[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Notices]
[Pages 41129-41134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16228]



[[Page 41129]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92493; File No. SR-CboeEDGX-2021-034]


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

July 26, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 13, 2021, 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\ 15 U.S.C. 78a.
    \3\ 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'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the 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 applicable to its 
equities trading platform (``EDGX Equities'') to introduce a new Retail 
Membership Program (the ``Program''), which offers discounted 
membership fees, port fees and market data fees, along with the 
opportunity to receive enhanced rebates under new retail volume tiers, 
for up to 18 months for new retail member organizations.\4\
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    \4\ The Exchange initially filed the proposed fee changes July 
1, 2021 (SR-CboeEDGX-2021-032). On July 13, 2021, the Exchange 
withdrew that filing and submitted this proposal.
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    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 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\5\ no single registered 
equities exchange has more than 16% 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. Additionally, the competition for retail order flow is even more 
intense, particularly as it relates to exchange versus off-exchange 
venues.
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    \5\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (June 29, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    The purpose of this filing is to encourage smaller, retail-oriented 
market participants that are not currently EDGX Equities members to 
become members by discounting certain fixed costs associated with EDGX 
Equities membership and providing an opportunity to receive enhanced 
rebates for retail transactions. By way of background, the Exchange 
currently charges member organizations certain fixed costs related to 
Exchange membership, including the membership fees and port fees, and 
also assesses fees for market data products, all of which are filed 
with the Commission and set forth in the Exchange's Fee Schedule. Also, 
by way of background, the Exchange operates a ``Maker-Taker'' model 
whereby it pays rebates to members that add liquidity and assesses fees 
to those that remove liquidity. The Exchange's Fee Schedule sets forth 
the standard rebates and rates applied per share for orders that 
provide and remove liquidity, respectively. In response to the 
competitive environment, the Exchange also 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 an incremental incentive for Members to strive for 
higher tier levels, which provides increasingly higher benefits or 
discounts for satisfying increasingly more stringent criteria.
    As discussed more fully below, the Exchange proposes to introduce 
the Program, which would offer significant discounts for up to 18 
months following approval as a new member on membership fees, port fees 
and certain market data fees for new member organizations, subject to 
specific restrictions. These discounts would be available to smaller 
New Members for the duration of the Program but would be phased out the 
last six months of the Program as the New Member grows. The Program 
would also provide an opportunity for new members to receive enhanced 
rebates on their retail order flow, as described more fully below. The 
Exchange believes that the proposed Program would make membership 
easier for a greater number of market participants and provide 
increased incentives for retail equity trading 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. In addition, the 
Exchange believes that incentivizing specifically smaller, retail 
broker-dealers to become members could increase the amount of retail 
order flow sent to a public exchange, thereby encouraging greater 
participation and liquidity.
    The Exchange proposes to codify the Program under Footnote 3 of the 
Fee Schedule.\6\ The Exchange also notes that

[[Page 41130]]

