[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2947-2950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93964; File No. SR-CboeEDGX-2022-001]


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

January 12, 2022.
    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 January 4, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'' or ``EDGX 
Equities'') proposes 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.

[[Page 2948]]

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 applicable to its 
equities trading platform (``EDGX Equities'') to (1) modify the 
criteria of Growth Tier 4, and (2) adopt a new Retail Growth Tier 1, 
effective January 3, 2022.
    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 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,\3\ no single registered 
equities exchange has more than 18% 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. The Exchange in particular operates a ``Maker-Taker'' model 
whereby it pays rebates to members that add liquidity and assesses fees 
to those that remove liquidity. The Exchange's Fee Schedule sets forth 
the standard rebates and rates applied per share for orders that 
provide and remove liquidity, respectively. Currently, for orders in 
securities priced at or above $1.00, the Exchange provides a standard 
rebate of $0.00160 per share for orders that add liquidity and assesses 
a fee of $0.0030 per share for orders that remove liquidity. For orders 
in securities priced below $1.00, the Exchange provides a standard 
rebate of $0.00009 per share for orders that add liquidity and assesses 
a fee of 0.30% of total dollar value for orders that remove liquidity. 
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. Equities Market Volume 
Summary, Month-to-Date (December 20, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    Under footnote 1 of the Fee Schedule, the Exchange currently offers 
various Add/Remove Volume Tiers. In particular, the Exchange offers 
four Growth Tiers that each provide an enhanced rebate for Members' 
qualifying orders yielding fee codes B,\4\ V,\5\ Y,\6\ 3 \7\ and 4,\8\ 
where a Member reaches certain add volume-based criteria, including 
``growing'' its volume over a certain baseline month. Currently, Growth 
Tier 4 is as follows:
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    \4\ Orders yielding Fee Code ``B'' are orders adding liquidity 
to EDGX (Tape B).
    \5\ Orders yielding Fee Code ``V'' are orders adding liquidity 
to EDGX (Tape A).
    \6\ Orders yielding Fee Code ``Y'' are orders adding liquidity 
to EDGX (Tape C).
    \7\ Orders yielding Fee Code ``3'' are orders adding liquidity 
to EDGX in the pre and post market (Tapes A or C).
    \8\ Orders yielding Fee Code ``4'' are orders adding liquidity 
to EDGX in the pre and post market (Tape B).
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     Growth Tier 4 provides a rebate of $0.0034 per share to 
qualifying orders (i.e., orders yielding fee codes B, V, Y, 3, or 4) 
where (1) the Member adds a Step-Up ADAV from October 2021 equal to or 
greater than 0.10% of the TCV or the Member adds a Step-Up ADAV from 
October 2021 equal to or greater than 10 million shares; and (2) the 
Member has a total remove ADV equal to or greater than 0.60% of TCV.
    Now, the Exchange proposes to amend the second prong of the 
criteria. Specifically, proposed Growth Tier 4 is as follows:
     Proposed Growth Tier 4 provides a rebate of $0.0034 per 
share to qualifying orders (i.e., orders yielding fee codes B, V, Y, 3, 
or 4) where (1) the Member adds a Step-Up ADAV from October 2021 equal 
to or greater than 0.10% of the TCV or the Member adds a Step-Up ADAV 
from October 2021 equal to or greater than 10 million shares; and (2) 
the Member has a total remove ADV equal to or greater than 0.60% of TCV 
or the Member has a total remove ADV equal to or greater than 60 
million shares.
    The proposed modification to Growth Tier 4 is designed to provide 
Members an additional opportunity to meet the tier.
    Under footnote 2 of the Fee Schedule, the Exchange currently offers 
various Retail Volume Tiers, which provide an enhanced rebate for 
Members' qualifying orders yielding fee code ZA.\9\ Now, the Exchange 
proposes to adopt a Retail Growth Tier 1, which would provide for the 
same required criteria as Growth Tier 4, as modified. Specifically, the 
proposed Retail Growth Tier 1 is as follows:
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    \9\ Orders yielding Fee Code ``ZA'' are retail orders adding 
liquidity to EDGX.
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     Proposed Growth Tier 4 [sic] provides a rebate of $0.0034 
per share to qualifying orders (i.e., orders yielding fee code ZA) 
where (1) the Member adds a Step-Up ADAV from October 2021 equal to or 
greater than 0.10% of the TCV or the Member adds a Step-Up ADAV from 
October 2021 equal to or greater than 10 million shares; and (2) the 
Member has a total remove ADV equal to or greater than 0.60% of TCV or 
the Member has a total remove ADV equal to or greater than 60 million 
shares.
    The proposed Retail Growth Tier 1 is designed to provide Members an 
opportunity to receive an enhanced rebate by meeting the Retail Growth 
Tier 1 criteria. Further, overall the Growth Tiers are intended to 
provide Members an opportunity to receive an enhanced rebate by 
increasing their order flow to the Exchange, which further contributes 
to a deeper, more liquid market and provides even more execution 
opportunities for active market participants. Incentivizing an increase 
in liquidity adding or removing volume, through enhanced rebate 
opportunities, encourages liquidity adding Members on the Exchange to 
contribute to a deeper, more liquid market, and liquidity executing 
Members on the Exchange 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, increased overall order flow 
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 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

