[Federal Register Volume 87, Number 15 (Monday, January 24, 2022)]
[Notices]
[Pages 3604-3610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93997; File No. SR-CboeEDGX-2022-002]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fees Applicable to Various Market Data Products

January 18, 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. (``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. (``EDGX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the fees applicable to various market 
data products. 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 Market Data section applicable 
to its equities trading platform (``EDGX Equities''). Particularly, the 
Exchange proposes to (i) increase the External Distribution fee 
applicable to EDGX Top, (ii) modify the External Subscriber fees 
applicable to EDGX Top Derived Data API Service, (iii) adopt a New 
External Distributor Credit applicable to Cboe One Premium, (iv) extend 
the New External Distributor Credit applicable to EDGX Summary Depth 
Feed from one (1) month to three (3) months, and (v) eliminate the 
waiver of EDGX Top and EDGX Last Sale External Distribution fees for 
External Distributors of EDGX Depth.
Market Background
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. 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.'' \3\ As the Commission 
itself recognized, the market for trading services in NMS stocks has 
become ``more fragmented and competitive.'' \4\
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    \3\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS Adopting Release'').
    \4\ See Securities Exchange Act Release No. 84875, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
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    Equity trading is currently dispersed across sixteen exchanges, 
more than 50 alternative trading systems,\5\ and numerous broker-dealer 
internalizers and wholesalers, all competing fiercely for order flow. 
Based on publicly-available information, no single U.S. equities 
exchange has more than 17% market share.\6\ In turn, the market for 
top-of-book quotation and transaction data is highly competitive as 
national securities exchanges compete vigorously with each other to 
provide efficient, reliable, and low-cost data to a wide range of 
investors and market participants. In fact, there are twelve competing 
products offered by other national securities exchanges today,\7\ not 
counting products offered by the Exchange's affiliates, and each of the 
Exchange's affiliated U.S. equities exchanges also offers similar top-
of-book data. Each of those exchanges offer top-of-book quotation and 
last sale information based on their own quotation and trading activity 
that is substantially similar to the information provided by the 
Exchange through the EDGX Top Feed.\8\ Exchange top-of-book data is 
therefore widely available today from a number of different sources.
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    \5\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \6\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (December 10, 2021) available at http://markets.cboe.com/us/equities/market_share/.
    \7\ Competing top-of-book products include, Nasdaq Basic, BX 
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BQT, NYSE 
Arca BBO/Trades, NYSE American BBO/Trades, NYSE Chicago BBO/Trades, 
IEX TOPS, MIAX PEARL Equities Top of Market Feed, and MEMX MEMOIR 
Top.
    \8\ For example, The Nasdaq Stock Market LLC (``Nasdaq'') offers 
``Nasdaq Basic'' which is a real-time market data product that 
offers best bid and offer and last sale information for all U.S. 
exchange-listed securities based on liquidity within the Nasdaq 
market center and trades reported to the FINRA/Nasdaq Trade 
Reporting Facility (``Nasdaq TRF''). See Nasdaq Equity Rules, Equity 
7, Pricing Schedule, Section 147(a). The type of information 
contained on the EDGX Top Feed is substantially similar to that 
offered through Nasdaq Basic, except that the Exchange disseminates 
information about quotes and trades on EDGX, whereas Nasdaq Basic 
provides information about quotes and trades on Nasdaq and the 
Nasdaq TRF. Other national securities with competing top-of-book 
products also offer substantially similar types of information 
through those top-of-book products.
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Fees for External Distribution of EDGX Top
    The Exchange first proposes to increase the external distribution 
fee applicable to EDGX Top,\9\ which is an uncompressed data feed that 
offers top-of-book quotations and execution information based on equity 
orders entered into the System.\10\ Currently, the Exchange charges an 
external distribution fee (i.e., distribution outside the distributor's 
own firm) of $1,500 per month to External Distributors \11\ of EDGX 
Top. The

[[Page 3605]]

