[Federal Register Volume 88, Number 14 (Monday, January 23, 2023)]
[Notices]
[Pages 4054-4057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01119]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96679; File No. SR-CboeEDGX-2023-003]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Exchange's Fees Schedule Concerning Membership Fees and 
Market Maker Appointment Fees

January 17, 2023.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on January 3, 2023, Cboe EDGX Exchange, Inc. (the 
``Exchange'' or ``EDGX'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to amend its Fees Schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
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 those 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 parts 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 adopt new Membership fees. First, the 
Exchange proposes to establish a monthly Participant Fee for Options 
Members of the Exchange of $500. Additionally, EDGX Options Market 
Makers would be assessed a Market Maker Participant Fee of $750 per 
month (i.e., Market Makers would pay a monthly fee of $1,250). The 
Participant Fees are non-refundable. If a firm becomes a Member during 
a calendar month after the first trading day of the month, the 
participant fee for the Member for that calendar month will be prorated 
based on the remaining trading days in the calendar month.

[[Page 4055]]

    The Exchange also proposes to adopt fees relating to Market Maker 
appointments (set forth in the ``Market Maker Appointments Sliding 
Scale'') which will be based on an Appointment Unit Tier schedule that 
assigns an appointment weight to each class within a tier. 
Particularly, EDGX Options Market Makers must select class appointments 
in the classes they seek to make markets electronically.\4\ As 
proposed, a Market Maker will be charged for one or more ``Appointment 
Units'' (which will scale from 1 ``unit'' to more than 6 ``units''), 
depending on which classes they select appointments in. All classes 
will be placed within a specific tier according to trading volume 
statistics (excluding the proposed AA Tier), and assigned an 
``appointment weight'' depending upon its tier location as follows:
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    \4\ See EDGX Options Rule 22.3(a).

------------------------------------------------------------------------
                                                            Appointment
       Appointment unit tier            Option class          weight
------------------------------------------------------------------------
AA................................  IWM.................             .50
                                    SPY.................             .50
                                    VXX.................            .100
A *...............................  Classes 1-60........            .100
B *...............................  Classes 61-120......            .060
C *...............................  Classes 121-345.....            .040
D *...............................  Classes 346-570.....            .025
E *...............................  Classes 571-999.....            .015
F *...............................  All Remaining                   .001
                                     Classes.
------------------------------------------------------------------------
* Excludes Tier AA.

    The Exchange will rebalance the above tiers (excluding the ``AA'' 
tier above) once each calendar quarter, which may result in additions 
or deletions to their composition and announces such rebalances 
pursuant to Exchange Rule 16.3 at least 10 business days before the 
rebalance takes effect. The proposed appointment unit tier assignment 
and rebalances are based on national average daily volume. When a class 
changes tiers, it will be assigned the appointment unit of that tier. 
Appointment weights for each assigned class will be summed for each 
Market Maker ID used to trade to obtain the total appointment units. If 
the sum of appointments is a fractional amount, the total will be 
rounded up to the next highest whole Appointment Unit. Total quantity 
will be determined by the highest quantity used at any point during the 
month. The following lists the proposed progressive monthly fees for 
Appointment Units: \5\
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    \5\ For example, if a Market Maker's total appointment units 
amount to 2.5 units, the Market Maker will be assessed a total 
monthly appointment fee of $850 (1 appointment unit at $0, 1 
appointment unit at $500 and 1 appointment unit at $350).