the Program is similar to a program adopted by another exchange that 
similarly provides discounts on membership, connectivity and market 
data fees for new members for the similar purpose of encouraging 
smaller, retail-oriented market participants to become members of the 
exchange.\7\
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    \6\ The Exchange proposes to relocate the existing Retail Volume 
Tier program from Footnote 3 to Footnote 2 of the Fee Schedule 
(which currently is ``Reserved'') and codify the new Retail Equities 
Membership Program under Footnote 3. The Exchange proposes to append 
a reference to Footnote 2 to fee code ZA in the Fee Codes and 
Associated Fee Table to reflect this change.
    \7\ See Securities Exchange Act Release No. 91626, (April 21, 
2021) 86 FR 22287 (April 27, 2001) (SR-NYSE-2021-22). See also New 
York Stock Exchange Price List 2021, NYSE Membership On-Ramp 
Program.
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General Eligibility and Restrictions
    To be eligible to participate in the Program, a new member 
organization must be approved as a Retail Member Organization \8\ and 
must not have been approved as an EDGX Equities member organization 
within the eighteen (18) months prior to approval (``New Member'') as 
an RMO. Members that were approved as an RMO on or after January 1, 
2021 are still eligible for the Program provided they were not approved 
as an EDGX Equities RMO member within the 18 months prior to their 
approval as an RMO. Additionally, at least 90% of a New Member's 
submitted orders to EDGX Equities each month must be Retail Orders \9\ 
in order to maintain eligibility in the program for that month. 
Eligibility for discounts begins in the month that a new membership 
application is approved.\10\ 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 
terminate after the 18th 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.
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    \8\ A ``Retail Member Organization'' or ``RMO'' is a Member (or 
a division thereof) that has been approved by the Exchange under 
this Rule to submit Retail Orders. See EDGX Rule 11.21(a)(1).
    \9\ A ``Retail Order'' is an agency or riskless principal order 
that meets the criteria of FINRA Rule 5320.03 that originates from a 
natural person and is submitted to the Exchange by a Retail Member 
Organization, provided that no change is made to the terms of the 
order with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. See EDGX Rule 11.21(a)(2). The Exchange will exclude 
from its calculation the 90% Retail Order threshold shares added, 
removed or routed on any day the Exchange's system experiences a 
disruption that lasts for more than 60 minutes during Regular 
Trading Hours (``Exchange System Disruption''), on any day with a 
scheduled early market close, and on the last Friday in June (the 
``Russell Reconstitution Day''), consistent with the Exchange's 
calculation of ADAV and ADV. See Exchange Fee Schedule, Definitions.
    \10\ An eligible RMO that was approved between January 1, 2021 
and June 30, 2021 would be eligible to start receiving discounts and 
enhanced rebates beginning July 2021 (i.e., would not apply to fees 
assessed prior to July 1, 2021) and the Program would terminate 18 
months after July 2021 (i.e., December 2022 would be the last month 
the firm is eligible to receive the discounts and enhanced rebates 
under the Program).
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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.\11\ The Exchange proposes to reduce the Membership Fee for a 
New Member as follows:
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    \11\ 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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    <bullet> 1-12 Months: The Exchange proposes to waive the annual 
Membership Fee in its entirety for any New Member.
    <bullet> 13-18 months: For New Members that are still in the 
program at 13 months, the proposed discount will be based on a New 
Member's Retail ADV \12\ as a percentage of TCV \13\ in December of the 
year the annual fee is assessed \14\ as follows:
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    \12\ ``ADV'' means average 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.
    \13\ ``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.
    \14\ For example, for a New Member that is still in the Program 
between 13-18 months during 2022, the Exchange would use the New 
Member's Retail ADV as a percentage of TCV in the month of December 
2022 to determine what discount the New Member is eligible to 
receive for the annual Membership Fee assessed for 2023.
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    [cir] A New Member that has Retail ADV of less than 0.10% of TCV 
will receive 100% discount on its annual Membership Fee (i.e., the 
Exchange will waive the annual Membership Fee in its entirety)
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.10% of TCV will receive a 50% of the annual Membership Fee.
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.20% of TCV will not receive any discount on the annual Membership 
Fee.
Physical Ports
    The Program would next provide discounts on physical ports. By way 
of background, a physical port is utilized by a Member or non-Member to 
connect to the Exchange at the data centers where the Exchange's 
servers are located. The Exchange currently assesses the following non-
Disaster Recovery physical connectivity fees for Members and non-
Members on a monthly basis: $2,500 per physical port for a 1 gigabyte 
(``Gb'') circuit and $7,500 per physical port for a 10 Gb circuit. The 
Exchange proposes to provide New Members the following physical port 
discounts:
    <bullet> 1-12 Months: The Exchange proposes to provide a 100% 
discount for one 1 Gb physical port (i.e., waive the entire fee for one 
1 Gb physical port each month). If a New Member purchases a 10 Gb 
physical port in lieu of a 1 Gb physical port, the Exchange will 
provide a credit in the amount of the fee for one 1 Gb physical port 
(currently $2,500 per month).\15\
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    \15\ The Exchange notes that the credit provided for physical 
ports shall not be in excess of the cost of one 1 Gb physical port 
nor in excess of the total amount actually billed to a New Member as 
and for physical ports each month. For example, if a New Member 
purchases a 10 Gb physical port mid-month such that the New Member 
would be assessed a prorated rate of $2,000 (instead of the full 
monthly $7,500 fee), the Exchange will only credit the New Member 
$2,000 (the amount the New Member was billed by the Exchange that 
month) and not $2,500 (the cost of one 1 Gb physical port).
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    <bullet> 13-18 months: For New Members that are still in the 
program at 13 months, the proposed discount each month will be based on 
a New Member's Retail ADV as a percentage of TCV in that month as 
follows:
    [cir] A New Member that has Retail ADV of less than 0.10% of TCV 
will receive 100% discount on one 1 Gb physical port (if a New Member 
purchases a 10 Gb physical port in lieu of a 1 Gb physical port, the 
Exchange will provide a credit in the amount of the fee for one 1 Gb 
physical port).
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.10% of TCV will receive a 50% discount on one 1 Gb physical port (if 
a New Member purchases a 10 Gb physical port in lieu of a 1 Gb physical 
port, the Exchange will provide a credit in the amount of