Exchange also charges a professional user fee of $4.00 per month, a 
non-professional user fee of $0.10 per month, an enterprise fee of 
$15,000 per month, and a digital media enterprise fee of $2,500 per 
month that is applicable to External Distributors. The external 
distribution fees have been in place, without change, since June 1, 
2016.\12\ In the time since, the Exchange has made a number of 
significant enhancements to its platform, including, among other 
things, trading hours beginning at 4 a.m. Eastern time (which has 
required additional operational support) and the introduction of Retail 
Priority Orders.\13\ These enhancements have resulted in improved 
trading opportunities for investors and, consequently, more valuable 
market data. As such, the Exchange proposes to increase the monthly 
charge for external distribution of EDGX Top from $1,500 to $2,250 per 
month (i.e., an increase of $750 per month),\14\ which would continue 
to be cheaper than similar products offered by the certain of the 
Exchange's competitors.\15\ The Exchange proposes no changes to the 
professional, non-professional, enterprise and digital media enterprise 
fees associated with external distribution. Further, various incentive 
programs that the Exchange has adopted to facilitate the provision of 
lower-cost market data to retail and other investors would continue to 
apply.\16\ As a result, the Exchange believes that the proposed fee 
changes would allow it to be appropriately compensated for the value of 
its market data, particularly from professional financial services 
firms that use that data for external distribution, while 
simultaneously ensuring that its data would continue to be available to 
a wide range of investors and market participants at a cost that 
facilitates widespread availability of such data.
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    \9\ See Exchange Rule 13.8(c).
    \10\ See Exchange Rule 1.5(cc).
    \11\ An External Distributor of an Exchange Market Data product 
is a Distributor that receives the Exchange Market Data product and 
then distributes that data to a third party or one or more Users 
outside the Distributor's own entity.
    \12\ See Securities Exchange Act Release No. 77888 (May 24, 
2016) 81 FR 34384 (May 31, 2016) (SR-BatsEDGX-2016-18).
    \13\ See Exchange Rule 11.9.01.
    \14\ The Exchange notes that the fee for Cboe One Summary is 
equivalent to the aggregate EDGX Top, BZX, Top, BYX Top, and EDGA 
Top fees. The Exchange is not proposing to change the current Cboe 
One Summary external distribution fee. Instead, the Cboe BYX 
Exchange, Inc. (``BYX'') has simultaneously with this proposal 
proposed to decrease its fee for BYX Top by $750 in order to ensure 
the proposed fee will continue to not cause the combined cost of 
subscribing to EDGX, EDGA, BYX, and BZX individual Top and Last Sale 
feeds to be greater than those currently charged to subscribe to the 
Cboe One Summary fee.
    \15\ See infra notes 38, 39, 41, and 42.
    \16\ See e.g., EDGX Fees Schedule, Small Retail Broker 
Distribution Program, which provides for a reduced EDGX Top 
Distribution Fee for small broker-dealers that operate a retail 
business and Retail Membership Program, which provides for 
discounted membership fees, logical and physical port fees, and 
market data fees and provides for an opportunity for Members to 
receive an enhanced rebate for retail volume.
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EDGX Top Derived Data API Service External Subscriber Fees
    The Exchange next proposes to modify fees charged to Distributors 
that distribute EDGX Top Derived Data through an Application 
Programming Interface (``API'')--i.e., the Derived Data API 
Service.\17\ By way of background, ``Derived Data'' is pricing data or 
other data that (i) is created in whole or in part from Exchange Data, 
(ii) is not an index or financial product, and (iii) cannot be readily 
reverse[hyphen]engineered to recreate Exchange Data or used to create 
other data that is a reasonable facsimile or substitute for Exchange 
Data. The Derived Data API Service program offers discounted fees for 
Distributors that make Derived Data available through an API, thereby 
allowing Distributors to benefit from reduced fees when distributing 
Derived Data to subscribers that establish their own platforms (rather 
than relying on a hosted display solution).
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    \17\ An ``API Service'' is a type of data feed distribution in 
which a Distributor delivers an API or similar distribution 
mechanism to a third-party entity for use within one or more 
platforms. The service allows Distributors to provide Derived Data 
to a third-party entity for use within one or more downstream 
platforms that are operated and maintained by the third-party 
entity. The Distributor maintains control of the entitlements, but 
does not maintain technical control of the usage or the display.
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    As discussed above, the Exchange currently charges a fee of $1,500 
per month for external distribution of EDGX Top (which is proposed to 
be increased to $2,250). Instead of being assessed the flat regular fee 
for external distribution, Distributors that distribute Derived Data 
through an API are charged a tiered External Subscriber Fee based on 
the number of API Service Platforms (i.e., ``External Subscribers'') 
that receive Derived Data from the Distributor through a Derived Data 
API Service. Currently, Distributors under this program continue to be 
charged a fee of $1,500 per month (the fee normally assessed to 
External Distributors for EDGX Top) for each External Subscriber if the 
Distributor makes Derived Data available to 1-5 External Subscribers. 
Distributors that make Derived Data available to additional External 
Subscribers however benefit from discounted pricing based on the number 
of subscribers. Specifically, the external distribution fee is lowered 
to $1,250 per month for each External Subscriber if the Distributor 
makes Derived Data available to 6-20 External Subscribers, and further 
lowered to $1,000 per month for each External Subscriber if the 
Distributor makes Derived Data available to 21 or more External 
Subscribers. In light of the proposed increase of the EDGX Top external 
distribution fee to $2,250, the Exchange proposes to make corresponding 
changes to the distribution fees for Distributors of Derived Data 
through a Derived API Service. Particularly, the Exchange proposes to 
modify the External Subscriber fees as follows:

