[Federal Register Volume 88, Number 113 (Tuesday, June 13, 2023)]
[Notices]
[Pages 38557-38560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12577]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97665; File No. SR-CboeEDGX-2023-038]


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

June 7, 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 June 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 38558]]

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.

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 June 1, 
2023. 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 15% [sic] 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (May 26, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's Fee Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange assesses a fee of $0.18 
per contract for SAM \4\ Contra Non-Customer, Non-Professional orders, 
yielding fee code SF, and SAM Agency Non-Customer, Non-Professional 
orders, yielding fee code SA. The Exchange now proposes to increase the 
standard fee for both SAM Contra Non-Customer, Non-Professional orders 
and SAM Agency Non-Customer, Non-Professional orders (i.e., yielding 
fee codes SF and SA, respectively) from $0.18 per contract to $0.20 per 
contract.
---------------------------------------------------------------------------

    \4\ The term ``SAM'' refers to Solicitation Auction Mechanism.
---------------------------------------------------------------------------

    Additionally, the Fee Schedule offers tiered pricing which provides 
Members \5\ 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.
---------------------------------------------------------------------------

    \5\ See Exchange Rule 1.5(n).
---------------------------------------------------------------------------

    For example, pursuant to Footnote 7 of the Fee Schedule, the 
Exchange currently offers three QCC \6\ Initiator/Solicitation Rebate 
Tiers which provide rebates between $0.14 and $0.28 per contract for 
qualifying QCC Agency Orders or Solicitation Agency Orders where a 
Member meets incrementally increasing volume thresholds. Particularly, 
the Exchange will apply the QCC Initiator/Solicitation Rebate to a 
Member that submits QCC Agency Orders or Solicitation Agency Orders, 
including a Member who routed orders to the Exchange with a Designated 
Give Up, when at least one side of the transaction is of Non-Customer, 
Non-Professional capacity. Fee codes QA,\7\ QM,\8\ QO,\9\ SA,\10\ 
SC,\11\ and SG \12\ qualify for these rebates.\13\ There are two 
separate rebates that are available under each tier, depending on 
whether one or both sides of the transaction are of Non-Customer, Non-
Professional capacity. A qualifying order will receive the rebate under 
``Rebate 1'' if one side of the transaction is of Non-Customer, Non-
Professional capacity. A qualifying order will receive the rebate under 
``Rebate 2'', if both sides of the transaction are of Non-Customer, 
Non-Professional capacity. The volume threshold (per month) for Tier 1 
is 0 to 999,999 contracts, for Tier 2 is 1,000,000 to 1,999,999 
contracts, for Tier 3 is 2,000,000+ contracts.
---------------------------------------------------------------------------

    \6\ The term ``QCC'' refers to Qualified Contingent Cross 
Orders.
    \7\ Fee Code ``QA'' is appended to QCC Agency (Customer) Orders.
    \8\ Fee Code ``QM'' is appended to QCC Agency (Non-Customer, 
Non-Professional) Orders.
    \9\ Fee Code ``QO'' is appended to QCC Agency (Professional) 
orders.
    \10\ Fee Code ``SA'' is appended to SAM Agency Non-Customer 
orders.
    \11\ Fee Code ``SC'' is appended to SAM Agency (Customer) 
orders.
    \12\ Fee Code ``SG'' is appended to SAM Agency (Professional) 
orders.
    \13\ See Cboe EDGX U.S. Options Exchange Fees Schedule, Footnote 
7, QCC Initiator/Solicitation Rebate Tiers.
---------------------------------------------------------------------------

    The Exchange proposes to amend the QCC Initiator/Solicitation 
Rebate Tier program by amending current rebates for Tiers 1 through 4 
[sic]. Specifically, the Exchange proposes to increase Tier 1 Rebate 1 
from $0.14 to $0.16, Tier 1 Rebate 2 from $0.22 to $0.24, Tier 2 Rebate 
1 from $0.16 to $0.18, Tier 2 Rebate 2 from $0.25 to $0.28, Tier 3 
Rebate 1 from $0.18 to $0.19, and Tier 3 Rebate 2 from $0.28 to $0.30. 
The volume thresholds for all tiers remain unchanged.
    The Exchange believes the proposed rebate structure is competitive 
with rebates offered at another exchange for similar transactions.\14\ 
Additionally, the proposed changes to the QCC Initiator/Solicitation 
Rebate Tiers are designed to incentivize Members to grow their QCC 
Initiator and/or Solicitation order flow to receive the enhanced 
rebates. The Exchange believes that incentivizing greater QCC Initiator 
and/or Solicitation order flow would provide more opportunities for 
participation in QCC trades or in the SAM Auction which increases 
opportunities for price improvement.
---------------------------------------------------------------------------

    \14\ See Box Options Fee Schedule, Section IV(D)(1), which 
provides rebates ranging from $0.14 to $0.17 per contract to the 
Agency Order where at least one party to the QCC transaction is a 
Broker-Dealer or Market-Maker (i.e., a non-customer, non-
professional) and from $0.22 to $0.27 per contract where both 
parties to the QCC transaction are a Broker-Dealer or Market-Maker.