[[Page 41131]]

50% of the fee for one 1 Gb physical port (i.e., $1,250 per 
month)).\16\
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    \16\ The 50% discount rate will be based upon the amount of fees 
billed for up to one 1 Gb Physical Port. For example, if a New 
Member qualifies only for a 50% discount one month, and that New 
Member is assessed $750 for physical port fees that month due to 
proration, the New Member will be credited $375.
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    [cir] A New Member that has a Retail ADV greater than or equal to 
0.20% of TCV will not receive any discount on its physical port fees.
Logical Ports
    The Program would next provide discounts on its logical port fees. 
Currently, EDGX 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 the following fees for 
the following logical ports (collectively referred to as ``logical 
ports''):

------------------------------------------------------------------------
                  Service                           Cost per month
------------------------------------------------------------------------
Logical Ports (excluding Purge Port,         $550 per port.
 Multicast PITCH Spin Server Port or GRP
 Port).
Purge Ports................................  $650 per port.
Multicast PITCH GRP Ports..................  $550/primary (A or C Feed).
Multicast PITCH Spin Server Ports..........  $550/set of primary (A or C
                                              feed).
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    The Exchange proposes to provide New Members the following logical 
port discounts (for up to 20 logical ports): \17\
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    \17\ If a New Member purchases more than 20 logical ports, the 
Exchange will calculate the average cost per port and provide a 
credit based on the average cost for 20 ports. For example, if an 
Exchange member were to purchase 18 order entry Logical Ports and 4 
Purge Ports, that member would normally be assessed $12,500 per 
month for logical port fees (i.e., $9,900 for Logical Ports ($550 x 
18) + $2,600 for Purge Ports ($650 x 4)). Under the Program, if a 
New Member purchased 18 order entry Logical Ports and 4 Purge Ports 
(and qualified for the 100% discount), that New Member would receive 
a discount of approximately $11,363 (i.e., average rate of $568.18 
($12,500 divided by 22 ports) x 20 ports) and therefore would only 
be assessed $1,137 (i.e., average rate of $568.18 x 2 remaining 
ports) as and for logical ports that month.
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    <bullet> 1-12 Months: The Exchange proposes to provide a 100% 
discount for up to 20 logical ports (i.e., waive all fees for up to 20 
logical ports).
    <bullet> 13-18 months: For New Members that are still in the 
program at 13 months, the proposed discount each month will be based on 
a New Member's Retail ADV as a percentage of TCV in that month as 
follows:
    [cir] A New Member that has Retail ADV of less than 0.10% of TCV 
will receive 100% discount on up to 20 logical ports.
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.10% of TCV will receive a 50% discount on up to 20 logical ports.
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.20% of TCV will not receive any discount on its logical port fees.
Market Data
    By way of background, the Exchange offers various market data 
products, including the following, to new member organizations on a 
voluntary, subscription basis: Cboe One Summary Feed,\18\ Cboe One 
Premium Feed,\19\ EDGX Depth Feed \20\ and EDGX Top Feed \21\ (``Market 
Data Product''). Each market data product allows a vendor to 
redistribute certain data elements included in the data feed on a real-
time basis. For each product, the Exchange charges associated fees set 
forth in the Exchange's Fee Schedule.\22\ The market data fees that 
would be eligible for the Program are External Distribution Fees for 
Cboe One Summary Feed, Cboe One Premium Feed, EDGX Depth Feed and EDGX 
Top Feed and the Data Consolidation Fee for the Cboe One Summary Feed 
(``Eligible Market Data Fees''). The current fees for Eligible Market 
Data Fees are as follows:
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    \18\ Cboe One Summary Feed is a data feed that disseminates, on 
a real-time basis, the aggregate best bid and offer (``BBO'') of all 
displayed orders for securities traded on EDGX and its affiliated 
equities exchanges and also contains individual last sale 
information for the EDGX and its affiliated equities exchanges.
    \19\ Cboe One Premium Feed is a data feed that disseminates, on 
a real-time basis, the aggregate best bid and offer (``BBO'') of all 
displayed orders for securities traded on EDGX and its affiliated 
exchanges and contains optional functionality which enables 
recipients to receive aggregated two-sided quotations from EDGX and 
its affiliated equities exchanges for up to five (5) price levels.
    \20\ EDGX Depth is a data feed that contains all displayed 
orders for listed securities trading on the Exchange, order 
executions, order cancellations, order modifications, order 
identification numbers, and administrative messages.
    \21\ EDGX Top Feed is an uncompressed data feed that offers both 
top-of-book quotations and execution information based on equity 
orders entered into the System.
    \22\ See Cboe EDGX Equities Fee Schedule, Market Data Fees.