------------------------------------------------------------------------
                                                     Current    Proposed
          Number of external subscribers               fee        fee
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1-5...............................................     $1,500     $2,250
6-20..............................................      1,250      1,800
21 and above......................................      1,000      1,500
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    The Exchange notes that the External Subscriber Fee is non-
progressive and based on the number of External Subscribers that 
receive Derived Data from the Distributor. To illustrate how the 
discount is applied, the Exchange has codified an example in the Fees 
Schedule under the notes section of the Derived Data Platform Service 
section, which it now proposes to update in connection with the 
proposed changes to the External Subscriber fees. Currently, the 
example provides that a Distributor providing Derived Data based on 
EDGX Top to six (6) External Subscribers that are API Service Platforms 
would be charged a monthly fee of $7,500 (i.e., 6 External Subscribers 
x $1,250 each). The Exchange proposes to update the example to provide 
that Distributor providing Derived Data based on EDGX Top to six (6) 
External Subscribers that are API Service Platforms would be charged a 
monthly fee of $10,800 (i.e., 6 External Subscribers x $1,800 each).
Cboe One Premium and EDGX Top Depth New External Distributor Credit
    The Exchange next proposes to adopt a New External Distributor 
Credit applicable to Cboe One Premium and extend the New External 
Distributor Credit applicable to EDGX Summary Depth Feed from one (1) 
month to three (3) months. By way of background, Cboe One Premium is a 
data feed that disseminates, on a real-time basis, the aggregate best 
bid and offer (``BBO'') of all displayed orders for securities traded 
on EDGX and its affiliated exchanges (i.e., BYX, Cboe EDGA Exchange, 
Inc. (``EDGA''), and Cboe BZX Exchange, Inc. (``EDGX'')) and contains 
optional functionality which enables recipients to receive aggregated 
two-sided quotations from EDGX and its affiliated equities exchanges 
for up to five (5)

[[Page 3606]]

