[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63555-63558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22662]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96073; File No. SR-CboeEDGX-2022-043]


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

October 13, 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 October 3, 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 Options'') 
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

[[Page 63556]]

Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to modify rebates 
related to Automated Improvement Mechanism (``AIM'') transactions, 
effective October 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 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 18% of the market share and 
currently the Exchange represents only approximately 6% of the market 
share.\3\ Thus, in such a low-concentrated and highly competitive 
market, no single options exchange, including the Exchange, possesses 
significant pricing power in the execution of option order flow. 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.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (September 30, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides standard 
rebates ranging from $0.01 up to $0.21 per contract for Customer orders 
in both Penny and Non-Penny Securities. The Fee Codes and Associated 
Fees section of the Fees Schedule also provides for certain fee codes 
associated with certain order types and market participants that 
provide for various other fees or rebates. Fee code BC, for example, is 
appended to Customer Agency orders executed in the Automated 
Improvement Mechanism (``AIM'' or ``AIM Auction'') and currently offers 
a rebate of $0.06 per contract. Additionally, the Fee Schedule offers 
tiered pricing which provides Members \4\ opportunities to qualify for 
higher rebates or reduced fees where certain volume criteria and 
thresholds are met. Additionally, in response to the competitive 
environment, the Exchange also offers tiered pricing, which provides 
Members with 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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    \4\ See Exchange Rule 1.5(n).
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    For example, the Exchange currently offers two AIM Volume Tiers 
which provide enhanced rebates between $0.11 and $0.12 per contract for 
qualifying Customer orders that yield fee code BC where a Member meets 
the respective tiers' volume threshold.\5\ More specifically, AIM Tier 
1 currently offers an enhanced rebate of $0.11 per contract for a 
Member's qualifying orders (i.e., yielding fee code BC) if a Member has 
an ADV \6\ in Customer Orders greater than or equal to 0.30% of average 
OCV.\7\ AIM Tier 2 currently offers an enhanced rebate of $0.12 per 
contract for a Member's qualifying orders (i.e., yielding fee code BC) 
if a Member has an ADV in Customer Orders greater than or equal to 
0.50% of average OCV. The Exchange first proposes to reduce the current 
rebates for both AIM Tiers. Specifically, the Exchange proposes to 
reduce the current enhanced rebate for AIM Tier 1 from $0.11 per 
contract to $0.09 per contract. The Exchange proposes to reduce the 
current enhanced rebate for AIM Tier 2 from $0.12 per contract to $0.10 
per contract. The Exchange notes that it believes the AIM Tiers 
continue to provide Members with an opportunity to receive an enhanced 
rebate (albeit at a lower amount), thus providing a continued incentive 
to submit Customer order flow to the Exchange.
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    \5\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote 
9, Automated Improvement Mechanism (``AIM'') Tiers.
    \6\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \7\ ``OCC Customer Volume or ``OCV'' means the total equity and 
ETF options volume that clears in the Customer range at the Options 
Clearing Corporation (``OCC'') for the month for which the fees 
apply, excluding volume on any day that the Exchange experiences an 
Exchange System Disruption and on any day with a scheduled early 
market close.
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    The Exchange also proposes to adopt new supplemental AIM Tiers 
(under Footnote 9) which would provide additional rebates (i.e., in 
addition to the standard rebate or enhanced rebates Members may receive 
for Customer Agency orders executed in AIM). The proposed tiers would 
be applicable to fee code BC and applied on an order-by-order basis. In 
addition to a volume threshold described below, the proposed tiers 
would include criteria based on the ``Interaction Rate'' of the order. 
Particularly, the Exchange proposes to add new Supplemental Tier 1, 
which would provide an additional rebate of $0.02 per contract where a 
Member (i) has an ADV in Customer Orders greater than or equal to 0.50% 
of average OCV and (ii) the order has an Interaction Rate greater than 
or equal to 51% and less than 80%. The Exchange proposes to add new 
Supplemental Tier 2, which would provide an additional rebate of $0.05 
per contract where a Member (i) has Member has an ADV in Customer 
Orders greater than or equal to 0.50% of average OCV and (ii) the order 
has an Interaction Rate greater than or equal to 0% and less than 51%. 
The ``Interaction Rate'' of an order refers to the percentage of the 
Agency Order that traded against the Initiating Order.\8\ By way of 
example, if an AIM Agency Order trades 35 out of 40 contracts with the 
paired Initiating Order (i.e., 15 [sic] contracts were executed against 
a response or unrelated order), the Interaction Rate would be 87.5% (35 
/ 40). Because the Interaction Rate was above 80% in this example, that 
order would not qualify for either additional rebate. However, if an 
AIM Agency Order trades 25 out of 40 contracts with the paired 
Initiating Order, the Interaction Rate would be 62.5% (25 / 40), and 
that order would be entitled to an additional rebate of $0.02 per