 
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                                       External       Data consolidation
       Market data product         distribution fee           fee
------------------------------------------------------------------------
Cboe One Summary................  $5,000/mo.........  $1,000/mo.
Cboe One Premium................  12,500/mo.........  N/A.
EDGX Depth......................  2,500/mo..........  N/A.
EDGX Top........................  1,500/mo..........  N/A.
------------------------------------------------------------------------

    The Exchange proposes to provide New Members the following market 
data discounts:
    <bullet> 1-12 Months: The Exchange proposes to provide a 100% 
discount on Eligible Market Data Fees for Cboe One Summary, EDGX Depth 
and EDGX Top Data Fees and 44% discount on Eligible Market Data Fees 
for Cboe One Premium Data Feed.
    <bullet> 13-18 months: For New Members that are still in the 
program at 13 months, the proposed discount each month will be based on 
a New Member's Retail ADV as a percentage of TCV in that month as 
follows:
    [cir] A New Member that has Retail ADV of less than 0.10% of TCV 
will receive 100% discount on Eligible Market Data Fees for Cboe One 
Summary, EDGX Depth and EDGX Top Data Fees and 44% discount on Eligible 
Market Data Fees for Cboe One Premium Data Feed.
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.10% of TCV will receive a 50% discount on Eligible Market Data Fees 
for Cboe One Summary, EDGX Depth and EDGX Top Data Fees and 22% 
discount on Eligible