price levels.\18\ Currently, the Exchange charges an external 
distribution fee of $12,500 per month to External Distributors \19\ of 
Cboe One Premium. The Exchange now proposes to adopt a New External 
Distributor Credit which provide that new External Distributors of the 
Cboe One Premium Feed will not be charged an External Distributor Fee 
for their first three (3) months in order to allow them to enlist new 
Users to receive the Cboe One Summary[sic] Feed. The Exchange believes 
the proposal will incentivize External Distributors to enlist new users 
to receive Cboe One Premium. To ensure consistency across the Cboe 
Equity Exchanges, BZX, BYX, and EDGA will be filing companion proposals 
to reflect this proposal in their respective fee schedules.
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    \18\ The Cboe Aggregated Market (``Cboe One'') Feed is a data 
feed that contains the aggregate best bid and offer of all displayed 
orders for securities traded on the Exchange and its affiliated 
exchanges (i.e., BYX, Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe 
BZX Exchange, Inc. (``EDGX'')[sic]). See Exchange Rule 13.8(b). The 
Cboe One Feed contains optional functionality which enables 
recipients to receive aggregated two-sided quotations from the Cboe 
Equities Exchanges for up to five (5) price levels (``Cboe One 
Premium Feed''). See Exchange Rule 13.8(b)(i). The Cboe One Premium 
external distribution fee is equal to the aggregate EDGX Summary 
Depth, BYX Summary Depth, EDGA Summary Depth, and BZX Summary Depth 
external distribution fees.
    \19\ An External Distributor of an Exchange Market Data product 
is a Distributor that receives the Exchange Market Data product and 
then distributes that data to a third party or one or more Users 
outside the Distributor's own entity.
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    The Exchange notes that it offers similar credits for other market 
data products. For example, the Exchange currently offers a one (1) 
month New External Distributor Credit applicable to Cboe One 
Summary,\20\ which is a data feed that disseminates, on a real-time 
basis, the aggregate BBO of all displayed orders for securities traded 
on EDGX and its affiliated equities exchanges and also contains 
individual last sale information for the EDGX and its affiliated 
equities exchanges.\21\ It also offers a New External Distributor 
Credit of one (1) month for subscribers of EDGX Summary Depth, which is 
a data feed that offers aggregated two-sided quotations for all 
displayed orders entered into the System for up to five (5) price 
levels. EDGX Summary Depth also contains the individual last sale 
information, Market Status, Trading Status, and Trade Break 
messages.\22\ The External Distribution fees for Cboe One Premium is 
equivalent to the aggregate EDGX Summary Depth, BZX Summary Depth, BYX 
Summary Depth, and EDGA Summary Depth External Distribution fees. In 
order to alleviate any competitive issues that may arise with a vendor 
seeking to offer a product similar to the Cboe One Premium Feed based 
on the underlying data feeds, the Exchange proposes to also extend the 
current New External Distributor Credit for EDGX Summary Depth from one 
(1) month to three (3) months and the Exchange's affiliates BYX, BZX 
and EDGA are also submitting similar proposals to increase the length 
of their respective Summary Depth New External Distributor Credits from 
one (1) month to three (3) months. The respective proposals to extend 
these credits to three months ensures the proposed New External 
Distributor Credit for Cboe One Premium will continue to not cause the 
combined cost of subscribing to EDGX, EDGA, BYX, and BZX Summary Depth 
feeds for new External Distributors to be greater than those currently 
charged to subscribe to the Cboe One Premium feed.
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    \20\ See Exchange Rule 13.8(b).
    \21\ The Exchange notes that when it first adopted the New 
External Distributor Credit for Cboe One Summary, it similarly 
applied for a new External Distributor's first three (3) months. See 
Securities Exchange Act Release No. 74282 (February 17, 2015), 80 FR 
9487 (February 23, 2015) (SR-EDGX-2015-09).
    \22\ See Exchange Rule 13.8(f).
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Waiver of External Distribution Fees for EDGX Top and EDGX Last Sale
    The Exchange currently provides External Distributors of EDGX 
Depth,\23\ upon request and at no additional External Distribution Fee, 
access to the EDGX Top or EDGX Last Sale \24\ feeds for External 
Distribution. This waiver was intended to encourage the distribution of 
the EDGX Top and Last Sale data products. The waiver has been in place, 
without change, since June 1, 2016.\25\ The Exchange believes such 
waiver has been in place for ample time to allow External Distributors 
to grow their respective subscriber bases and no longer wishes to 
provide this waiver of the External Distribution fees for EDGX Top and 
EDGX Last Sale feeds. Accordingly, the Exchange proposes to strike this 
language from the fees schedule.
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    \23\ EDGX Depth is a data feed that contains all displayed 
orders for listed securities trading on the Exchange, order 
executions, order cancellations, order modifications, order 
identification numbers, and administrative messages. See Exchange 
Rule 13.8(a).
    \24\ EDGX Last Sale is an uncompressed data feed that offers 
only execution information based on orders entered into the System. 
See Exchange Rule 13.8(d).
    \25\ See Securities Exchange Act Release No. 77888 (May 24, 
2016) 81 FR 34384 (May 31, 2016) (SR-BatsEDGX-2016-18).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\26\ in general, and 
furthers the objectives of Section 6(b)(4),\27\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its members and other recipients of 
Exchange data. In addition, the Exchange believes that the proposed 
rule change is consistent with Section 11(A) of the Act as it supports 
(i) fair competition among brokers and dealers, among exchange markets, 
and between exchange markets and markets other than exchange markets, 
and (ii) the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities.\28\ Finally, the proposed rule change is also consistent 
with Rule 603 of Regulation NMS,\29\ which provides that any national 
securities exchange that distributes information with respect to 
quotations for or transactions in an NMS stock do so on terms that are 
not unreasonably discriminatory.
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    \26\ 15 U.S.C. 78f.
    \27\ 15 U.S.C. 78f(b)(4).
    \28\ 15 U.S.C. 78k-1.
    \29\ See 17 CFR 242.603.
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    The Exchange operates in a highly competitive environment. Indeed, 
there are now sixteen registered U.S equities exchanges, and with the 
exception of Long-Term Stock Exchange, Inc. (``LTSE''), which has 
determined to not offer any proprietary market data feeds, each of 
these exchanges offer associated market data products to their 
customers, either with or without a fee. It is in this robust and 
competitive market in which the Exchange is proposing to increase its 
fees, while still providing its data at a significantly lower price 
than competing products offered by other national securities exchanges 
with similar data quality.
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Further, with respect 
to market data, the decision of the United States Court of Appeals for 
the District of Columbia Circuit in NetCoalition v. SEC upheld the 
Commission's reliance on the existence of competitive market mechanisms 
to evaluate the reasonableness and fairness of fees for proprietary 
market data: ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are 
removed' and

[[Page 3607]]

