
[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80369-80371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25381]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98910; File No. SR-CboeEDGX-2023-068]


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

November 13, 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 November 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.
---------------------------------------------------------------------------

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 (https://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 November 
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 17 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (October 30, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides standard 
rebates ranging from $0.01 up to $0.21 per contract for Customer orders 
in both Penny and Non-Penny Securities. The Fee Codes and Associated 
Fees section of the Fees Schedule also provides for certain fee codes 
associated with certain order types and market participants that 
provide for various other fees or rebates. For example, the Exchange 
assesses a fee of $0.05 per contract for AIM \4\ Contra orders, 
yielding fee code BB; assesses a fee of $1.05 per contract for AIM 
Responder orders in Non-Penny Securities, yielding fee code BE; and 
provides a rebate of $0.06 for AIM Agency Customer orders, yielding fee 
code BC.
---------------------------------------------------------------------------

    \4\ The term ``AIM'' refers to Automated Improvement Mechanism.
---------------------------------------------------------------------------

    The Exchange proposes to amend the Fee Codes and Associated Fees 
table of the Fee Schedule to adopt new fee codes for AIM Contra and AIM 
Agency Customer orders in Non-Penny Securities. Specifically, the 
Exchange proposes to adopt new fee codes, BF and BG, to apply to AIM 
Contra \5\ orders in Non-Penny Securities and AIM Agency \6\ Customer 
orders in Non-Penny Securities, respectively. The Exchange proposes to 
assess a fee of $0.02 per contract for AIM Contra orders in Non-Penny 
Securities yielding fee code BF and to assess no fee per contract for 
AIM Agency Customer orders in Non-Penny Securities yielding fee code 
BG.
---------------------------------------------------------------------------

    \5\ The term ``AIM Contra Order'' refers to an order submitted 
by a Member entering a AIM Agency Order for execution within AIM 
that will potentially execute against the AIM Agency Order pursuant 
to Rules 21.19 and 21.22.
    \6\ The term ``AIM Agency Order'' refers to an order represented 
as agent by a Member on behalf of another party and submitted to AIM 
for potential price improvement pursuant to Rules 21.19 and 21.22.
---------------------------------------------------------------------------

    The Exchange also proposes to amend the description of current fee 
code BB to provide it applies to AIM Contra orders in Penny Securities, 
and to amend the current description of current fee code BC to provide 
it applies to AIM Agency Customer orders in Penny Securities. The 
Exchange also proposes to increase the standard fee for AIM Responder 
orders in Non-Penny Securities (i.e., yield fee code BE) from $1.05 per 
contract to $1.15 per contract.
    The proposed rule change also amends Footnote 6 of the Fee Schedule 
to include new fee codes BF and BG, and to reflect the proposed change 
in fees for orders yielding fee code BE.\7\ Further, AIM Agency 
Customer order in Non-Penny Securities yielding fee code BG will not be 
eligible for rebates under the Automated Improvement ``AIM'' Tiers set 
forth in Footnote 9 of the Fee Schedule. As such, the Exchange proposes 
to rename Footnote 9 as Automated Improvement Mechanism (``AIM'') Penny 
Tiers, and revise the definition of Interaction Rate set forth in 
Footnote 9 to state that the Interaction Rate is the percentage of the 
Penny Agency Order that trades against the Initiating Order.
---------------------------------------------------------------------------

    \7\ As part of the proposed rule change, the Exchange proposes 
to delete duplicative information in the chart in Footnote 6 related 
to Customer AIM and SAM Auction fees. Further, the Exchange proposes 
to delete headers in the table referring to issues and consolidate 
all fee code and rate information on an order type basis. The 
Exchange also proposes to amend Footnote 6 to remove an inadvertent 
reference to XB, as such fee code was previously removed from the 
Exchange Fee Schedule.

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

[[Page 80370]]

    In addition, the Exchange also proposes to amend certain Break-Up 
Credits located under the AIM and SAM Pricing table in Footnote 6. The 
Break-Up Credits provision applies to agency orders submitted in either 
the AIM or SAM auction that trades with a response order in the 
respective auction. Specifically, the Exchange will apply a Break-Up 
Credit to the Member that submitted an Agency Order (i.e., either an 
AIM or SAM Agency Order), including a Member who routed an order to the 
Exchange with a Designated Give Up, when the Agency Order trades with a 
Response Order (i.e., an AIM or SAM Response Order, as applicable). The 
Exchange proposes to amend the Break-Up Credit for qualifying AIM 
Agency Orders in Non-Penny Securities, from $0.60 per contract to $1.06 
per contract.
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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
    Overall, the Exchange believes that its proposed adoption of new 
fee codes for AIM Contra and AIM Agency Customer orders in Non-Penny 
Securities (and related changes for AIM Contra and AIM Agency Customer 
orders in Penny Securities) 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 fees 
are reasonable, equitable, and not unfairly discriminatory in that 
competing options exchanges offer a similar distinction between order 
types in connection with similar price improvement auctions,\12\ as the 
Exchange now proposes. Further, competing exchanges charge different 
rates for transactions in their price improvement mechanisms, for 
orders in Penny or Non-Penny Securities, in a manner similar to the 
proposal. The Exchange believes the fee and rebate schedule as proposed 
continues to reflect differentiation among different product classes 
typically found in options fee and rebate schedules.
---------------------------------------------------------------------------

