[Federal Register Volume 85, Number 48 (Wednesday, March 11, 2020)]
[Notices]
[Pages 14265-14269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04905]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88327; File No. SR-CboeEDGA-2020-007]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule Applicable to Members and Non-Members of the
Exchange Pursuant to EDGA Rules 15.1(a) and (c)
March 5, 2020.
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 March 2, 2020, Cboe EDGA Exchange, Inc. (the ``Exchange'')
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 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to amend the fee schedule applicable to Members and non-
Members of the Exchange pursuant to EDGA Rules 15.1(a) and (c). 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/equities/regulation/rule_filings/edga/), 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 in connection with
its Add/Remove Volume Tiers, effective March 2, 2020.
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 13 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\3\ no single registered
equities exchange has more than 17% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Taker-Maker'' model
whereby it pays credits to members that remove liquidity and assesses
fees to those that add liquidity. The Exchange's fee schedule sets
forth the standard rebates and rates applied per share for orders that
provide and remove liquidity, respectively. Particularly, for
securities at or above $1.00, the Exchange provides a standard rebate
of $0.0018 per share for orders that remove liquidity and assesses a
fee of $0.0030 per share for orders that add liquidity. The Exchange
believes that the ever-shifting market share among the
[[Page 14266]]
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or 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. Equities Market Volume
Summary, Month-to-Date (February 25, 2020), available at https://markets.cboe.com/us/equities/market_statistics/.
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In response to the competitive environment described above, the
Exchange offers tiered pricing which provides Members opportunities to
qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. Tiered pricing provides incremental
incentives for Members to strive for higher or different tier levels by
offering increasingly higher discounts or enhanced benefits for
satisfying increasingly more stringent criteria or different criteria.
The Exchange currently provides for such tiers pursuant to footnote 7
of the fee schedule, which specifically offers Add/Remove Volume Tiers.
To illustrate, Add Volume Tier 1 provides Members an opportunity to
receive a reduced fee of $0.0026 for their liquidity adding orders that
yield fee codes ``3'',\4\ ``4'',\5\ ``B'',\6\ ``V'',\7\ and ``Y'' \8\
where that Member has an ADAV \9\ of greater than or equal to 0.10% of
the TCV \10\. Likewise, Remove Volume Tier 1 provides Members an
opportunity to receive an enhanced rebate for their liquidity removing
orders that yield fee codes ``N'',\11\ ``W'',\12\ ``6'',\13\ and ``BB''
\14\ where that Member adds or removes an ADV \15\ of greater than or
equal to 0.05% of the TCV. The Exchanges proposes to add adopt an
additional Add Volume Tier and an additional Remove Volume Tier under
footnote 7.
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\4\ Appended to orders that add liquidity to EDGA, pre and post
market (Tapes A or C).
\5\ Appended to orders that add liquidity to EDGA, pre and post
market (Tape B).
\6\ Appended to orders that add liquidity to EDGA (Tape B).
\7\ Appended to orders that add liquidity to EDGA (Tape A).
\8\ Appended to orders that add liquidity to EDGA, (Tape C).
\9\ ADAV means average daily volume calculated as the number of
shares added per day. ADAV is calculated on a monthly basis.
\10\ TCV means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
\11\ Appended to orders that remove liquidity from EDGA (Tape
C).
\12\ Appended to orders that remove liquidity from EDGA (Tape
A).
\13\ Appended to orders that remove liquidity from EDGA, pre and
post market (All Tapes).
\14\ Appended to orders that remove liquidity from EDGA (Tape
B).
\15\ADV means daily volume calculated as the number of shares
added to, removed from, or routed by, the exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
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First, the Exchange proposes to adopt Add Volume Tier 3, which
would provide a Member with an opportunity to receive a reduced fee of
$0.0016 for qualifying, liquidity adding orders (i.e., yielding fee
code 3, 4, B, V, or Y) where a Member adds or removes an ADV of greater
than or equal to 0.65% of the TCV. Second, the Exchange proposes to
adopt Remove Volume Tier 3, which would provide a Member with an
opportunity to receive an enhanced rebate of $0.0028 for qualifying,
liquidity removing orders (i.e., yielding fee code N, W, 6, or BB)
where a Member adds or removes an ADV of greater than or equal to 0.65%
of the TCV. The proposed criteria in both tiers are designed to
incentivize Members to increase their overall order flow, both adding
and removing orders, in order to receive a reduced fee on their
liquidity adding orders as well as an enhanced rebate on their
liquidity removing orders. The proposed tiers provide both liquidity
providing Members and liquidity executing Members additional
opportunities to receive a reduced fee and an enhanced rebate. Thus, it
provides liquidity adding Members on the Exchange a further incentive
to contribute to a deeper, more liquid market, and liquidity executing
Members on the Exchange a further incentive to increase transactions
and take execution opportunities provided by such increased liquidity.