that the SEC wield its regulatory power `in those situations where 
competition may not be sufficient,' such as in the creation of a 
`consolidated transactional reporting system.' '' \30\ The court agreed 
with the Commission's conclusion that ``Congress intended that 
`competitive forces should dictate the services and practices that 
constitute the U.S. national market system for trading equity 
securities.' '' \31\ As discussed in this filing, significant 
competitive forces constrain the ability of the Exchange to charge 
supra-competitive fees.
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    \30\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010) 
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 323).
    \31\ Id. at 535.
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EDGX Top and EDGX Top Derived Data API Service
i. The EDGX Top Feed Is an Optional Market Data Product, and the 
Exchange Is Constrained in Its Pricing by Significant Competitive 
Forces
    Subscribing to EDGX Top is entirely optional. The Exchange is not 
required to make EDGX Top available to any customers, nor is any 
customer required to purchase EDGX Top.\32\ A customer's decision as to 
whether to purchase EDGX Top is therefore entirely discretionary and is 
based on that firms individual business needs. Generally, firms that 
choose to subscribe to EDGX Top do so because they believe that it is a 
cost-effective source for top-of-book data that provides valuable 
information about the market for national market system (``NMS'') 
stocks traded on the Exchange, where a consolidated display covering 
all U.S. equities exchanges is not required. Such firms are able to 
determine for themselves whether EDGX Top helps them to achieve their 
business goals, and if so, whether or not it is attractively priced 
compared to other similar top-of-book products offered by competing 
exchanges. Indeed, if EDGX Top does not provide sufficient value to 
firms based on the uses those firms may have for it, such firms may 
simply choose to conduct their business operations in ways that do not 
use EDGX Top. In fact, comparing the number of External Distributors 
that currently subscribe to EDGX Top, based on data compiled by the 
Exchange as of November 2021, to the total number of External 
Distributors that subscribe to core data offered by the CTA and UTP 
SIPs, as published on plan websites for Q1 2021,\33\ less than 7.37% of 
External Distributors that purchase U.S. equities data choose to 
subscribe to EDGX Top.\34\ The EDGX Top Feed therefore represents an 
insignificant proportion of the market for such market data, and 
significantly more External Distributors choose not to purchase this 
product than those that do. Given the insignificant percentage of 
External Distributors that consume EDGX Top, it is clear that such 
firms can and do exercise their right to choose to purchase, or not 
purchase, this particular market data product. And, as discussed later 
in this filing, any External Distributor of top-of-book data that does 
not wish to purchase EDGX Top, due to the price of that data or for any 
other reason, can choose to substitute similar information from other 
exchanges. Although the Exchange is not required to make any data, 
including top-of-book data, available through its proprietary market 
data platform, the Exchange believes that making such data available 
increases investor choice, and contributes to a fair and competitive 
market. Specifically, making such data publicly available through 
proprietary data feeds allows investors to choose alternative, 
potentially less costly, market data based on their business needs. For 
example, a broker or fintech firm may choose to purchase EDGX Top, or a 
similar product from another exchange, in order to perform investment 
analysis, or to provide general information about the market for U.S. 
equity securities, respectively. In either case the choice to purchase 
EDGX Top would be based on the firm's determination of the value of the 
data offered by their chosen product compared to the cost of acquiring 
this data instead of receiving similar data from other sources. EDGX 
Top serves as a valuable reference for investors that do not require a 
consolidated display. Making alternative products available to market 
participants ultimately ensures competition in the marketplace, and 
constrains the ability of exchanges to charge supra-competitive fees. 
Further, in the event that a market data customer views one exchange's 
top-of-book data product and/or fees as more or less attractive than a 
competitor's offerings they can and often do switch between competing 
products. As discussed, similar top-of-book information is available 
from a number of competing U.S. equities exchanges.\35\ This includes a 
number of large established exchanges that charge for access to such 
top-of-book data, as well as certain smaller or new exchange entrants 
that provide similar data without charge, in many cases as a way of 
attracting customers to their exchange while they seek to grow market 
share. In this way, EDGX Top and other top-of-book products offered by 
a number of U.S. equities exchanges, are all substitutes. The 
availability of these substitute products constrains the Exchange's 
ability to charge supra-competitive prices as market participants can 
easily obtain similar data from one of the Exchange's many competitors. 
In fact, the impact of competition on the market in which EDGX Top is 
offered to market participants and investors is showcased by Exchange 
affiliates' other recent fee changes related to this product, which 
involved the reduction of fees to facilitate the Exchange affiliates' 
ability to compete for customers.
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    \32\ The Exchange notes that broker-dealers are not required to 
purchase proprietary market data to comply with their best execution 
obligations. See In the Matter of the Application of Securities 
Industry and Financial Markets Association for Review of Actions 
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May16, 2014). Similarly, there is no requirement 
in Regulation NMS or any other rule that proprietary data be 
utilized for order routing decisions, and some broker-dealers and 
ATSs have chosen not to do so.
    \33\ See CTA Quarterly Population Metrics (Q1 2021), available 
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2021.pdf; UTP Quarterly Population 
Metrics (Q1 2021), available at https://www.utpplan.com/DOC/UTP_2021_Q1_Stats_with_Processor_Stats.pdf.
    \34\ This statistic reflects the number of External Distributors 
that purchase EDGX Top divided by the number of External 
Distributors that purchase consolidated market data from the SIPs, 
as reflected in publicly available information. Id. The Exchange 
does not have similar information about the number of External 
Distributors that purchase top-of-book data from other exchanges as 
competing exchanges do not typically make this information publicly 
available due to the commercially sensitive nature of such 
information.
    \35\ Although the Exchange does not have access to the customer 
lists for other competing products, it understands based on 
conversations with subscribers to EDGX Top that they typically view 
exchange top-of-book products as substitutes and do not generally 
look to purchase such data from more than one national securities 
exchange.
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    Distributors can discontinue use of EDGX Top at any time and for 
any reason, including due to an assessment of the reasonableness of 
fees charged. Other External Distributors are free to similarly cancel 
their subscriptions in favor of a competitor offering, or cheaper or 
free data offered by the Exchange's affiliated U.S. equities exchanges, 
if they believe that the fees are too high given their particular use 
case for obtaining the data that the Exchange provides over EDGX Top. 
The Exchange offers all of its proprietary market data products 
pursuant to a month-to-month contract that allows subscribers to choose 
to terminate their subscription at any time. As a result, there are no 
contractual or other legal impediments for firms that wish to cancel 
their subscription to the Exchange's market data products,