------------------------------------------------------------------------
                    Appointment units                       Monthly fee
------------------------------------------------------------------------
1.......................................................              $0
2.......................................................             500
3-5.....................................................             350
>6......................................................             100
------------------------------------------------------------------------

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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    The Exchange believes that there is value in becoming a Member of 
the Exchange and that the proposed Participant Fees are reasonable. The 
proposed fees are also significantly lower than the membership fees 
imposed by several other options exchanges that charge such fees.\9\ 
They are also comparable to fees assessed by the Exchange's affiliated 
options exchange Cboe BZX Exchange, Inc. (``BZX Options'').\10\ Other 
national securities exchanges also recently adopted participant fees 
for their exchange members.\11\ The Exchange also historically has not, 
currently does not, nor does it presently contemplate charging any 
application fees for Membership nor so-called ``headcount fees,'' 
(e.g., fees charged for each Form U4 filed for registration of a 
representative or a principal or the transfer or re-licensing of such 
personnel \12\), further highlighting the reasonableness of the 
proposed Participant Fees. Furthermore, EDGX Options Members have not 
been assessed any membership-related fees since the platform became 
available over 7 years ago. The proposed changes are designed to update 
fees for the Exchange's services to reflect their current value--rather 
than their value when it was a new exchange seven years

[[Page 4056]]

