
[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56679-56681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17755]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98123; File No. SR-CboeEDGX-2023-052]


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

August 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 August 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.

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 August 
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 17% 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 (July 27, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange assesses fees in connection with orders routed away to 
various exchanges. Currently, under the Fee Codes and Associated Fees 
section of the Fee Schedule, fee code RP is appended to routed Customer 
orders to NYSE American (``AMEX''), BOX Options Exchange (``BOX''), 
Nasdaq BX Options (``BX''), Cboe Exchange, Inc. (``Cboe''), ISE 
Mercury, LLC (``ISE Mercury'' or ``MERC''), MIAX Options Exchange 
(``MIAX'') or Nasdaq PHLX LLC (``PHLX'') (excluding orders in SPY 
options) and assesses a charge of $0.25 per contract; fee code RQ is 
appended to routed Customer orders in Penny classes to NYSE Arca, Inc 
(``ARCA''), Cboe BZX Exchange, Inc. (``BZX Options''), Cboe C2 
Exchange, Inc. (``C2''), Nasdaq ISE (``ISE''), ISE Gemini, LLC (``ISE 
Gemini''), MIAX Emerald Exchange (``MIAX Emerald''), MIAX Pearl 
Exchange (``MIAX Pearl''), or Nasdaq Options Market LLC (``NOM'') and 
assesses a charge of $0.85 per contract; and fee code RR is appended to 
routed Customer orders in Non-Penny classes to ARCA, BZX Options, C2, 
ISE, ISE Gemini, MIAX Emerald, MIAX Pearl or NOM and assesses a charge 
of $1.25.
    The Exchange notes that its current approach to routing fees is to 
set forth in a simple manner certain sub-categories of fees that 
approximate the cost of routing to other options exchanges based on the 
cost of transaction fees assessed by each venue as well as costs to the 
Exchange for routing (i.e., clearing fees, connectivity and other 
infrastructure costs, membership fees, etc.) (collectively, ``Routing 
Costs''). The Exchange then monitors the fees charged as compared to 
the costs of its routing services and adjusts its routing fees and/or 
sub-categories to ensure that the Exchange's fees do indeed result in a 
rough approximation of overall Routing Costs, and are not significantly 
higher or lower in any area. The Exchange notes that other options 
exchanges currently assess routing fees in a similar manner as the

[[Page 56680]]

Exchange's current approach to assessing approximate routing fees.\4\
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    \4\ See e.g., MIAX Options Exchange Fee Schedule, Section 1(c), 
``Fees for Customer Orders Routed to Another Options Exchange.''
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    The Exchange proposes to amend fee code RP to exclude applicable 
Customer orders routed to ISE Mercury (i.e., MERC) \5\ and to amend fee 
codes RQ and RR to add applicable Customer orders routed to MERC.\6\ 
The Exchange further proposes to amend fee codes RQ and RR to add 
applicable Customer orders routed to MEMX LLC (``MEMX''), in 
anticipation of the launch of the new options exchange. The charges 
assessed per contract for each fee code remain the same under the 
proposed rule change.
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    \5\ The Exchange also proposes non-substantive changes to fee 
code RP to rename ``BX Options'' to ``BX'' and ``BZX Options'' to 
``BZX.''
    \6\ The Exchange proposes non-substantive changes to fee code RQ 
to rename ``ISE Gemini'' to ``GMNI'', ``MIAX Emerald'' to ``EMLD'', 
and ``MIAX Pearl'' to ``PERL.'' The Exchange further proposes non-
substantive changes to fee code RR to rename ``ISE Gemini'' to 
``GMNI'', ``MIAX Emerald'' to ``EMLD'', and ``MIAX Pearl'' to 
``PERL.''
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    The proposed changes result in an assessment of fees that, 
following fee changes by an away options exchange and in anticipation 
of the launch of another options exchange, is more in line with the 
Exchange's current approach to routing fees, that is, in a manner that 
approximates the cost of routing Customer orders to other away options 
exchanges, based on the general cost of transaction fees assessed by 
the sub-category of away options exchanges for such orders (as well as 
the Exchange's Routing Costs).\7\ The Exchange notes that routing 
through the Exchange is optional and that TPHs will continue to be able 
to choose where to route applicable Customer orders.
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    \7\ See Securities Exchange Act Release No. 97800 (June 26, 
2023), 88 FR 42409 (June 30, 2023) (SR-MRX-2023-11).
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ 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,\11\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed rule change to amend fee codes 
RP, RQ, and RR to account for MERC's current assessment of fees for 
Customer orders and MEMX's expected assessment of fees for Customer 
orders is reasonable because it is reasonably designed to assess 
routing fees in line with the Exchange's current approach to routing 
fees. That is, the proposed rule change is intended to include Customer 
orders in Penny Program and Non-Penny classes routed to MERC and MEMX 
in the most appropriate sub-category of fees that approximates the cost 
of routing to a group of away options exchanges based on the cost of 
transaction fees assessed by each venue as well as Routing Costs to the 
Exchange.
    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 notes that other options exchanges currently 
approximate routing fees in a similar manner as the Exchange's current 
approach.\12\
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    \12\ See supra note 4.
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    Finally, the Exchange believes that the proposed rule change is 
equitable and not unfairly discriminatory because all Members' Customer 
orders in Penny Program and Non-Penny classes routed to MERC and MEMX 
will automatically yield fee codes RQ or RR, respectively, and 
uniformly be assessed the corresponding fee.

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 Exchange does not 
believe the proposed rule change to amend fee codes RP, RQ, and RR will 
impose any burden on intramarket competition. All Members' Customer 
orders routing to MERC and currently yielding fee code RP will yield 
fee code RQ or RR (depending on whether the order is in Penny Program 
or Non-Penny classes, respectively) and will automatically and 
uniformly be assessed the current fees already in place for such routed 
orders, as applicable. Likewise, all Members' Customer orders routed to 
MEMX will automatically yield fee code RQ or RR (depending on whether 
the order is in Penny Program or Non-Penny classes, respectively) and 
uniformly be assessed the corresponding fee. The Exchange notes that 
other options exchange approximate routing costs in a similar manner as 
the Exchange's current approach.\13\
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    \13\ Id.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that other options exchange approximate routing costs in a 
similar manner as the Exchange's current approach.\14\ Also, as 
previously discussed, the Exchange operates in a highly competitive 
market. Members have numerous alternative venues that they may 
participate on and director their order flow, including 15 other 
options exchanges and off-exchange venues. 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.\15\ Therefore, no exchange possesses significant 
pricing power in the execution of option 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

[[Page 56681]]

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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    \14\ Id.
    \15\ See supra note 3.
    \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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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeEDGX-2023-052 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-2023-052. 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-2023-052 and should 
be submitted on or before September 8, 2023.

    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. 2023-17755 Filed 8-17-23; 8:45 am]
BILLING CODE 8011-01-P