[[Page 3608]]

including EDGX Top. In addition, the Exchange notes that a majority of 
External Distributors of EDGX Top either receive this data through a 
market data vendor, as opposed to directly from the Exchange, or is a 
market data vendor itself. Thus, firms can seamlessly switch to any 
other competitor product offered by their chosen vendor without 
incurring additional switching costs, such as the cost of establishing 
connectivity to another exchange to receive its market data.\36\
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    \36\ Market data vendors typically establish connectivity to a 
number of national securities exchanges to be able to offer their 
market data to customers.
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    In setting the proposed fees for EDGX Top, the Exchange considered 
the competitiveness of the market for proprietary data and all of the 
implications of that competition. Indeed, the Exchange is not in a 
position to charge unreasonable fees for its top-of-book data as there 
are a number of competing products in the market, including products 
that are currently offered free of charge by certain other exchanges 
that have determined not to charge for their market data. The existence 
of alternatives to EDGX Top ensures that the Exchange cannot set 
unreasonable fees when vendors and subscribers can freely elect these 
alternatives or choose not to purchase a specific proprietary data 
product if the attendant fees are not justified by the returns that any 
particular vendor or data recipient would achieve through the purchase.
    Similarly, in an effort to widen distribution to market 
participants that use equities market data to compute pricing for 
certain derivatives instruments, national securities exchanges, 
including for example the Exchange and The Nasdaq Stock Market LLC 
(``Nasdaq''),\37\ offer discounted pricing for Derived Data that is 
created using their top of book products. Derived Data is largely used 
to create derivative instruments, such as contracts for difference, 
rather than to trade equity securities, and is often purchased by 
market data customers outside of the U.S. where such derivative 
instruments are more commonly offered. As a result, customers that 
purchase top of book data to create Derived Data do not need a 
consolidated quotation, and typically only purchase top of book data to 
create Derived Data from one source. If a competing exchange were to 
charge less for a similar product than the Exchange proposes to charge 
under the EDGX Top Derived Data API Service fee structure, prospective 
subscribers may choose not subscribe to, or cease subscribing to, the 
EDGX Top Derived Data API Service. The existence of alternatives 
ensures that the Exchange cannot set unreasonable or unfairly 
discriminatory fees, as subscribers are free to elect such 
alternatives.
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    \37\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule, 
Section 147(c)(1). In addition, Nasdaq also charges distributors a 
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7, 
Pricing Schedule, Section 135.
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ii. The Proposed Fees Are Reasonable Given the Value of the Data 
Provided to Customers, and When Compared to Competing Market Data 
Products
    The proposed fees are also reasonable as even with the proposed fee 
increase they would continue to represent a relatively modest fee for 
top-of-book data that has proven valuable for investors. EDGX Top is a 
competitively-priced alternative to top-of-book data disseminated by 
other national securities exchanges. It is purchased by a wide variety 
of market participants and vendors, including data platforms, websites, 
fintech firms, buy-side investors, retail brokers, regional banks, and 
securities firms inside and outside of the U.S. that desire low cost, 
high quality, real-time U.S. equity market data. By providing lower 
cost access to U.S. equity market data, EDGX Top benefits a wide range 
of investors that participate in the national market system. As 
discussed, the decision to purchase a particular market data product 
from a particular exchange is largely based on two factors: (1) The 
quality of the data, and (2) the price charged for access to that data. 
The Exchange believes that EDGX Top is competitive on both of these 
factors.
    First, EDGX Top would remain competitively priced compared to 
similar products offered by other comparable U.S. equities exchanges. 
Although EDGX Top is not offered free of charge like certain other 
competitor offerings, particularly those offered by newer U.S. equities 
exchanges that are seeking to grow market share, it is made available 
at a price that is less than the prices charged by the Exchange's main 
competitors--i.e., those with comparable market shares and data 
quality. Notably, even with the proposed fee increase, EDGX Top would 
remain significantly cheaper than similar products offered by New York 
Stock Exchange LLC (``NYSE'') and Nasdaq in terms of the fees charged 
for external distribution. For example, NYSE charges a total of $4,000 
per month for access and redistribution of their equivalent products, 
i.e., $1,500 per month for applicable top-of-book quotation 
information,\38\ and an additional $1,500 per month for transaction 
information,\39\ both of which are included in EDGX Top for a single 
fee.\40\ In addition, a $1,000 per month redistribution fee is applied. 
NYSE Arca, Inc. (``Arca''), which has a similar pricing model to NYSE, 
charges a rate of $2,250 per month for access and redistribution of its 
equivalent products, separated into a $750 per month charge for top-of-
book quotation information, an additional $750 per month charge for 
transaction information, and $750 per month for redistribution.\41\ 
Therefore, while Arca's fees are slightly less than the proposal, the 
proposed fees are in-line with those charged by Arca. Finally, Nasdaq 
charges its External Distributors a fee of $2,000 per month for Nasdaq 
Basic, which includes both top-of-book quotation information and 
transaction information for the same fee, a $350 per month Data 
Consolidation fee, and a $100 per month Monthly Administrative Fee.\42\ 
The external distribution charges associated with obtaining comparable 
U.S. equities market data from NYSE and Nasdaq runs more than the 
proposed fee to be charged by the Exchange, meaning that the Exchange 
would continue to be offering its data at a price that is attractive 
compared to the prices charged by its competitors. The fee for EDGX Top 
Derived Data API Service would remain competitively priced compared to 
Nasdaq which also offers pricing discounts for Derived Data.\43\
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    \38\ See NYSE PDP Market Data Pricing, Section 1.3, NYSE BBO.
    \39\ See NYSE PDP Market Data Pricing, Section 1.4, NYSE Trades.
    \40\ Supra note 3.
    \41\ See NYSE PDP Market Data Pricing, Section 3.3, NYSE Arca 
BBO; NYSE PDP Market Data Pricing, Section 3.4, NYSE Arca Trades.
    \42\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule, 
Section 147(c)(1). In addition, Nasdaq also charges distributors a 
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7, 
Pricing Schedule, Section 135.
    \43\ See generally, the Nasdaq Basic fees at http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
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    Second, the proposed fees are reasonable given the value of the 
data provided in EDGX and used by data recipients in their profit-
generating activities. EDGX Top provides top-of-book quotations and 
transactions executed on the Exchange, and provides a valuable window 
into the market for securities traded on a market that accounts for 
about 5% of U.S. equity market volume today.\44\ As discussed, the 
Exchange offers EDGX Top in a competitive environment where firms may 
freely choose which market data

