[Federal Register Volume 85, Number 161 (Wednesday, August 19, 2020)]
[Notices]
[Pages 51089-51093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18098]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89540; File No. SR-CboeEDGX-2020-039]


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

August 13, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August

[[Page 51090]]

3, 2020, 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 self-regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 the 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

    The Exchange proposes to amend its fee schedule in connection with 
its Retail Volume Tiers.
    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 13 registered 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, no single registered equities 
exchange has more than 20% of the market share.\4\ 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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    \4\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (July 29, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
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    The Exchange in particular 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 Fees Schedule sets forth 
the standard rebates and rates 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 $0.0017 per share for orders that add liquidity and assesses a fee 
of $0.0027 per share for orders that remove liquidity, and for 
securities below $1.00, the Exchange provides a standard rebate of 
$0.00003 per share for orders that add liquidity and assesses a 
standard fee of 30% of dollar value 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 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.
    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 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. Pursuant to 
footnote 3 of the fee schedule, the Exchange currently offers Retail 
Volume Tiers which provide Retail Member Organizations (``RMOs'') \5\ 
an opportunity to receive an enhanced rebate from the standard rebate 
for Retail Orders \6\ that add liquidity (i.e., yielding fee code 
``ZA'' \7\). Currently, the Retail Volume Tiers offer three levels of 
criteria difficulty and incentive opportunities in which RMOs may 
qualify for enhanced rebates for Retail Orders. The tier structures are 
designed to encourage RMOs to increase their order flow in order to 
receive an enhanced rebate on their liquidity adding orders, and the 
Exchange now proposes to amend existing Retail Volume Tier 2 in 
footnote 3 of the fee schedule and renumber it to Retail Volume Tier 3. 
Additionally the Exchange proposes to renumber existing Retail Volume 
Tier 3 to Retail Volume Tier 2.
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    \5\ A ``Retail Member Organization'' or ``RMO'' is a Member (or 
a division thereof) that has been approved by the Exchange under 
this Rule to submit Retail Orders. See EDGX Rule 11.21(a)(1).
    \6\ A ``Retail Order'' is an agency or riskless principal order 
that meets the criteria of FINRA Rule 5320.03 that originates from a 
natural person and is submitted to the Exchange by a Retail Member 
Organization, provided that no change is made to the terms of the 
order with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. See EDGX Rule 11.21(a)(2).
    \7\ Appended to Retail Orders that add liquidity to EDGX and 
offered a rebate of $0.0032 per share.
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    Currently, Retail Volume Tier 2 provides a rebate of $0.0037 per 
share to RMOs that add a Retail Order Average Daily Volume (``ADV'') 
\8\ (i.e., yielding fee code ZA) of equal to or greater than 0.50% of 
the Total Consolidated Volume (``TCV'').\9\ Now, the Exchange proposes 
to increase the rebate to $0.0038 per share. The proposed criteria 
under existing Retail Volume Tier 2 is designed to encourage RMOs to 
increase retail order flow on the Exchange. The Exchange notes that the 
proposed Retail Volume Tier 3 is available to all 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. 
Additionally, the Exchange proposes to renumber existing Retail Volume 
Tier 3 to Retail Volume Tier 2, and renumber the amended Retail Volume 
Tier 2 to Retail Volume Tier 3. Such renumbering will provide the 
Retail Volume Tiers in order from smallest rebate to largest rebate, 
which is consistent with the organization of the Exchange's Fee 
Schedule.
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    \8\ 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.
    \9\ TCV means total consolidated volume calculated as the volume 
reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
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    The Exchange believes the proposed opportunity to receive an 
enhanced rebate on qualifying Retail Orders incentivizes an increase in 
overall order flow to the Exchange. It provides liquidity adding RMOs 
on the Exchange a further incentive to contribute to a deeper, more 
liquid market, and liquidity executing Members on the Exchange a 
further incentive to increase transactions and take execution 
opportunities provided by such increased liquidity, together providing 
for overall enhanced price discovery and price improvement 
opportunities on the Exchange. As such, this benefits all Members by 
contributing towards a robust and well-balanced market ecosystem.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 51091]]