The Exchange believes that this, in turn, benefits all Members by
contributing towards a robust and well-balanced market ecosystem. The
Exchange notes the proposed tiers are available to all Members and are
competitively achievable for all Members that submit add and/or remove
order flow, in that, all firms that submit the requisite order flow
could compete to meet the tiers.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\16\ in general, and
furthers the objectives of Section 6(b)(4),\17\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of Section 6(b)(5) \18\
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, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78f(b)(5).
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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.
In particular, the Exchange believes that both proposed Add Volume
Tier 3 and Remove Volume Tier 3 are reasonable because they each
provide an additional opportunity for Members to receive either a
discounted rate or an enhanced rebate by means of liquidity adding and/
or removing orders. The Exchange notes that relative volume-based
incentives and discounts have been widely adopted by exchanges,\19\
including the Exchange,\20\ and are reasonable, equitable and non-
discriminatory because they are open to all members on an equal basis
and provide additional benefits or discounts that are reasonably
related to (i) the value to an exchange's market quality and (ii)
associated higher levels of market activity, such as higher levels of
liquidity provision and/or growth patterns. Additionally, as noted
above, the Exchange operates in highly competitive market. The Exchange
is only one of several equity venues to which market participants may
direct
[[Page 14267]]
their order flow, and it represents a small percentage of the overall
market. It is also only one of several taker-maker exchanges. Competing
equity exchanges offer similar tiered pricing structures to that of the
Exchange, including schedules of rebates and fees that apply based upon
members achieving certain volume and/or growth thresholds. These
competing pricing schedules, moreover, are presently comparable to
those that the Exchange provides, including the pricing of comparable
criteria and fees and rebates.\21\
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\19\ See e.g., the Nasdaq Stock Market LLC Rules, Equity 7, Sec.
118(a)(1); and the Nasdaq BX, Inc. Rules, Equity 7 Pricing Schedule,
Sec. 118(a), both of which generally provide credits to members for
adding and/or removing liquidity that reaches certain thresholds of
Consolidated Volume; see also Cboe BYX U.S. Equities Exchange Fee
Schedule, Footnote 1, Add/Remove Volume Tiers, which provides
similar incentives for liquidity adding and removing orders.
\20\ See generally, Cboe EDGA U.S. Equities Exchange Fee
Schedule, Footnote 7, Add/Remove Volume Tiers.
\21\ See supra note 19. Nasdaq offers credits between $0.0025
and $0.0029 and BX offers between $0.0014 and $0.0029 per share for
liquidity removing orders depending on different Consolidated
Volume-based criteria achieved, which are substantially similar to
the rebate rate which the Exchange proposes for liquidity removing
orders. BX charges between $0.0024 and $0.0028 per share between for
liquidity adding orders for certain Consolidated Volume-based
criteria achieved, which is substantially similar to the reduced fee
rate which the Exchange proposes for liquidity adding orders.
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Specifically, the Exchange believes the proposed tier criteria
under Add Volume Tier 3 and Remove Volume Tier 3, that is, an ADV
threshold component as a percentage of TCV for, is a reasonable means
to further incentivize Members to increase their overall order flow to
the Exchange by encouraging those Members to strive for the different,
incrementally more difficult tier criteria under the proposed tiers to
receive a reduced rate and/or enhanced rebate. As such, adopting
criteria based on a Member's adding and removing orders will encourage
liquidity providing Members to provide for a deeper, more liquid
market, and Members executing on the Exchange to increase transactions
and take such execution opportunities provided by increased liquidity.
The Exchange believes that an increase in overall order flow as a
result of the proposed tiers would benefit all investors by deepening
the Exchange's liquidity pool, providing greater execution incentives
and opportunities, offering additional flexibility for all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection.