[[Page 3609]]

products best suit their business needs. Invariably, firms that choose 
to purchase EDGX Top instead of receiving one of the many free products 
offered by other exchanges,\45\ have decided that the value of EDGX Top 
is greater than that offered by those other products. The Exchange 
consistently ranks among the top U.S. equities exchanges in terms of 
various market quality measures, e.g., NBBO quote quality and NBBO 
market share.\46\ In turn, investors may choose to rely on the 
Exchange's market data products instead of other competitor offerings 
based on the value they provide in relation to any additional cost 
associated with obtaining that market data from the Exchange. For 
example, investors may wish to obtain market data from an exchange that 
has a higher time at the inside, as data obtained from an exchange that 
is quoting more often at the NBBO may better reflect the applicable 
market for securities it trades. Similarly, an exchange with greater 
overall market share will produce more transaction information that may 
be valuable to consumers of its data. Improvements in market quality 
will therefore directly impact the value of the market data that an 
exchange is able to offer to investors.
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    \44\ Supra note 10.
    \45\ See e.g., Cboe EDGA Exchange, Inc., Fee Schedule, EDGA Top.
    \46\ See https://www.cboe.com/us/equities/market_statistics/market_quality/.
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iii. The Proposed Fees Are Equitable and Not Unfairly Discriminatory as 
External Distributors Will Be Subject to Uniform Pricing Based on Their 
Usage of the Data and Differences Between the Fees Charged for Internal 
and External Distribution are Appropriate
    The Exchange believes the proposed fees for external distribution 
of EDGX Top will continue to be allocated fairly and equitably among 
subscribers, and are not unfairly discriminatory, as the proposed fees 
will apply equally to all data recipients that choose to subscribe to 
EDGX Top and distribute that data to external subscribers. As proposed, 
all External Distributors of EDGX Top will continue to be subject to 
the same external distribution fee, regardless of the type of business 
that they operate, or the use they plan to make of the data feed. Thus, 
all External Distributors would have access to EDGX Top on the same 
equitable and non-discriminatory terms.
    The Exchange believes that it is also fair and equitable, and not 
unfairly discriminatory to continue to charge different fees for 
internal and external distribution of the EDGX Top. As is common 
practice, the Exchange charges lower fees to distributors that use its 
market data products for internal distribution only than to 
distributors that redistribute that data externally to their customers. 
In the case of EDGX Top, External Distributors are subject to a higher 
distribution fee, and are also subject to professional user fees, non-
professional user fees, an enterprise fee, and a digital media 
enterprise fee. The Exchange continues to believe that it is 
appropriate to distinguish between internal and External Distributors 
in setting fees for EDGX Top as External Distributors can redistribute 
the Exchange's market data to its clients for a fee, whereas Internal 
Distributors are not allowed to redistribute the data.
    Finally, the Exchange believes the proposed changes to the 
distribution fees for Distributors of EDGX Top Derived Data through a 
Derived API Service is equitable and not unfairly discriminatory 
because the Exchange will apply the same fees to any similarly situated 
Distributors that elect to participate in the program based on the 
number of External Subscribers provided access to the Derived Data 
through an API Service. The Exchange believes that it is equitable and 
not unfairly discriminatory to continue to provide discounted rates to 
Distributors that provide access to at least six External Subscribers 
as the discounted rates are designed to incentivize firms to grow the 
number of External Subscribers that purchase Derived Data from the 
Exchange.
New External Distributor Fee Credit
    The Exchange also believes that adopting a New External Distributor 
Credit for Cboe One Premium is equitable and reasonable. As discussed 
above, a similar New External Distributor Fee Credit was initially 
adopted at the time the Exchange began to offer the Cboe One Summary to 
subscribers. It was intended to incentivize new Distributors to enlist 
Users to subscribe to Cboe One Summary in an effort to broaden the 
product's distribution. Now the Exchange proposes to adopt a similar 
credit for Cboe One Premium subscribers for their first three (3) 
months to similarly incentivize new Distributors to enlist Users to 
