removing orders from EDGA on to Members, thereby, adding 
order flow to the EDGX Book which will result in more trading 
opportunities to the benefit of all market participants on the 
Exchange.
    The Exchange does not believe the proposed rule change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As noted above, 
the Exchange operates in a highly competitive market and routing 
through the Exchange is voluntary. Therefore, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives, 
including 12 other equities exchanges and 32 alternative trading 
systems, offer them better value or if they disfavor the proposed 
change. Additionally, the Exchange represents a small percentage of the 
overall market. Based on publicly available information, no single 
equities exchange has more than 17% of the market share.\8\ Therefore, 
no exchange possesses significant pricing power in the execution of 
equity order flow. 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 National Market System (``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.'' \9\ The fact that this market is 
competitive has also long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the DC 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'. . . .''.\10\ Regardless, the Exchange 
notes that the proposed change to the EDGA-related routing fee in 
securities priced equal to or greater than $1.00 is merely meant to 
pass through the rebate associated with executing orders on that 
market, and is therefore not designed to have any significant impact on 
competition. Further, the proposed change to the EDGA-related routing 
fee in securities priced less than $1.00 is meant to consistently 
eliminate such fees associated with orders routed to EDGA across the 
Exchange, BZX Equities, and BYX and liquidity removing orders entered 
directly on EDGA. 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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    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(October 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \9\ See Securities Exchange Act Release No. 51808 (June 29, 
2015) 70 FR 37495 (August 29, 2015).
    \10\ NetCoalition v. Securities and Exchange Commission, 615 
F.3d 525 (D.C. Cir. 2010).

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[[Page 63944]]

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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-CboeEDGX-2019-067 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 No. SR-CboeEDGX-2019-067. 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 No. SR-CboeEDGX-2019-067, and should be submitted 
on or before December 10, 2019.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24975 Filed 11-18-19; 8:45 am]
 BILLING CODE 8011-01-P