ago--based on the Exchange's ability to deliver value to its customers 
through technology, liquidity, and functionality. Newly-opened 
exchanges often charge no fees for certain services such as membership, 
in order to attract order flow to an exchange, and later amend their 
fees to reflect the true value of those services.\13\ Allowing newly-
opened exchanges time to build and sustain market share before charging 
non-transactional fees encourages market entry and promotes 
competition.
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    \9\ See e.g., PHLX Section 8A, Permit and Registration Fees, 
which generally assesses monthly Permit Fees between $4,000 and 
$6,000. See also, BOX Options Fee Schedule, Section IX Participant 
Fees, which assesses non-Market Makers a Participant Fee of $1,500 
per month and assesses Market Maker's Trading Permit fees between 
$4,000 and $10,000 per month; NYSE American Options Fees Schedule, 
Section III(A) Monthly ATP Fees and NYSE Arca Options Fees and 
Charges, OTP Trading Participant Rights, which assesses a monthly 
permit (``ATP'') fee of $1,000 for Clearing Members and Order Floor 
Providers, and a monthly ATP fees up to $8,000 for Market-Makers; 
and MIAX Options Fee Schedule, Section 3, Membership Fees, which 
assesses an Electronic Exchange Members Trading Permit fee of $1,500 
per month and a Market Maker Trading Permit Fee between $7,000 and 
$22,000 per month.
    \10\ See Cboe BZX Options Fee Schedule, Membership Fees, which 
assesses BZX Options Members a monthly fee between $500 and $1,000.
    \11\ See e.g., Securities Exchange Act Release No. 93927 
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(introduction of membership fees by MEMX). See also Securities 
Exchange Act Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 
2022) (SR-BOX-2022-17).
    \12\ See, e.g., ``NASDAQ Membership Fees,'' ($55 for each Form 
U-4 filed for the registration of a Representative or Principal, and 
$55 for each Form U-4 filed for the transfer or re-licensing of a 
Representative or Principal).
    \13\ See e.g., Securities Exchange Act Release No. 93927 
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(introduction of membership fees by MEMX).
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    The Exchange believes that the proposed Participant Fees are not 
unfairly discriminatory because it would be assessed uniformly across 
all Members or firms that seek to become Members. Additionally, the 
Exchange believes that the proposed fees are not unfairly 
discriminatory because no broker-dealer is required to become a Member 
of the Exchange. There is also no regulatory requirement that Market 
Makers connect and access any one options exchange or that any market 
participant connect to any one particular options exchange. Moreover, a 
Market Maker membership is not a requirement to participate on the 
Exchange and participation on an exchange in any capacity is completely 
voluntary. Indeed, while the Exchange currently has 51 members that 
trade options, Cboe BZX has 63 members that trade options, Cboe Options 
has 98 Trading Permit Holders (``TPHs'') (i.e., members) and Cboe C2 
has 52 TPHs. There is also no firm that is a Member of EDGX Options 
only. Further, based on publicly available information regarding a 
sample of the Exchange's competitors, NYSE American Options has 73 
members,\14\ and NYSE Arca Options has 67 members,\15\ MIAX Options has 
44 members \16\ and MIAX Pearl Options has 41 members.\17\ BOX 
Exchange, Inc. (``BOX'') noted in a recent rule change to adopt 
Electronic Market Maker Trading Permit Fees that it reviewed membership 
details at three options exchanges and found that there are 62 market 
making firms across those three exchanges.\18\ Particularly, BOX found 
that 42 of the 62 market making firms access only one of the three 
exchanges. BOX additionally identified numerous market makers that are 
members of other options exchanges, but not BOX.
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    \14\ See https://www.nyse.com/markets/american-options/membership#directory.
    \15\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \16\ See https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_12222021.pdf.
    \17\ See https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Pearl_Options_Exchange_Members_12012021.pdf.
    \18\ See Securities and Exchange Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
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    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether membership to the Exchange is appropriate and worthwhile, and 
as noted above, no broker-dealer is required to become a Member of the 
Exchange. Indeed, there are currently 15 other registered options 
exchanges that trade options and one additional options exchange 
expected to launch in 2023. Further, low barriers to entry mean that 
new exchanges may rapidly and inexpensively enter the market and offer 
additional substitute platforms to further compete with the Exchange 
and the products it offers. For example, there are 3 exchanges that 
have been added in the U.S. options markets in the last 5 years (i.e., 
Nasdaq MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one 
additional options exchange that is expected to launch in 2023 (i.e., 
MEMX LLC). Notwithstanding the foregoing, the Exchange still believes 
that the proposed fee of $500 as a monthly Participant Fee, and 
additional fee of $750 for Market Makers is reasonable, equitably 
allocated and not unfairly discriminatory, even for a broker-dealer 
that determines it should join the Exchange for business purposes, as 
those business reasons should presumably result in revenue capable of 
covering the proposed fee.
    The Exchange believes its proposed Market Maker Appointments 
Sliding Scale fees are also reasonable as its affiliated exchange, Cboe 
Exchange, Inc. (``Cboe Options''), offers the same structure with 
respect to fees for appointment classes and as the proposed fees are 
significantly lower than the Cboe Options fees that were adopted 
recently in 2020.\19\ The Exchange believes the proposed tier 
compositions, corresponding appointment weights and rebalance process 
are also reasonable as they are the same as they are for Cboe Options. 
In addition, other exchanges offer a similar structure with respect to 
assessing Market-Maker fees based on appointment classes and the 
proposed fees are again significantly lower than such fees, including 
the fees just recently adopted by BOX.\20\
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    \19\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). See also 
Cboe Options Fees Schedule, Market-Maker EAP Appointments Sliding 
Scale, which assesses fees between $3,100 to $6,000 per appointment 
unit versus the proposed Market Maker Appointments Sliding Scale 
which assesses significantly lower rates between $100 to $500 per 
appointment unit.
    \20\ See e.g., NYSE Arca, Inc. (``NYSEArca'') Fee Schedule, 
which assesses Market Makers $6,000 for up to 175 option issues, an 
additional $5,000 for up to 350 option issues, an additional $4,000 
for up to 1,000 option issues, and an additional $3,000 for all 
option issues traded on the Exchange. See also Miami International 
Securities Exchange, LLC (``MIAX'') Fee Schedule Fee, which assesses 
Market Makers $7,000 for up to 10 classes or up to 20% of classes by 
volume, $12,000 for up to 40 classes or up to 35% of classes by 
volume, $17,000 for up to 100 classes or up to 50% or classes by 
volume, and $22,000 for over 100 classes or over 50% of classes by 
volume up to all classes listed on MIAX. See Securities and Exchange 
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17) and BOX Exchange Fees Schedule, Section 1. Participant 
Fees, which assesses Market Makers $4,000 for up to 10 option 
classes, $6,000 for up to 40 classes, $8,000 for up to 100 classes 
and $10,000 for over 100 classes. By comparison, the Exchange 
anticipates that EDGX Options Market Makers on average would need 
approximately 9.5 Appointment Units, costing $2,050 per month for 
appointment fees.
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    Moreover, as discussed above, there is no regulatory requirement 
that any market participant, including Market Makers, connect to any 
one particular options exchange. This is evidenced by the fact that no 
firm is an EDGX Options only member and further illustrated by the 
analysis described above by BOX in which it found 42 of 62 market 
making firms across three exchanges access only one of those three 
exchanges. Also as noted, a Market Maker membership is not a 
requirement to participate on the Exchange and participation on an 
exchange in any capacity is completely voluntary. Accordingly, Market 
Makers choose if and how to access a particular exchange and because it 
is a choice; if a Market Maker deems a particular exchange as charging 
excessive fees to participate, such Market Maker may not connect, and 
existing Market Makers would disconnect from the Exchange.
    The Exchange believes the proposed Market Maker Appointments 
Sliding Scale fees are equitable and not unfairly discriminatory 
because they will apply uniformly to all Market Makers, and all 
similarly situated Market Makers (i.e., those with same number of 
Appointment Units), will be subject to the same fee. The Exchange also 
believes that assessing Market Makers that quote in fewer classes lower 
total fees is reasonable and appropriate as it will allow the Exchange 
to retain and attract smaller-scale Market Makers, which are an 
integral component of the options industry marketplace. The Exchange 
believes it's equitable and not