---------------------------------------------------------------------------

[[Page 38559]]

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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(4) of the Act,\18\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Members and other 
persons using its facilities.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
    \18\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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 is only one of several options venues 
to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. The proposed fee 
changes reflect a competitive pricing structure designed to incentivize 
market participants to direct their order flow, which the Exchange 
believes would enhance market quality to the benefit of all Members.
    The Exchange believes the fee changes for SAM Contra Non-Customer, 
Non-Professional and SAM Agency Non-Customer, Non-Professional orders 
is consistent with Section 6(b)(4) of the Act in that the proposed fees 
are reasonable, equitable and not unfairly discriminatory. The Exchange 
believes that the proposed increase for SAM Non-Customer, Non-
Professional Agency and Contra orders, is reasonable, equitable, and 
not unfairly discriminatory because the increase is modest and the 
Exchange believes the propose fees will still encourage participation 
in SAM as the rate, even as amended, is equivalent to or better than 
most other price improvement auctions offered by other options 
exchanges as well as the Exchange itself.\19\ The Exchange believes the 
fees, as proposed, will continue to promote order flow through SAM and 
attract liquidity, which benefits all market participants by providing 
additional trading opportunities at improved prices. This, in turn, 
attracts increased large-order flow from liquidity providers which 
facilitates tighter spreads and potentially triggers a corresponding 
increase in order flow originating from other market participants.
---------------------------------------------------------------------------

    \19\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX 
Price Improvement Mechanism (``PRIME'') Fees, which provides for 
comparable rates for similar market participant type orders 
submitted into its PRIME auctions. For example, PRIME Customer 
Agency orders are free of charge; PRIME Agency orders for a Public 
Customer that is Not a Priority Customer, MIAX Market Maker, Non-
MIAX Market Maker, Non-Member Broker-Dealer, and Firm are assessed a 
fee of $0.30; PRIME Customer Contra-side orders are free of charge; 
PRIME Contra-side orders for a Public Customer that is Not a 
Priority Customer, MIAX Market Maker, Non-MIAX Market Maker, Non-
Member Broker-Dealer, and Firm are assessed a fee of $0.05. See also 
Box Options Fee Schedule, Section IV(C), which provides varying 
rates for similar market participant type orders submitted as a 
solicitation transaction.
---------------------------------------------------------------------------

    The Exchange believes the proposed changes to the QCC Initiator/
Solicitation Rebate Tiers are reasonable, equitable, and not unfairly 
discriminatory. The Exchange believes that increasing the rebates 
offered under Tiers 1 through 4 [sic] is reasonable because Members 
will be receiving higher rebates for meeting the criteria corresponding 
to each tier. Additionally, the Exchange believes the changes to the 
QCC Initiator/Solicitation Rebate Tiers are reasonable overall because, 
as stated above, in order to operate in the highly competitive markets, 
the Exchange and its competing exchanges seek to offer similar pricing 
structures, including assessing comparable rates and offering multiple 
enhanced pricing opportunities for various types of orders. Thus, the 
Exchange believes the proposed changes are reasonable as they are 
generally aligned with and competitive with the amounts assessed for 
similar orders on other options exchanges.\20\ Further, the Exchange 
believes the rebates, as modified, continue to serve as a reasonable 
means to encourage Members to increase their liquidity on the Exchange, 
particularly in connection with additional QCC and/or Solicitation 
Agency Order flow to the Exchange in order to benefit from the proposed 
enhanced rebates. The Exchange believes that incentivizing greater QCC 
Initiator and/or Solicitation order flow would provide more 
opportunities for participation in QCC trades or in the SAM Auction 
which increases opportunities for price improvement. The Exchange also 
believes that amending the rebates represents an equitable allocation 
of fees and is not unfairly discriminatory because they will continue 
to automatically and uniformly apply to all Members' respective 
qualifying orders.
---------------------------------------------------------------------------

    \20\ See supra note 14.
---------------------------------------------------------------------------

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 change would encourage the 
submission of additional order flow to a public exchange, thereby 
promoting market depth, execution incentives and enhanced execution 
opportunities for all Members.
    The Exchange believes that 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. First, the 
Exchange notes that the proposed changes apply uniformly to similarly 
situated Members. The Exchange believes that the proposed changes 
related to QCC transactions would not impose any burden on intramarket 
competition, but rather, serves to increase intramarket competition by 
incentivizing members to direct their QCC orders to the Exchange, in 
turn providing for more opportunities to compete at improved prices. 
Additionally, the proposed rule change benefits all market participants 
as any overall increased liquidity that may result from the proposed 
rebate incentives benefits all investors by offering additional 
flexibility for all investors to enjoy cost savings,

[[Page 38560]]

supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    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. Particularly, as 
noted above, competing options exchanges have similar fees in place in 
connection with price improvement auctions.\21\ Further, 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 15% 
[sic] 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.
---------------------------------------------------------------------------

    \21\ See supra note 19.
---------------------------------------------------------------------------

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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeEDGX-2023-038 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-2023-038. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeEDGX-2023-038 and should 
be submitted on or before July 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12577 Filed 6-12-23; 8:45 am]
BILLING CODE 8011-01-P