the objectives of Section 6 of the Act,\10\ in general, and furthers 
the objectives of Section 6(b)(4),\11\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its Members and issuers and other persons using its 
facilities. The Exchange also believes that the proposed rule change is 
consistent with the objectives of Section 6(b)(5) \12\ requirements 
that the rules of an exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f.(b)(5).
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    As described above, 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.
    In particular, the Exchange believes the proposed amendment is 
reasonable because it provides an opportunity for RMOs to receive an 
enhanced rebate on qualifying orders by means of liquidity adding 
orders and removing or Retail Orders. The Exchange notes that relative 
volume-based incentives and discounts have been widely adopted by 
exchanges,\13\ including the Exchange,\14\ and are reasonable, 
equitable and non-discriminatory because they are open to all RMOs 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 a highly competitive market. The 
Exchange is only one of several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. It is also only one of several maker-
taker exchanges. 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 
thresholds. These competing pricing schedules, moreover, are presently 
comparable to those that the Exchange provides, including the pricing 
of comparable tiers.\15\
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    \13\ See e.g., Nasdaq PSX Price List, Rebate to Add Displayed 
Liquidity (Per Share Executed), which provides rebates to members 
for adding displayed liquidity over certain thresholds of TCV 
ranging between $0.0020 and $0.0026; Cboe BZX U.S. Equities Exchange 
Fee Schedule, Footnote 1, Add Volume Tiers, which provides similar 
incentives for liquidity adding orders and offers rebates ranging 
between $0.0018 and $0.0032; Nasdaq Price List, Rebate to Add 
Displayed Designated Retail Liquidity, which offer rebates of 
$0.00325 and $0.0033 for Add Displayed Designated Retail Liquidity.
    \14\ See generally, Cboe EDGX U.S. Equities Exchange Fee 
Schedule, Footnote 1, Add Volume Tiers, which provides incentives 
for ADV/ADAV order flow as a percentage of TCV and for criteria 
based on certain other threshold components (i.e. Step-Up Add TCV, 
average OCV, and AIM and Customer orders); and Footnote 3, Retail 
Volume Tiers, which provides incentives for Retail Step-Up Add TCV 
and Retail Order ADV as a percentage of TCV.
    \15\ See supra note 13.
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    Moreover, the Exchange believes the proposed amendment is 
reasonable because it is designed to encourage overall order flow, that 
is, both adding and removing orders as a result of the proposed 
amendment to proposed Retail Volume Tier 3. Indeed, the Exchange notes 
that greater add volume order flow provides for deeper, more liquid 
markets and execution opportunities, and greater remove volume order 
flow increases transactions on the Exchange, which incentivizes 
liquidity providers to submit additional liquidity and execution 
opportunities, thus, providing an overall increase in price discovery 
and transparency on the Exchange. Also, an increase in Retail Order 
flow, which generally are submitted in smaller sizes, tends to attract 
Market-Makers, as smaller size orders are easier to hedge. Increased 
Market-Maker activity facilitates tighter spreads, signaling additional 
corresponding increase in order flow from other market participants, 
which contributes towards a robust, well-balanced market ecosystem. 
Increased overall order flow benefits all investors by deepening the 
Exchange's liquidity pool, potentially providing even 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 Exchange believes that the proposal represents an equitable 
allocation of rebates and is not unfairly discriminatory because all 
RMOs will continue to be eligible for proposed Retail Volume Tier 3. 
The proposed tier is designed as an incentive to any and all RMOs 
interested in meeting the tier criteria to submit additional adding and 
removing, or Retail, order flow to the Exchange. RMOs will have the 
opportunity to submit the requisite order flow and will receive the 
applicable enhanced rebate if the tier criteria is met. The Exchange 
additionally notes that while the proposed Retail Volume tier is 
applicable only to RMOs, the Exchange does not believe this application 
is discriminatory as the Exchange offers similar rebates to non-RMO 
order flow.\16\
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    \16\ Such as the 15 other Add Volume Tiers and the Tape B Volume 
Tier which provide opportunities to all Members to submit the 
requisite order flow to receive an enhanced rebate.
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    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 the proposed 
amended tier. While the Exchange has no way of predicting with 
certainty how the proposed change will impact RMO activity, the 
Exchange anticipates that at least two RMOs will be able to compete for 
and reach proposed Retail Volume Tier 3. The Exchange also notes that 
the proposed amended 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 criteria for proposed Retail Volume Tier 3, the RMO 
will merely not receive the corresponding proposed enhanced rebate. 
Furthermore, the proposed rebate would uniformly apply to all RMOs that 
meet the required criteria.

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 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

[[Page 51092]]

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.'' \17\
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    \17\ 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 
change applies to all RMOs equally in that all RMOs are eligible for 
the proposed amended tier, have a reasonable opportunity to meet the 
tier's criteria and will all receive the proposed rebate if such 
criteria is met. As indicated above, the Exchange does not believe that 
offering RMOs, specifically, opportunities to meet certain tier 
criteria for enhanced rebates imposes a burden on intramarket 
competition as the Exchange offers many similar rebate opportunities 
for non-RMOs.\18\ Overall, the proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposal to increase the proposed Retail Volume Tier 3 rebate would 
incentivize market participants to direct liquidity removing order flow 
to the Exchange and, as a result, increase execution opportunities, 
which would further incentivize the provision of liquidity and 
continued order flow and improve price transparency on the Exchange. 
Greater overall order flow and pricing transparency benefits all market 
participants on the Exchange by generally 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.
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    \18\ See supra note 14.
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    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 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.\19\ 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.'' \20\ 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'. . . .''.\21\ 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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    \19\ See supra note 6 [sic].
    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \21\ Net Coalition 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 unsolicited 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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange. 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) \24\ 
of the Act to determine whether the proposed rule change should be 
approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
    \24\ 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 Number SR-CboeEDGX-2020-039 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-2020-039. 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

[[Page 51093]]

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-2020-039 and should be submitted on or before September 9, 
2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18098 Filed 8-18-20; 8:45 am]
BILLING CODE 8011-01-P