[[Page 63557]]

contract (provided the Member also meets the requirements of the first 
prong and has an ADV in Customer Orders greater than or equal to 0.50% 
of average OCV). The proposed new tiers are designed to incentivize 
order flow providers to continue to route AIM orders to the Exchange, 
notwithstanding the potential for such orders to be broken up. The 
Exchange also proposes to clarify that the additional proposed rebates 
will apply to the Member that submitted a qualifying AIM Agency Order, 
including a Member who routed an order to the Exchange with a 
Designated Give Up, when the Agency Order trades with a Response Order.
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    \8\ An Options Member may electronically submit for execution in 
AIM an order it represents as agent (``Agency Order'') against 
principal interest or a solicited order(s) (except for an order for 
the account of any Options Market Maker registered in the applicable 
series on the Exchange) (an ``Initiating Order''). See EDGX Options 
Rule 21.19.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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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.
    The Exchange believes the proposed reduction in rebate amounts 
under AIM Tiers 1 and 2 for orders yielding fee code BC is reasonable 
both tiers continue to provide an enhanced rebate (albeit at lower 
amounts), which the Exchange believes is still commensurate with the 
current criteria. The proposed rule change is equitable and unfairly 
[sic] discriminatory as the amended rebate amounts apply uniformly to 
all Members' respective qualifying Customer orders. The Exchange 
believes that the current AIM Tiers continue to benefit all Members by 
contributing towards a robust and well-balanced market ecosystem. 
Indeed, the Exchange believes AIM Tiers 1 and 2 will continue to 
incentivize increased Customer order flow and overall order flow to the 
Exchange's Book, which creates more trading opportunities, which, in 
turn attracts Market-Makers. A resulting increase in Market-Maker 
activity may facilitate tighter spreads, which may lead to an 
additional increase of order flow from other market participants. 
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 the proposed rule change to adopt new AIM 
Supplemental Tiers is reasonable because it provides an opportunity for 
Members to receive additional rebates for meeting certain thresholds 
and based on the Interaction Rate of the AIM order. The Exchange also 
believes the proposed additional rebates are commensurate with the 
proposed criteria. The Exchange further believes the proposal 
encourages the use of AIM. Specifically, the Exchange believes that the 
proposed additional rebates for AIM Agency Orders would incentivize 
Agency Order flow to AIM Auctions, notwithstanding the potential for 
such orders to be broken up. Additional auction order flow provides 
market participants with additional trading opportunities at improved 
prices. Moreover, exchanges have a history of providing credits when an 
auctioned order is broken up.\12\ Lastly, the proposed additional 
rebates are not unreasonably discriminatory because such rebates are 
equally available to all Members submitting AIM Agency Orders to the 
Exchange.
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    \12\ See e.g., Nasdaq ISE Options 7 Pricing Schedule, 
Facilitation and Solicitation Break-Up Rebate.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. In particular, 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, but rather, serves to increase 
intra-market competition by incentivizing members to direct their 
orders, and, in particular, Customer orders, to the Exchange's AIM 
Auction, in turn providing for more opportunities to compete at 
improved prices. Moreover, the Exchange notes the proposed change to 
AIM Tiers will apply to all Members equally in that all Members will be 
eligible to receive the rebates under the tiers, have a reasonable 
opportunity to meet the tier's criteria and receive the enhanced 
rebates (albeit at a lower amount) on their qualifying orders if such 
criteria is met.
    Also, as stated above, the proposal to adopt the proposed 
Supplemental AIM Tiers will also apply to all Members, in that, such 
Tier will be available for any Member that meets the criteria. The 
Exchange does not believe the proposed changes burden competition as 
all Members will continue to have an opportunity receive enhanced 
rebates or additional rebates offered under various tiers, which tiers 
are generally designed to increase the competitiveness of EDGX and 
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 benefit 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.
    The Exchange also 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 they may participate on and 
direct their order flow, including 15 other options exchanges. 
Additionally, the Exchange represents a small percentage of the overall 
market. Based on publicly available information, no

[[Page 63558]]

single options exchange has more than 18% of the market share. 
Therefore, no exchange possesses significant pricing power in the 
execution of order flow. Indeed, participants can readily choose to 
send their orders to other exchanges if they deem fee levels at those 
other venues to be more favorable. As noted above, the Exchange 
believes that the proposed fee changes are comparable to that of other 
exchanges offering similar functionality. 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.'' 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'. . . . ''. 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.

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 \13\ and paragraph (f) of Rule 19b-4 \14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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-2022-043 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-2022-043. 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-2022-043 and should be 
submitted on or before November 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22662 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P