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Market Data Fees for Cboe One Premium Data Feed.
    [cir] A New Member that has a Retail ADV greater than or equal to 
0.20% of TCV will not receive any discount on Eligible Market Data 
Fees.
    A New Member that was a subscriber to any of the Eligible Market 
Data Fees within the prior 18 months before becoming approved as an RMO 
is ineligible for Program's Market Data fee discounts. Program 
discounts cannot be combined with any other discounts applicable to 
Eligible Market Data Fees. For example, the Exchange offers certain 
discounts under the Small Retail Broker Distribution Program.\23\ As 
proposed, the discounts under the Small Retail Broker Distribution 
Program could not be used if a new Member is receiving the discounts 
under the Program for Eligible Market Data Fees.
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    \23\ See Cboe EDGX Equities Fee Schedule, Market Data Fees, 
Small Retail Broker Distribution Program.
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Volume Tier Rebates
    The Exchange next proposes to adopt new Retail Membership Program 
Volume Tiers that would provide an additional opportunity for New 
Members to receive enhanced rebates from the standard rebate for Retail 
Orders that add liquidity (i.e., yielding fee code ``ZA'') \24\ if the 
New Member meets certain volume thresholds. The proposed new tiers 
would be available to New Members for the duration of the 18-month 
program and is designed to encourage New Members to increase their 
order flow in order to receive an enhanced rebate on their liquidity 
adding retail orders. The Exchange first proposes to adopt Retail 
Membership Program Volume Tier 1 which would provide an enhanced rebate 
of $0.0033 per share where a New Member adds a Retail Order ADV (i.e., 
yielding fee code ZA) greater than or equal to 0.10% of the TCV. The 
Exchange also proposes to adopt Retail Membership Program Volume Tier 2 
which would provide an enhanced rebate of $0.0034 per share where a 
Member adds a Retail Order ADV (i.e., yielding fee code ZA) of greater 
than or equal to 0.20%.\25\ The proposed new tiers are designed to 
encourage New Members to increase retail order flow on the Exchange 
which further contributes to a deeper, more liquid market and provides 
even more execution opportunities for active market participants at 
improved prices.
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    \24\ Orders yielding fee code ``ZA'' are Retail Orders that add 
liquidity and are assessed a standard rebate of $0.00320 per share.
    \25\ The Exchange notes that should a New Member qualify for a 
higher rebate under the existing Retail Volume Tiers, the New Member 
would receive that higher rebate (e.g., if a New Member adds a 
Retail Order ADV (i.e., yielding fee code ZA) of greater than or 
equal to 0.45%, the New Member would receive the enhanced rebate of 
$0.0037 per share under Retail Volume Tier 2).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\26\ in general, and 
furthers the objectives of Section 6(b)(4) and 6(b)(5),\27\ in 
particular, as it is designed to provide for the equitable allocation 
of reasonable dues, fees and other charges among its Members, issuers 
and other persons using its facilities.
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    \26\ 15 U.S.C. 78f.
    \27\ 15 U.S.C. 78f(b)(4) and (5).
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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. 
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 fees, physical and logical port fees and certain 
market data fees for up to 18 months for new RMOs in order to provide 
an incentive for smaller retail broker-dealers to apply for Exchange 
membership. The Exchange believes that providing an incentive for 
retail broker-dealers 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. In 
addition, the Exchange believes that the proposal could result in 
additional retail liquidity to a public exchange, to the benefit of all 
market participants. The Exchange believes creating incentives and 
opportunities for new retail members on the Exchange protects investors 
and the public interest by increasing the competition and liquidity on 
a transparent public market.
    The Exchange also notes that relative volume-based incentives and 
discounts have been widely adopted by exchanges, including the 
Exchange, and are reasonable, equitable and non-discriminatory because 
they are open on an equal basis to similarly situated members 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. Competing equity exchanges offer 
similar tiered pricing structures, including schedules of rebates and 
fees that apply based upon members achieving certain volume and/or 
growth thresholds, as well as assess similar fees or rebates for 
similar types of orders, to that of the Exchange. Accordingly, the 
Exchange believes the proposed New Retail Membership Program Volume 
Tiers are reasonable as they provide New Members an opportunity to 
receive enhanced rebates for their liquidity adding retail orders. The 
Exchange believes that the proposed enhanced rebates under the Retail 
Membership Program Volume Tiers 1 and 2 are reasonable as they are in 
line with existing rebates under the existing Retail Volume Tiers, 
which similarly provide enhanced rebates to RMOs on their liquidity 
adding retail orders if they meet certain thresholds. Additionally, the 
Exchange believes the proposed rebates are commensurate with the 
proposed criteria. That is, the rebate reasonably reflects the 
difficulty in achieving the corresponding criteria as amended. The 
proposed Retail Membership Program Volume Tiers are designed as an 
incentive to any and all New Members interested in meeting the proposed 
tier criteria to submit additional adding retail order flow to the 
Exchange. The Exchange notes that greater add volume order flow 
provides for deeper, more liquid markets and execution opportunities, 
and greater remove volume order flow increases transactions on the 
Exchange, which incentivizes liquidity providers to submit additional 
liquidity and execution opportunities, thus, providing an overall 
increase in price discovery and transparency on the Exchange.
    The Exchange believes that the proposal is also equitable and not 
unfairly discriminatory. In the prevailing competitive environment, 
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 18 months and proposed New Retail 
Membership Program Volume Tiers 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, as 
well as proposed enhanced rebates, 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