In line with the relative difficulty of the proposed criteria for
Add Volume Tier 3 and Remove Volume Tier 3, the Exchange believes that
providing a greater reduced fee and an additional enhanced rebate,
respectively, is reasonable as they are commensurate with the proposed
criteria, that is, they reasonably reflect the scaled difficulty (Add
Volume Tier 3) or different, yet comparable criteria (Remove Volume
Tier 3) from achieving respective Tiers 1 and 2 to achieving the
proposed ADV threshold as a percentage TCV in the respective proposed
tiers. Also, the proposed fee and rebate corresponding to the proposed
criteria do not represent a significant departure from the fees and
rebates current offered, or criteria required, under the Exchange's
existing tiers. For example, the discounted fees assessed under the
existing Add Volume Tiers, for which a Member must have an daily volume
add (ADAV) of 0.10% or greater than the TCV (Add Volume Tier 1) or a
daily volume add (ADAV) of 0.45% or greater than the TCV (Add Volume
Tier 2), is $0.0026 per share and $0.0022 per share, respectively. The
Exchange believes that, as proposed, the percentage of TCV that a
Member's add or remove ADV must meet is a meaningful increase over the
percentage of TCV that other threshold components must meet in Add
Volume Tiers 1 and 2. Therefore the proposed criteria is incrementally
more difficult to achieve and, thus, commensurate with a greater
reduced fee. Similarly, the enhanced rebates under the existing Remove
Volume Tiers, for which a Member must have an add or remove ADV of
0.05% of the TCV (Tier 1), is $0.0022, or a remove ADV of greater than
or equal to 0.10% of the TCV plus a Step-Up Remove TCV from October
2019 of greater than or equal to 0.05% (Tier 2), is $0.0028. The
Exchange believes that, as proposed, the percentage of TCV that a
Member's add or remove ADV must meet is a meaningful increase over the
percentage of TCV that other threshold components must meet in
respective Tiers 1 and 2, however, Tier 2 also provides for two-pronged
criteria that a Member must achieve to receive the corresponding
enhanced rebate. Therefore the Exchange believes that the proposed
criteria in Tier 3 is similar in difficulty to achieve from Tier 2 and,
thus, commensurate with the same enhanced rebate. Also, as stated, the
proposed reduced fee offered for liquidity adding orders and enhanced
rebate offered for liquidity removing orders is in line with fees and
rebates for liquidity adding or removing orders in place on other
equities exchanges.\22\
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\22\ See supra note 21.
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The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
Members are eligible for the proposed Add and Remove Volume tiers, and
would have the opportunity to meet the tiers' criteria and would
receive the proposed fee and/or rebate if such criteria is met. Without
having a view of activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
definitely result in any Members qualifying for the new Add or Remove
Volume tiers. While the Exchange has no way of predicting with
certainty how the proposed tiers will impact Member activity, the
Exchange anticipates that at least four Members will be able to compete
for and reach each of the proposed tiers. The Exchange anticipates that
the tiers will include various Member types, including liquidity
providers (e.g. wholesale firms that mainly make markets for retail
orders), broker-dealers (e.g. bulge bracket firms that conduct trading
on behalf of customers), and proprietary firms, each providing distinct
types of order flow to the Exchange to the benefit of all market
participants. For example, broker-dealer customer order flow provides
more trading opportunities, which attracts Market Makers. Increased
Market Maker activity facilitates tighter spreads which potentially
increases order flow from other market participants. The Exchange also
notes that the proposed tiers will not adversely impact any Member's
pricing or their ability to qualify for other reduced fee or enhanced
rebate tiers. Rather, should a Member not meet the proposed criteria
under the respective tiers, the Member will merely not receive that
reduced fee/enhanced rebate. Furthermore, the proposed reduced fee and
enhanced rebate would uniformly apply to all Members that meet the
required criteria under the respective proposed tiers.
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 intramarket or intermarket 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, as well as price discovery and
transparency for all Members. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of
[[Page 14268]]
individual stocks for all types of orders, large and small.'' \23\
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\23\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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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 proposed
change applies to all Members equally in that all Members are eligible
for the proposed tiers, have a reasonable opportunity to meet the
tiers' criteria and will all receive the proposed fee and/or rebate if
such criteria is met. Additionally the proposed tier changes are
designed to attract additional order flow to the Exchange. The Exchange
believes that the additional tier criteria would incentivize market
participants to direct liquidity and executing order flow to the
Exchange, bringing with it improved price transparency. Greater overall
order flow and pricing transparency benefits all market participants on
the Exchange by providing more trading opportunities, enhancing market
quality, and continuing to encourage Members to send orders, thereby
contributing towards a robust and well-balanced market ecosystem, which
benefits all market participants.
Next, the Exchange 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 that they may participate on
and direct their order flow, including 12 other equities exchanges and
off-exchange venues and alternative trading systems. Additionally, the
Exchange represents a small percentage of the overall market. Based on
publicly available information, no single equities exchange has more
than 17% of the market share.\24\ Therefore, no exchange possesses
significant pricing power in the execution of 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 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.'' \25\ 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'. . . .''. \26\ 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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\24\ See supra note 3.
\25\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\26\ 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 has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from Members or other interested
parties.
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) \27\ of the Act and subparagraph (f)(2) of Rule
19b-4 \28\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 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) \29\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\29\ 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 No. SR-CboeEDGA-2020-007 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 No. SR-CboeEDGA-2020-007. 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 No.
[[Page 14269]]
SR-CboeEDGA-2020-007, and should be submitted on or before April 1,
2020.
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\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04905 Filed 3-10-20; 8:45 am]
BILLING CODE 8011-01-P