[Federal Register Volume 85, Number 70 (Friday, April 10, 2020)]
[Notices]
[Pages 20328-20331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07553]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88569; File No. SR-CboeEDGX-2020-015]


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

April 6, 2020.
    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 1, 2020, 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. (the ``Exchange'' or ``EDGX'' or ``EDGX 
Equities'') 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 to add an 
additional Retail Volume Tier. Additionally, the Exchange proposes to 
eliminate fee code ``PR'' \3\ from the Standard Rates table as all 
other references to fee code PR were removed from the Exchange's fee 
schedule on February 3, 2020.\4\ The Exchange proposes to implement the 
proposed changes to its fee schedule on April 1, 2020.
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    \3\ Prior to February 3, 2020, fee code PR represented orders 
that removed liquidity from EDGX using the ROUQ routing strategy.
    \4\ See Securities Exchange Act Release No. 88154 (February 7, 
2020) 85 FR 8327 (February 13, 2020) (SR-CboeEDGX-2020-006).
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    The Exchange first notes that it operates in a highly-competitive 
market

[[Page 20329]]

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 13 registered and operational equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\5\ no single registered 
equities exchange has more than 20% of the market share. Thus, in such 
a low-concentrated and highly competitive market, no single equities 
exchange possesses significant pricing power in the execution of order 
flow.
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    \5\ See Cboe Global Markets, U.S. Equities Market Volume Summary 
(March 26, 2020), available at https://markets.cboe.com/us/equities/market_statistics/. This market share percentage is based on a 
Month-to-Date volume summary.
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    The Exchange operates a ``Maker-Taker'' model whereby it pays 
credits to Members that add liquidity and assesses fees to those that 
remove liquidity. The Exchange's fee schedule sets forth the standard 
rebates and fees applied per share for orders that provide and remove 
liquidity, respectively. Particularly, for securities at or above 
$1.00, the Exchange provides a standard rebate of $0.00170 per share 
for orders that add liquidity and assesses a fee of $0.00270 per share 
for orders that remove liquidity. 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 or 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.
    In response to the competitive environment, the Exchange offers 
tiered pricing that provides Members opportunities to qualify for 
higher rebates or reduced fees where certain volume criteria and 
thresholds are met. Tiered pricing provides incremental incentives for 
Members to strive for higher or different tier levels by offering 
increasingly higher discounts or enhanced benefits for satisfying 
increasingly more stringent criteria or different criteria. For 
example, pursuant to footnote 3 of the fee schedule, the Exchange 
currently offers a Retail Volume Tier that provides Members with an 
enhanced rebate of $0.0037 for liquidity adding orders that yield fee 
code ``ZA'',\6\ which generally has a rebate of $0.00320. To qualify 
for the Retail Volume Tier, a Member must add retail order ADV \7\ 
(i.e., yielding fee code ZA) of greater than or equal to 0.50% of the 
TCV.\8\ Therefore, the Retail Volume Tier is designed to encourage 
Members that provide liquidity adding retail orders on the Exchange to 
increase their order flow, thereby contributing to a deeper and more 
liquid market to the benefit of all market participants.
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    \6\ Fee code ``ZA'' is associated with retail orders that remove 
[sic] liquidity.
    \7\ ``Average Daily Volume'' or ``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. ADV is calculated on a monthly basis.
    \8\ ``Total Consolidated Volume'' or ``TCV'' means 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.
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    The Exchange now proposes to add an additional Retail Volume Tier, 
Tier 1, and to rename the existing Retail Volume Tier to Tier 2. 
Proposed Tier 1 would provide an enhanced rebate of $0.0034 for 
liquidity adding orders that yield fee code ``ZA''. To qualify for 
proposed Tier 1, a Member must (1) have retail Step-Up Add TCV \9\ from 
February 2020 of equal to or greater than 0.05%, and (2) add retail 
order ADV (i.e., yielding fee code ZA) of equal to or greater than 
0.20% of the TCV. In contrast to the existing Retail Volume Tier, under 
the proposed Tier 1 Members must satisfy a lower retail order ADV as a 
percentage of TCV and must also satisfy the Step-Up Add TCV 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 February 2020)). Overall, the proposed 
criteria are 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. The Exchange believes that this benefits 
all Members by enhancing overall market quality and contributing 
towards a robust and well-balanced market ecosystem. The Exchange notes 
that the proposed tier is available to all Retail Member Organizations 
(``RMOs'') and is competitively achievable for all RMOs that submit 
liquidity adding retail order flow, in that, all firms that submit the 
requisite liquidity adding retail order flow could compete to meet the 
tier.
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    \9\ ``Step-Up Add TCV'' means Average Daily Add Volume 
(``ADAV'') as a percentage of TCB [sic] in the relevant baseline 
month subtracted from current ADAV as a percentage of TCV.
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    Additionally, the Exchange proposes to eliminate fee code ``PR'' 
from the Standard Rates table of the Exchange's fee schedule. The PR 
fee code was eliminated in all other places from the Exchange's fee 
schedule effective February 2, 2020; \10\ however, fee code PR was 
inadvertently not removed from the Standard Rates table. As such, the 
Exchange is now seeking to eliminate fee code PR from the Standard 
Rates table.
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    \10\ See supra note 3.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\11\ in general, and furthers the 
requirements of Section 6(b)(4),\12\ 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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed amendment to add 
an additional Retail Volume Tier is reasonable because it provides an 
additional opportunity for Members to receive an enhanced rebate by 
means of liquidity-adding retail orders. The Exchange notes that 
relative volume-based incentives and discounts have been widely adopted 
by other exchanges,\13\ 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 of an exchange's market quality, and (ii) 
associated higher levels of market activity, such as higher levels of 
liquidity provision and/or growth patterns.
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    \13\ See Nasdaq, Price List, Rebate to Add Displayed Designated 
Retail Liquidity.
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    Competing equity 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

