[Federal Register Volume 87, Number 236 (Friday, December 9, 2022)]
[Notices]
[Pages 75680-75683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26745]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96447; File No. SR-CboeEDGX-2022-053]


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

December 5, 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 December 1, 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'') 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/) [sic], at the Exchange's Office of the Secretary, 
and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its Fee Schedule applicable to its 
equities trading platform (``EDGX Equities'') to (1) define the term 
``Step-Up ADV'', and (2) introduce a new Retail Growth Tier 1 and 
renumber the existing Retail Growth Tiers. The Exchange proposes to 
implement these changes effective December 1, 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 
Securities Exchange Act of 1934 (the ``Act''), to which market 
participants may direct their order flow. Based on publicly available 
information,\3\ no single registered equities exchange has more than 
14% 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. 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 (November 28, 2022), available at https://www.cboe.com/us/equities/market_statistics/.
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    The ``definitions'' section of the Exchange's Fee Schedule defines 
various terms used throughout the Fee Schedule. The Exchange proposes 
to adopt a new definition for the term ``Step-Up ADV''. Specifically, 
as proposed ``Step-up ADV'' means ADV \4\ in the relevant baseline 
months subtracted from current day ADV. Such definition would be 
referenced in tiers designed to incentivize Members to grow their ADV 
from the baseline month, such as the proposed Retail Growth Tier 1, as 
discussed below.
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    \4\ ``ADV'' means average daily volume calculated as the number 
of shares added to, removed from, or routed by, the Exchange, or any 
combination or subset thereof, per day. ADV is calculated on a 
monthly basis.
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    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 codes ZA \5\ or ZO.\6\ Now, the 
Exchange proposes to adopt a new Retail Growth Tier 1 and renumber the 
existing Retail Growth Tiers. Specifically, the proposed Retail Growth 
Tier 1 would provide a rebate of $0.0033 per share to qualifying orders 
(i.e., orders yielding fee code ZA or ZO) in securities priced at or 
above

[[Page 75681]]

$1 \7\ to Member Participant Identifiers (``MPIDs'') with a Step-Up ADV 
from November 2022 greater than or equal to 0.05% of the TCV.\8\ 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 Retail Growth Tiers are intended 
to provide Members an opportunity to receive an enhanced rebate by 
increasing their retail 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.
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    \5\ Orders yielding fee code ``ZA'' are retail orders adding 
liquidity to EDGX.
    \6\ Orders yielding fee code ``ZO'' are retail orders adding 
liquidity to EDGX in the pre and post market.
    \7\ The proposed Retail Growth Tier 1 would provide no enhanced 
rebate for applicable orders in securities priced under $1. However, 
orders yielding fee codes ZA and ZO in securities priced under $1 
would continue to receive the standard rebate of $0.0003 per share.
    \8\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
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 as well as section 6(b)(4) \12\ 
as it is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
    \12\ 15 U.S.C. 78f(b)(4).
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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 proposal to adopt the 
new Retail Growth Tier 1 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. 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 e.g., BZX Equities Fee Schedule, Footnote 1, Add/Remove 
Volume Tiers.
    \14\ See e.g., EDGX Equities Fee Schedule, Footnote 1, Add/
Remove Volume Tiers.
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    In particular, the Exchange believes the proposed tier is 
reasonable because it 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 tier will provide a 
reasonable means to encourage retail orders flow to the Exchange and to 
incentivize Members to continue to provide retail 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, offer additional cost 
savings, support the quality of price discovery, promote market 
transparency and improve market quality, for all investors.
    The Exchange believes that the proposed change is reasonable as it 
does not represent a significant departure from the criteria currently 
offered in the Fee Schedule. Specifically, the proposed new tier has 
criteria similar to the existing Retail Growth Tiers, albeit with less 
stringent criteria that applies at the MPID level rather than the 
Member level. Nonetheless, the Exchange believes that the enhanced 
rebate under the proposed new tier is commensurate with the criteria 
and the type of order flow associated with the applicable tier by 
allowing for MPID level activity to become eligible for the rebate 
instead of only Member level activity. 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 
the proposed new tier and have the opportunity to meet the tier's 
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 
the new proposed tier. While the Exchange has no way of predicting with 
certainty how the proposed changes will impact Member activity, based 
on the prior months volume, the Exchange anticipates that at least one 
MPID will be able to satisfy the criteria proposed under the proposed 
new tier. The Exchange also notes that proposed change will not 
adversely impact any Member's ability to qualify for enhanced rebates 
offered under other tiers. Should a Member not meet the criteria of the 
new tier, the Member will merely not receive that corresponding 
enhanced rebate.
    Finally, the Exchange believes the proposal to define the term 
``Step-Up ADV'' is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Specifically, the proposal is 
intended only to add clarity to the Exchange's Fee Schedule and 
involves no substantive change.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, as discussed above, 
the Exchange believes that the proposed changes would

[[Page 75682]]

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 
new tier will apply to all Members equally in that all Members are 
eligible the tier, have a reasonable opportunity to meet the tier's 
criteria and will receive the enhanced rebate on their qualifying 
orders if such criteria is met. The Exchange does not believe the 
proposed changes burden competition, but rather, enhance competition as 
it is intended to increase the competitiveness of EDGX by adopting 
pricing incentives 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 changes 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 14% 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 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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    Finally, the Exchange believes its proposal to add the definition 
of Step-Up ADV will have no impact on competition as it is only 
intended to add clarity to the Exchange's Fee Schedule and involves no 
substantive change.

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-2022-053 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-2022-053. 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

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office of the Exchange. 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-2022-053, and should be submitted on or before December 30, 
2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26745 Filed 12-8-22; 8:45 am]
BILLING CODE 8011-01-P


