[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10605-10608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03476]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96914; File No. SR-CboeEDGX-2023-008]


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

February 14, 2023.
    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 February 1, 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, 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/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

[[Page 10606]]

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, effective February 
1, 2023. Specifically, the Exchange proposes to eliminate the rebate 
currently provided for Customer-to-Customer orders in Penny and Non-
Penny Securities that add liquidity (currently yielding fee codes PC 
and NC, respectively) and to amend the Fee Schedule so that such orders 
will be free.
    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 17% 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 (January 24, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fee Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange currently provides a 
standard rebate of $0.01 per contract for Customer orders in both Penny 
and Non-Penny Securities. The Fee Codes and Associated Fees section of 
the Fee Schedule also provides for certain fee codes associated with 
certain order types and market participants that provide for various 
other fees or rebates.
    The Exchange no longer wishes to provide a rebate for Customer-to-
Customer orders in Penny and Non-Penny Securities that add liquidity 
and now proposes to amend its Fee Schedule so that such orders will be 
free. As such, the Exchange also proposes to adopt new fee codes TP and 
TN, which will apply to Customer-to-Customer (i.e., ``Customer (contra 
Customer)) orders in Penny and Non-Penny Securities that add liquidity, 
respectively; the proposed fee codes assess no fee for such 
transactions. The Exchange notes that it currently assesses no charge 
or a marginal charge on other Customer transactions. For example, the 
Exchange does not charge a transaction fee for Complex Customer-to-
Customer orders (yielding fee code ZC). Customer-to-Customer orders in 
Penny and Non-Penny Securities that remove liquidity, as well as 
Customer orders that execute against any Non-Customer as the contra-
party in Penny and Non-Penny Securities will still be eligible for the 
current rebate (i.e., the standard rebate of $0.01 per contract). 
Accordingly, the Exchange proposes to amend the definition of fee code 
PC to clarify that such fee code (and corresponding standard rebate) 
applies to Customer contra Non-Customer orders in Penny Securities, as 
well as Customer contra Customer orders in Penny Securities that remove 
liquidity. Similarly, the Exchange proposes to amend the definition of 
fee code NC to clarify that such fee code (and related standard rebate) 
applies to Customer contra Non-Customer orders in Non-Penny Securities, 
as well as Customer contra Customer orders in Non-Penny Securities that 
remove liquidity.
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.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 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 
market participants.
    The Exchange also believes the proposed change to assess no charge 
for Customer-to-Customer orders executed in Penny and Non-Penny 
Securities which add liquidity is consistent with Section 6(b)(4) of 
the Act in that the proposal is reasonable, equitable and not unfairly 
discriminatory. The Exchange believes that eliminating the rebate for 
Customer-to-Customer orders in Penny and Non-Penny Securities that add 
liquidity is reasonable because the Exchange is not required to 
maintain this rebate. Further, the Exchange believes that it is a 
reasonable and equitable change because Customers will still not have 
to pay any fee for Customer-to-Customer orders in Penny and Non-Penny 
Securities which add liquidity. Moreover, it is in line with other 
types of Customer orders for which the Exchange does not assess a fee 
or provide a rebate. As described above, the Exchange currently does 
not charge a transaction fee or provide a rebate for various other 
Customer orders, including Complex Customer-to-Customer orders. 
Further, Customers executing an order in Penny and Non-Penny Securities 
with a Non-Customer or Customers executing an order in Penny and Non-
Penny Securities which removes liquidity will still be eligible for the 
current rebate, i.e., a standard rebate of $0.01 per contract.
    The Exchange believes that, although it is eliminating the rebate 
for Customer-to-Customer orders executed in Penny and Non-Penny 
Securities which add liquidity, the proposal to not assess any fees for 
such transactions will continue to incentivize Customer-to-Customer 
order flow in Penny and Non-Penny Securities, which enhances liquidity 
on the Exchange. This enhanced Customer liquidity benefits all market 
participants

[[Page 10607]]

by providing more trading opportunities, which attracts Market Makers. 
An increase in Market Maker activity in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants.
    The Exchange also believes that the proposal to make Customer-to-
Customer orders that add liquidity free is equitable and not unfairly 
discriminatory because it will apply equally to all Customer-to-
Customer transactions in Penny and Non-Penny Securities that add 
liquidity, i.e. all Customers will be assessed the same amount for 
these transactions. Moreover, the Exchange believes that continuing to 
not assess any fee to Customer orders is equitable and not unfairly 
discriminatory because, as stated above, Customer order flow enhances 
liquidity on the Exchange, in turn providing more trading opportunities 
and attracting Market-Makers to facilitate tighter spreads to the 
benefit of all market participants. Moreover, the options industry has 
a long history of providing preferential pricing to Customers, and the 
Exchange's current Fee Schedule currently does so in many places, as do 
the fees structures of multiple other exchanges.\7\
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    \7\ See, e.g., EDGX Options Fee Schedule, ``Fee Codes and 
Associated Fees'', which, for example, provides Customer AIM Agency 
orders (i.e., orders yielding fee code BC) a rebate and also which 
assesses no fee (nor provides any rebate) for QCC Agency and Contra 
Customer orders (i.e., yielding fee codes QA and QC, respectively). 
See also Cboe Options Fees Schedule, Rate Table--All Products 
Excluding Underlying Symbol List A, which, for example, assesses no 
fee (nor provides any rebate) for Customer orders in equity options.
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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. Particularly, the proposal to 
eliminate the rebate for Customer-to-Customer orders executed in Penny 
and Non-Penny Securities that add liquidity will apply uniformly to all 
Customers transacting in Penny and Non-Penny Securities. As described 
above, while no fee will continue to be assessed for Customers, 
different market participants have different circumstances, such as the 
fact that preferential pricing to Customers is a long-standing options 
industry practice which serves to enhance Customer order flow, thereby 
attracting Market-Makers to facilitate tighter spreads and trading 
opportunities to the benefit of all market participants. In addition to 
this, the Exchange notes that it currently assesses no charge and 
provides no rebate for various other types of Customer orders that 
execute against another Customer as a contra party.
    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 single options 
exchange has more than 17% 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. 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)(ii) of the Act \8\ and Rule 19b-4(f)(2) \9\ thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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    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 shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-2023-008 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-2023-008. 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

[[Page 10608]]

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-2023-008 and should be 
submitted on or before March 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03476 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P