    \12\ See Box Options Fee Schedule, Section IV(B), ``PIP and 
COPIP Transactions'', which, for certain fees, provides varying 
rates for orders in Penny Interval Classes and Non-Penny Interval 
Classes submitted into its PIP and COPIP auction mechanism. See also 
MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX Price Improvement 
Mechanism (``PRIME'') Fees'', which, for certain fees, provides for 
varying rates for orders in Non-Penny Classes and Penny Classes 
submitted into its PRIME auctions.
---------------------------------------------------------------------------

    The proposed fees in relation to AIM orders are designed to promote 
order flow through AIM and, in particular, to 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.
    Also, the Exchange believes that the proposed fee for AIM Contra 
and AIM Agency Customer orders in Non-Penny Securities ($0.02 per 
contract and no charge, respectively) is reasonable because it 
encourages participation in AIM by offering a rate that is equivalent 
to or better than most other price improvement auctions offered by 
other options exchanges as well as the Exchange itself.\13\
---------------------------------------------------------------------------

    \13\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX 
Price Improvement Mechanism (``PRIME'') Fees'', which provides for a 
fee of no charge to $0.30 per contract for PRIME Agency orders, 
depending on market participant; and provides for a fee of no charge 
to $0.05 per contract for PRIME Contra-side orders, depending on 
market participant.
---------------------------------------------------------------------------

    Further, the Exchange believes the proposed change to the standard 
fee for AIM Responder orders in Non-Penny Securities (i.e., yield fee 
code BE) from $1.05 per contract to $1.15 per contract is reasonable as 
the rate is equivalent to fees at competing exchanges.\14\
---------------------------------------------------------------------------

    \14\ See Box Options Fee Schedule, Section IV(B), ``PIP and 
COPIP Transactions'', which provides for a fee of $1.15 for 
Professional Customer or Broker Dealer or Market Maker Improvement 
Orders in Non-Penny Interval Classes. Footnote 21 to the Fee 
Schedule states that an Improvement Order is a response to a PIP or 
COPIP auction.
---------------------------------------------------------------------------

    Finally, the Exchange believes its proposal to amend the AIM-
related Break-Up Credit for qualifying orders in Non-Penny Securities 
is reasonable because it encourages use of AIM. Specifically, the 
Exchange believes that the proposed Break-Up Credit for AIM Agency 
Orders in Non-Penny Securities will encourage increased Agency Order 
flow to AIM Auctions, thereby potentially increasing the initiation of 
and volume executed through AIM Auctions. Additional auction order flow 
provides market participants with additional trading opportunities at 
improved prices. The Exchange also believes that the proposed AIM 
Break-Up Credit of $1.06 for Non-Penny Securities is reasonable and 
equitable as this credit is in-line with, albeit slightly higher than, 
corresponding break-up fee for a price improvement auction offered by 
other options exchanges.\15\ Also, the proposed AIM Break-Up Credits, 
as amended, are not unreasonably discriminatory because such credits 
are

[[Page 80371]]

equally available to all Members submitting AIM Agency Orders to the 
Exchange.
---------------------------------------------------------------------------

    \15\ See Box Options Fee Schedule, Section IV(B), ``PIP and 
COPIP Transactions'', which provides for PIP and COPIP Break-Up 
Credits of $0.81 per contract for Non-Penny Interval Classes. See 
also ``MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX Price 
Improvement Mechanism (``PRIME'') Fees'', which provides for PRIME 
Break-Up Credits ranging from $0.60 to $0.73 per contract for Non-
Penny Classes.
---------------------------------------------------------------------------

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. First, 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. The Exchange notes that the proposed changes apply 
uniformly to similarly situated Members. The Exchange believes that the 
proposed changes related to AIM transactions would not impose any 
burden on intramarket competition, but rather, serves to increase 
intramarket competition by incentivizing members to direct their AIM 
orders to the Exchange, in turn providing for more opportunities to 
compete at improved prices.
    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 17 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) of the Act \16\ and paragraph (f) of Rule 19b-4 \17\ 
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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2023-068 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-2023-068. 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-2023-068 and should 
be submitted on or before December 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25381 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P