subscribe to Cboe One Premium in an effort to broaden the product's 
distribution. While this incentive is not available to Internal 
Distributors of Cboe One Premium, the Exchange believes it is 
appropriate as Internal Distributors have no subscribers outside of 
their own firm. The Exchange believes extending the New External 
Distributor Credit for EDGX Summary Depth from one (1) month to three 
(3) months is also equitable and reasonable, as it (along with 
simultaneous corresponding proposals by the Exchange's affiliates) 
ensures the proposed New External Distributor Credit for Cboe One 
Premium will continue to not cause the combined cost of subscribing to 
EDGX, EDGA, BYX, and BZX Summary Depth feeds for new External 
Distributors to be greater than those currently charged to subscribe to 
the Cboe One Premium feed.
EDGX Top and EDGX Last Sale External Distribution Fee Waiver for Fees 
for External Distributors of EDGX Depth
    Finally, the Exchange amending the fee waiver of EDGX Top and EDGX 
Last Sale feeds for External Distributors of EDGX Depth is equitable 
and reasonable. The Exchange believes eliminating the fee waiver is 
equitable and reasonable because it has been available, without change, 
since June 1, 2016 \47\ providing External Distributors with ample time 
to grow their subscriber bases. Moreover, the Exchange is not required 
to provide any such waiver to External Distributors of EDGX Depth.
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    \47\ Supra note 16.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
operates in a highly competitive environment, and its ability to price 
these data products is constrained by competition among exchanges that 
offer similar data products to their customers. Top-of-book data, 
depth-of-book data, and derived data is broadly disseminated by 
competing U.S. equities exchanges. There are therefore a number of 
alternative products available to market participants and investors, 
including products offered by certain competing exchanges without 
charge. In this competitive environment potential subscribers are free 
to choose which competing product to purchase to satisfy their need for 
market information. Often, the choice comes down to price, as market 
data customers look to purchase cheaper data products, and quality, as 
market participants seek to purchase data that represents significant 
market liquidity.
    Intramarket Competition. The Exchange believes that the proposed 
fees do not put any market participants at a relative disadvantage 
compared to

[[Page 3610]]

other market participants. As discussed, the proposed fees, credit, and 
eliminated waiver would apply to all External Distributors of EDGX Top, 
Cboe One Premium, and EDGX Depth, respectively, on an equal and non-
discriminatory basis. The continued difference in fees for internal and 
external distribution of EDGX Top are appropriate given the ability for 
External Distributors to redistribute data externally to their clients. 
Similarly, the credit applicable to only External Distributors is 
appropriate as it incentivizes such External Distributors to enlist 
subscribers, whereas Internal Distributors have no subscribers outside 
their firm. The Exchange therefore believes that the proposed fees 
neither favor nor penalize one or more categories of market 
participants in a manner that would impose an undue burden on 
competition.
    Intermarket Competition. The Exchange believes that the proposed 
fees do not impose a burden on competition or on other SROs that is not 
necessary or appropriate in furtherance of the purposes of the Act. In 
setting the proposed fees, the Exchange is constrained by the 
availability of numerous substitute products offered by other national 
securities exchanges. Because market data customers can find suitable 
substitute feeds, an exchange that overprices its market data products 
stands a high risk that users may substitute another product. These 
competitive pressures ensure that no one exchange's market data fees 
can impose an undue burden on competition, and the Exchange's proposed 
fees do not do so here.

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 \48\ and paragraph (f) of Rule 19b-4 \49\ 
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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    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 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-2022-002 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-2022-002. 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-2022-002 and should be 
submitted on or before February 14, 2022.
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    \50\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01228 Filed 1-21-22; 8:45 am]
BILLING CODE 8011-01-P