[[Page 4057]]

unfairly discriminatory to assess higher fees for Market Makers that 
have a higher number of class appointments since they are likely to 
utilize more bandwidth and capacity on the Exchange's network. The 
Exchange also notes that other options exchanges assess fees at 
different rates based upon a member's participation on that exchange, 
and, as such, this concept is not new or novel.\21\ The Exchange lastly 
believes that the proposed Market Maker Participant and Market Maker 
Appointments Sliding Scale fees are equitable and not unfairly 
discriminatory because Market Makers generally consume the most 
bandwidth and resources of the Exchange's network. As such, the 
Exchange believes it's equitable and not unfairly discriminatory to 
assess Market Makers an additional Participant Fee and Market Maker 
Appointments Sliding Scale fees.
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    \21\ Id.
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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. The proposed fee change will 
not impact intramarket competition because it will apply to all 
similarly situated Members equally. The Exchange also believes that the 
proposed Market Maker Participant and Market Maker Appointments Sliding 
Scale fees do not place certain market participants at a relative 
disadvantage to other market participants because the proposed fees do 
not favor certain categories of market participants in a manner that 
would impose a burden on competition; rather, the fee rates are 
designed in order to provide objective criteria for Market Makers of 
different sizes and business models that best matches their quoting 
activity on the Exchange. Further, as noted above, Market Makers 
generally consume the most bandwidth and resources of the network.
    The Exchange's proposed Participant Fees, including the Market 
Maker Participant Fee, will be lower than the cost of membership on 
other exchanges as described in detail above and therefore, may 
stimulate intermarket competition by attracting additional firms to 
become Members on the Exchange or at least should not deter interested 
participants from joining the Exchange. In addition, as discussed in 
the statutory basis section above, participant fees are subject to 
competition from other exchanges. Accordingly, if the changes proposed 
herein are unattractive to market participants, the Exchange can, and 
likely will, see a decline in membership as a result. The Exchange 
operates in a highly competitive market in which market participants 
can determine whether or not to join the Exchange based on the value 
received compared to the cost of joining and maintaining membership on 
the Exchange.

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 is effective upon filing pursuant to 
section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
section 19(b)(2)(B) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2023-003 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-2023-003. 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-2023-003, and should be 
submitted on or before February 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01119 Filed 1-20-23; 8:45 am]
BILLING CODE 8011-01-P


