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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90136-90139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26414]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101552; File No. SR-CboeEDGA-2024-047]

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

November 7, 2024
    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, 2024, Cboe EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') 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/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 to introduce the 
New Member Program (the ``Program''), which offers discounted 
membership fees and logical port fees for up to 12 months, effective 
beginning November 1, 2024.
    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 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 
Securities Exchange Act of 1934 (the ``Act''), to which market 
participants may direct their order flow. Based on publicly available 
information, no single registered equities exchange has more than 16% 
of the market share.\3\ Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (October 1, 2024), available at https://www.cboe.com/us/equities/market_statistics/.
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    The purpose of this filing is to broadly encourage new market 
participants that are not currently members of the Exchange to become 
members by discounting certain fixed costs associated with Exchange 
membership. By way of background, the Exchange currently charges member 
organizations certain fixed costs related to Exchange membership, 
including for example membership fees and logical port fees, both of 
which are filed with the Commission and set forth in the Exchange's Fee 
Schedule. Also, by way of background, the Exchange recently adopted the 
``Maker-Taker'' model whereby it pays rebates to members that add 
liquidity and assesses fees to those that remove liquidity.\4\ The 
Exchange's Fee Schedule sets forth the standard rebates and rates 
applied per share for orders that provide and remove liquidity, 
respectively.
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    \4\ See SR-CboeEDGA-2024-045. The Exchange previously operated 
under a ``Taker-Maker'' model, in which the Exchange paid credits to 
members that removed liquidity and assessed fees to those that added 
liquidity.
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    As stated previously, the Exchange recently adopted the Maker-Taker 
model. Both the proposal of the Program and the Exchange's adoption of 
the Maker-Taker Model are intended to drive liquidity for the Exchange 
for the benefit of market participants. Specifically, the Exchange 
notes that the market share of taker-maker exchanges has been steadily 
declining in recent years. The Exchange analyzed its internal data and 
found that in particular, the market share of inverted markets has 
dropped from approximately 8% in April 2020 to 2.6% in July 2024. 
Similarly, the average monthly notional volume of taker-maker exchanges 
has declined from approximately $528.0 billion in 2021 to an average 
monthly notional volume of $267.4 billion in 2024 (year-to-date). The 
Exchange believes that both the Program and the adoption of the Maker-
Taker Model will increase the Exchange's market share and bring 
additional liquidity to the Exchange for the benefit all participants.

[[Page 90137]]

    Therefore, in addition to the Exchange's adoption of the Maker-
Taker model, the Exchange proposes to introduce the Program, which 
would offer discounts for up to 12 months following approval as a new 
member on membership fees and logical port fees for new member 
organizations, subject to specific restrictions. These discounts would 
be available to all eligible new members for the duration of the 
Program. The Exchange believes that the proposed Program would make 
membership easier for a greater number of market participants and 
provide increased incentives for firms that are not currently Exchange 
members to apply for Exchange membership. The Exchange believes that 
having more members trading on the Exchange would benefit investors 
through the additional display of liquidity and increased execution 
opportunities on the Exchange.
    The Exchange proposes to codify the Program as a new paragraph 
under the Membership Fees section of the Fee Schedule. The Exchange 
also notes that the Program is similar to a program adopted by an 
affiliated equities exchange that similarly provides discounts on 
membership and for new members for the similar purpose of encouraging 
new market participants to become members of the exchange.\5\
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    \5\ See Securities Exchange Act Release No. 92493 (July 26, 
2021), 86 FR 41129 (July 30, 2021) (SR-CboeEDGX-2021-034). See also 
Cboe EDGX Equities Fee Schedules, Footnote 3, Retail Equities 
Membership Programs. While the Retail Equities Membership Program 
(the ``Affiliate Program'') does offer additional discounts, the 
Affiliate Program only offers these benefits to a narrow scope of 
participants with retail order flow to drive participation in a 
specific customer segment. In the Exchange's case, it is offering 
the Program broadly to new market participants (subject to the below 
eligibility requirements) to work towards greater overall liquidity 
on the Exchange.
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General Eligibility and Restrictions
    To be eligible to participate in the Program, a new member 
organization must not have been approved as an Exchange member 
organization within the eighteen (18) months prior to approval of its 
new membership (``New Member''). Eligibility for discounts begins in 
the month that a new membership application is approved. A New Member 
is only eligible to enroll in the Program once. A New Member that is, 
or becomes, an ``affiliate'' of an existing member organization, 
defined as having at least 75% common ownership between the two 
entities as reflected on each entity's Form BD, is ineligible to 
participate in the Program. The Program would automatically terminate 
after the 12th month of membership in the Program and the discounted 
fees discussed below will be charged to that member at the regular rate 
set forth in the Exchange's fee schedule, as applicable, from that 
point forward.
Membership Fee
    The Exchange currently assesses a yearly Membership Fee of $2,500, 
which is generally assessed at the end of each year for membership in 
the following calendar year. For any month in which a firm is approved 
for membership with the Exchange after the renewal period, the Firm 
Membership Fee is pro-rated beginning on the date on which membership 
is approved. The pro-rated fee is calculated based on the remaining 
trading days in that year and assessed in the month following 
membership approval. The fee is also non-refundable in the event that 
the firm ceases to be a Member following the date on which fees are 
assessed.\6\ The Exchange proposes to reduce the Membership Fee for a 
New Member by waiving the annual Membership Fee in its entirety for any 
New Member.
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    \6\ However, if a Member is pending a voluntary termination of 
rights as a Member pursuant to Exchange Rule 2.8 prior to the date 
any Membership Fee for a given year will be assessed, and the Member 
does not utilize the facilities of Exchange during such time, then 
the Member is not obligated to pay the annual Membership Fee.
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Logical Ports
    The Program would next provide discounts on its logical port fees. 
Currently, EDGA market participants may utilize a variety of logical 
connectivity ports. A logical port provides users with the ability 
within the Exchange's system to accomplish a specific function through 
a connection, such as order entry, data receipt, or access to 
information. Currently, the Exchange assesses $550 per Logical Port per 
month.\7\
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    \7\ Excludes Purge Ports, Multicast PITCH Spin Server Ports, GRP 
Ports, and Certification Logical Ports.
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    The Exchange proposes to waive the cost of one order entry (FIX or 
BOE) Logical Port (excluding Purge Port, Multicast PITCH Spin Server 
Port, GRP Port, and Certification Logical Port) per month for New 
Members for its first 12 months as a Member.
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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The Exchange operates in a highly competitive market in which 
market participants can and do move order flow or discontinue or reduce 
use of certain categories of products, in response to fee changes. As 
previously discussed, the overall market share of exchanges offering a 
taker-maker pricing model has significantly declined and the Exchange 
is seeking to bring back market share to the Exchange. Moreover, in the 
current competitive market environment, market participants also have a 
choice of where to become members. Accordingly, the Exchange believes 
that it is reasonable to offer discounted membership and certain 
logical port fees for up to 12 months for New Members in order to 
provide an incentive for new firms to apply for Exchange membership. 
The Exchange believes that providing an incentive for firms that are 
not currently Exchange members to apply for membership would encourage 
market participants to become members of the Exchange and bring 
additional liquidity to a public market (along with the Exchange's 
adoption of the Maker-Taker model).\11\ In addition, the Exchange 
believes that the proposal could result in additional liquidity to a 
public exchange, to the benefit of all market participants. The 
Exchange believes creating incentives and opportunities for new members 
on the Exchange protects investors and the public interest by 
increasing the competition and liquidity on a transparent public 
market.
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    \11\ See SR-CboeEDGA-2024-045.
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    The Exchange believes that the proposal is also equitable and not 
unfairly discriminatory. In the prevailing competitive environment,