[[Page 20330]]

Exchange provides, including the pricing of comparable tiers.\14\
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    \14\ See id. Nasdaq offer rebates ranging from $0.00325 up to 
$0.0033 for Add Displayed Designated Retail Liquidity.
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    Moreover, the Exchange believes the proposed Retail Volume Tier is 
a reasonable means to encourage Members to grow their overall liquidity 
adding retail order flow to the Exchange based on increasing their 
daily total added retail order ADV above a percentage of the TCV. 
Particularly, the Exchange believes that adopting an additional Retail 
Volume Tier based on a Member's liquidity adding retail orders will 
encourage retail order liquidity providing Members to provide for a 
deeper, more liquid market, and, as a result, increased execution 
opportunities at improved price levels and, thus, overall order flow. 
The Exchange believes that these increases will benefit all Members by 
contributing towards a robust and well-balanced market ecosystem. 
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. The 
proposed enhanced rebate per share amount also does not represent a 
significant departure from the rebates currently offered, or required 
criteria, under the Exchange's existing Retail Volume Tier. For 
example, the rebate provided under the existing Retail Volume Tier, for 
which, as stated, a Member must have a daily volume add retail order 
ADV of 0.50% or greater than the TCV, is $0.0037 per share. In other 
words, under this tier, Members receive an enhanced rebate from the 
standard $0.0032 rebate for orders yielding fee code ``ZA''. Therefore, 
the proposed enhanced rebate under Tier 1 ($0.0034) is comparable to 
the enhanced rebate currently offered under the Retail Volume Tier.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because all RMOs 
are eligible for the proposed Retail Volume Tier, and would have the 
opportunity to meet the proposed Tier 1 criteria and receive the 
proposed enhanced rebate if such criteria is met. The proposed tier is 
designed as an incentive to any and all RMOs interested in meeting the 
tier criteria to submit additional liquidity adding retail order flow 
to achieve the proposed discount. Without having a view of activity on 
other markets and off-exchange venues, the Exchange has no way of 
knowing whether this proposed rule change would definitely result in 
any RMOs qualifying for this tier. While the proposed tier is only 
applicable to RMOs, the Exchange does not believe it is discriminatory 
as the Exchange offers similar rebates to non-RMO order flow.\15\ While 
the Exchange has no way of predicting with certainty how the proposed 
tier will impact RMO activity, the Exchange anticipates that at up to 
three RMOs will be able to compete for and reach the proposed tier. The 
Exchange also notes that the proposed tier will not adversely impact 
any RMO's pricing or their ability to qualify for other rebate tiers. 
Rather, should a RMO not meet the proposed criteria, the Member will 
merely not receive an enhanced rebate. Furthermore, the proposed fee 
would uniformly apply to all RMOs that meet the required criteria under 
the proposed Retail Volume Tier.
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    \15\ See e.g., the Add Volume Tiers in the Exchange's Fee 
Schedule which provides an enhanced rebate to all Members that add 
liquidity meeting certain criteria.
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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. Rather, as discussed above, 
the Exchange believes that the proposed addition of another Retail 
Volume Tier would encourage the submission of additional liquidity 
adding retail order flow to a public exchange, thereby promoting market 
depth, execution incentives and enhanced execution opportunities, as 
well as price discovery and transparency 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 not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
Retail Volume Tier change applies to all RMOs equally in that all RMOs 
are eligible for the proposed tier, have a reasonable opportunity to 
meet the tier's criteria and will all receive the enhanced 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 modified tier criteria would incentivize market participants 
to direct liquidity adding retail orders and, as a result, executable 
order flow and improved price transparency, to the Exchange. Greater 
overall order flow and pricing transparency benefits all market 
participants on the Exchange by providing more trading opportunities, 
enhancing market quality, and continuing to encourage Members to send 
orders, thereby contributing towards a robust and well-balanced market 
ecosystem, which benefits all market participants.
    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 purpose 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 direct their order 
flow, including 12 other equities exchanges, and off-exchange venues 
and alternative trading systems. Additionally, the Exchange represents 
a small percentage of the overall market. Based on publicly available 
information, no single equities exchange has more than 20% of the 
market share.\17\ Therefore, no exchange possesses significant pricing 
power in the execution of 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.

[[Page 20331]]

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 4.
    \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 (DC 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 \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
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-CboeEDGX-2020-015 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-2020-015. 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-2020-015, and should be submitted 
on or before May 1, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07553 Filed 4-9-20; 8:45 am]
BILLING CODE 8011-01-P


