[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30777-30779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10819]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88876; File No. SR-CboeEDGX-2020-020]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fees Schedule
May 14, 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 May 1, 2020, 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 Options'') is
filing with the Securities and Exchange Commission (``Commission'') a
proposed rule change to amend its Fees 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule for its equity
options platform (EDGX Options), effective May 1, 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 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 20% of the market share and
currently the Exchange represents only 4% of the market share.\3\ Thus,
in such a low-concentrated and highly competitive market, no single
options
[[Page 30778]]
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 Volume Summary
(April 27, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
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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 orders that add
liquidity in both Penny and Non-Penny Securities and assesses fees
ranging from $0.01 up to $0.75 per contract for orders that remove
liquidity in both Penny and Non-Penny Securities. The Exchange also
offers tiered pricing which provides Members \4\ opportunities to
qualify for higher rebates or reduced fees where certain volume
criteria and thresholds are met. Footnote 5 of the Fees Schedule
provides that when orders are submitted with a Designated Give Up,\5\
the applicable rebates (i.e., any standard rebate or applicable tier
rebates) for orders yielding fee code BC,\6\ NC,\7\ PC,\8\ SC,\9\
QA\10\ and QM \11\ are provided to the Member who routed the order to
the Exchange. Now, the Exchange proposes to amend footnote 5 to include
fee codes ZA\12\ and ZB \13\ in the aforementioned list of fee codes.
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\4\ See Exchange Rule 1.5(n).
\5\ A Designated Give Up of a User refers to a Clearing Member
identified to the Exchange by that User as a Clearing Member the
User requests the ability to give up and that has been processed by
the Exchange as a Designated Give Up. See Exchange Rule 21.12(b).
\6\ Orders yielding fee code BC represent AIM Agency (Customer)
orders.
\7\ Orders yielding fee code NC represent Customer, Non-Penny
orders.
\8\ Orders yielding fee code PC represent Customer, Penny Pilot
orders.
\9\ Orders yielding fee code SC represent SAM Agency (Customer)
orders.
\10\ Orders yielding fee code QA represent QCC Agency (Customer)
orders.
\11\ Orders yielding fee code QM represent QCC Agency (Non-
Customer) orders.
\12\ Orders yielding fee code ZA represent Complex, Customer
(contra Non-Customer), Penny orders.
\13\ Orders yielding fee code ZB represent Complex, Customer
(contra Non-Customer), Non-Penny orders.
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Under Rule 21.12 a Member acting as an options routing firm on
behalf of one or more other Exchange Members (a ``Routing Firm'') is
able to route orders to the Exchange and to immediately give up the
party (a party other than the Routing Firm itself or the Routing Firm's
own clearing firm) who will accept and clear any resulting transaction.
Because the Routing Firm is responsible for the decision to route the
order to the Exchange, the Exchange provides the rebate to the Routing
Firm when the orders yield fee codes BC, NC, PC, SC, QA and QM. The
Exchange believes that the Routing Firm should also be provided the
rebate when the orders yield fee codes ZA and ZB as those orders also
represent liquidity adding customer orders for which the Routing Firm
is responsible for the decision to route the order to the Exchange. In
connection with this change, the Exchange proposes to append footnote 5
to fee codes ZA and ZB in the Fee Codes and Associated Fees table of
the Fees Schedule.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6 of the Act.\14\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\15\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among Members and other persons using any facility or system which the
Exchange operates or controls.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
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The Exchange notes that the U.S. options markets are highly
competitive, and the proposed fee structure is intended to provide an
incentive for Members to direct orders to the Exchange. The proposal
would apply to fee codes ZA and ZB related to customer liquidity adding
orders, because these, along with the fee codes already included in
Footnote 5, are the primary rebates in place on the Exchange and
reflect the primary liquidity that the Exchange is seeking to attract
from Routing Firms that are able to identify Designated Give Ups.\16\
The Exchange believes the proposed amendment is reasonable because the
Exchange already provides such rebates to the Routing Firm for orders
yielding similar fee codes for customer liquidity adding orders (i.e.,
orders yielding fee codes BC, NC, PC, QA, and SC). Additionally, the
Exchange believes that the proposed amendments to its Fees Schedule
will enhance the Exchange's competitive position and will result in
increased liquidity on the Exchange, to the benefit of all Exchange
participants. Therefore, the Exchange believes that providing rebates
is equitable and reasonable and not unfairly discriminatory as it would
allow the Exchange, in the context of the give up procedure described
above, to provide a rebate directly to the party making the routing
decision to direct certain orders to the Exchange (i.e., the Routing
Firm), which is consistent with both the Exchange's historic practice
and the purpose behind a rebate (i.e., to incentivize the order being
directed to the Exchange).
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\16\ The Exchange notes that Market-Makers may only give up its
respective Guarantor, as defined by Rule 21.12(b)(2). See Exchange
Rule 21.12(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes its proposed amendments to its Fees Schedule
would not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
does not believe that the proposed change represents a significant
departure from previous pricing offered by the Exchange or its
competitors. Additionally, Members may opt to disfavor the Exchange's
pricing if they believe that alternatives offer them better value. The
Exchange believes that its proposal will incentivize Routing Firms that
are utilizing the give up procedure to direct orders yielding fee code
ZA and ZB to the Exchange, and will enhance the Exchange's competitive
position by resulting in increased liquidity on the Exchange, thereby
providing more opportunities for customers to receive best executions.
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 \17\ and paragraph (f) of Rule 19b-4 \18\
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
[[Page 30779]]
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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2020-020 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-2020-020. 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 tomake available publicly. All submissions
should refer to File Number SR-CboeEDGX-2020-020 and should be
submitted on or before June 10, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10819 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P