[[Page 90138]]

members, including retail-focused members, are free to disfavor 
Exchange membership and the Exchange's pricing if they believe that 
alternatives offer them better value. The proposed discounted access to 
Exchange services for up to 12 months do not permit unfair 
discrimination because the proposed changes would apply to all 
similarly situated members, who would all benefit from the lower and 
discounted fees on an equal basis. Indeed, the Exchange believes the 
proposed Program is equitable and not unfairly discriminatory because 
it's open to all eligible New Members. The Exchange also believes it's 
equitable and not unfairly discriminatory to apply the Program only to 
qualifying New Members because it is designed to encourage new market 
participants to become members on the Exchange that may not otherwise 
do so due in part to the costs associated with becoming members of an 
exchange. The Exchange additionally notes that while the Program is 
applicable only to New Members, the Exchange does not believe this 
application is discriminatory as the Exchange believes that additional 
members on the Exchange benefit all market participants.

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 changes would increase 
competition by reducing the cost of becoming an Exchange member. The 
Exchange believes that additional members on the Exchange will enhance 
market quality through the submission of additional liquidity to a 
public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities for all 
members. As a result, the Exchange believes that the proposed changes 
further the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.''
    The Exchange believes the proposed rule changes do not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed changes would continue to incentivize market participants 
to become Exchange members and direct order flow to the Exchange. As 
discussed above, greater liquidity benefits all market participants on 
the Exchange by encouraging market participants to become Exchange 
members and send orders to the Exchange, thereby providing more trading 
opportunities and contributing to robust levels of liquidity on the 
Exchange, which benefits all market participants. The proposed fee 
waivers would be available to all similarly situated market 
participants, and, as such, the proposed change would not impose a 
disparate burden on competition among market participants on the 
Exchange. As noted, the proposal would apply to all similarly situated 
New Members on the same and equal terms, who would benefit from the 
changes on the same basis. Greater overall order flow, trading 
opportunities, and pricing transparency benefits all market 
participants on the Exchange by enhancing market quality and continuing 
to encourage Members to send orders, thereby contributing towards a 
robust and well-balanced market ecosystem.
    Next, the Exchange believes the proposed rule changes do 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 other equities exchanges, 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 16% of the market share.\12\ 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.'' \13\ 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'. . . .''.\14\ 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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    \12\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (October 1, 2024), available at https://www.cboe.com/us/equities/market_statistics/.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ 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) (SRNYSEArca-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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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

[[Page 90139]]

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-CboeEDGA-2024-047 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-CboeEDGA-2024-047. 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-CboeEDGA-2024-047 and should 
be submitted on or before December 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26414 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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