[[Page 2949]]

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 changes 
reflect 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. Additionally, 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 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. Competing equity exchanges 
offer similar tiered pricing structures, including schedules of rebates 
and fees that apply based upon members achieving certain volume and/or 
growth thresholds, as well as assess similar fees or rebates for 
similar types of orders, to that of the Exchange.
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    \13\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \14\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
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    In particular, the Exchange believes Growth Tier 4, as modified, 
and the proposed Retail Growth Tier 1 are reasonable because they will 
be available to all Members and provide all Members with an additional 
opportunity to receive an enhanced rebate. The Exchange further 
believes the proposed Growth Tier 4 and Retail Growth Tier 1 will 
provide a reasonable means to encourage overall and retail growth, 
respectively, in Members' order flow to the Exchange and to incentivize 
Members to continue to provide liquidity adding and removing volume to 
the Exchange by offering them an additional opportunity to receive an 
enhanced rebate on qualifying orders. An overall increase in activity 
would deepen the Exchange's liquidity pool, offers additional cost 
savings, support the quality of price discovery, promote market 
transparency and improve market quality, for all investors.
    Further, the Exchange believes that the proposed changes are 
reasonable as it does not represent a significant departure from the 
criteria currently offered in the Fee Schedule. Specifically, the 
proposed change to Growth Volume Tier 4 merely adds additional criteria 
to achieve the Tier, and the proposed Retail Growth Tier 1 is nearly 
identical to the Growth Volume Tier 4, as modified. Additionally, the 
Exchange believes that the enhanced rebates under Growth Tier 4, which 
is not being changed, and the Proposed Retail Growth Tier 1 is 
commensurate with the criteria.
    The Exchange also believes that the proposal represents an 
equitable allocation of fees and rebates and is not unfairly 
discriminatory because all Members will be eligible for Growth Tier 4 
and the proposed Retail Growth Tier 1 and have the opportunity to meet 
the Tiers' criteria and receive the corresponding enhanced rebate if 
such criteria is met. 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 
Members qualifying for Growth Tier 4, as amended, or the proposed 
Retail Growth Tier 1. While the Exchange has no way of predicting with 
certainty how the proposed changes will impact Member activity, the 
Exchange anticipates that at least one Member will be able to satisfy 
the criteria proposed under each tier. The Exchange also notes that 
proposed changes will not adversely impact any Member's ability to 
qualify for reduced fees or enhanced rebates offered under other tiers. 
Should a Member not meet the proposed new criteria, the Member will 
merely not receive that corresponding enhanced rebate.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, as discussed above, the 
Exchange believes that the proposed changes 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 result, the Exchange believes that the proposed changes 
further 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.''
    The Exchange believes the proposed rule changes do not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
changes to Growth Tier 4 and the proposed Retail Growth Tier 1 will 
apply to all Members equally in that all Members are eligible for each 
of the Tiers, have a reasonable opportunity to meet the Tiers' criteria 
and will receive the enhanced rebate on their qualifying orders if such 
criteria is met. The Exchange does not believe the proposed changes 
burdens competition, but rather, enhances competition as it is intended 
to increase the competitiveness of EDGX by amending an existing pricing 
incentive and adopting a pricing incentive in order to attract order 
flow and incentivize participants to increase their participation on 
the Exchange, providing for additional execution opportunities for 
market participants and improved price transparency. Greater overall 
order flow, trading opportunities, and pricing transparency benefits 
all market participants on the Exchange by enhancing market quality and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem.
    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 other equities exchanges, 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 18% of the market share.\15\ 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

[[Page 2950]]

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.'' \16\ 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'. . . .''.\17\ 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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    \15\ Supra note 1.
    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \17\ 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 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 \18\ and paragraph (f) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 [email protected]. Please include 
File Number SR-CboeEDGX-2022-001 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-2022-001. 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-2022-001, and should be 
submitted on or before February 9, 2022.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00877 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P