[[Page 41133]]

Members because it is designed to encourage new retail market 
participants to become RMOs on the Exchange that may not otherwise do 
so due in part to the costs associated with becoming members of an 
exchange. Also, the Exchange believes it's equitable and not unfairly 
discriminatory to apply the proposed Program only to RMOs. As noted 
above, competition for retail order flow is intense and the Exchange 
has historically adopted a variety of incentives to encourage retail 
participation on the Exchange, including offering enhanced rebates for 
retail order flow.\28\ Moreover the proposed Program is designed to 
incentivize increased Retail Order flow on the Exchange, which orders 
are generally submitted in smaller sizes and tend to attract Market 
Makers, as smaller size orders are easier to hedge. Increased Market 
Maker activity facilitates tighter spreads, signaling an additional 
corresponding increase in order flow from other market participants, 
which contributes towards a robust, well-balanced market ecosystem. 
Increased overall order flow benefits all investors by deepening the 
Exchange's liquidity pool, potentially providing even 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. The Exchange additionally notes that while the Program is 
applicable only to New Members (that are RMOs), the Exchange does not 
believe this application is discriminatory as the Exchange offers 
alternative incentives for non-RMO order flow and also provides 
existing RMOs opportunities to receive enhanced rebates under existing 
volume tiers.\29\ Similarly, the Exchange believes it's equitable and 
not unfairly discriminatory to reduce the available discounts for 
membership, physical and logical ports, and market data fees for New 
Members that reach a certain threshold of Retail ADV as a percentage of 
TCV during months 13-18 of the Program. As noted above, the proposed 
Program is designed to encourage new smaller, retail-oriented broker 
dealers to become members of the Exchange to become RMOs on the 
Exchange. The Exchange therefore believes it is reasonable and 
appropriate to reduce available discounts for non-transaction fees once 
a New Member has become more established and has grown to such degree 
that they are able to achieve the specified levels of Retail ADV as a 
percentage of TCV. Moreover, the Exchange notes that such members 
continue to be eligible to receive the enhanced rebates under the new 
Retail Membership Program Volume Tiers, as well as the further enhanced 
rebates under the existing Retail Volume Tiers, which directly 
corresponds to increased Retail ADV as a percentage of TCV. 
Accordingly, the Exchange believes that once a New Member is able to 
meet the specified thresholds, such New Members have less need to avail 
themselves of non-transaction fee discounts.
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    \28\ For example, the Exchange offers a higher standard rebate 
for Retail Orders that add liquidity (i.e., orders yielding fee code 
``ZA'') of $0.00320 per share in lieu of the standard liquidity 
adding rebate of $0.00160 per share. The Exchange also offers 
further enhanced rebates for qualifying RMOs under the existing 
Retail Volume Tiers. See EDGX Equities Fees Schedule, Fee Codes and 
Associated Fees and current Footnote 3, respectively.
    \29\ For example, the Exchange provides opportunities to all 
Members to receive an enhanced rebate on their order flow under the 
existing Add/Remove Volume Tiers. See EDGX Fee Schedule, Footnote 1. 
Additionally, RMOs may receive enhanced rebates for retail order 
flow under the existing Retail Volume Tiers. See EDGX Fee Schedule, 
current Footnote 3.
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    Lastly, the Exchange notes another exchange has adopted a similar 
18-month program that provides for similar discounts on membership, 
connectivity and market data fees for the purpose of incentivizing 
smaller, retail-oriented broker dealers to become members of the 
Exchange.\30\ For the foregoing reasons, the Exchange believes that the 
proposal is consistent with the Act.
---------------------------------------------------------------------------

    \30\ See note 7, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Instead, as discussed above, 
the Exchange believes that the proposed changes would increase 
competition by reducing the cost of operating as an Exchange member, 
which the Exchange believes will enhance market quality through the 
submission of additional retail liquidity to a public exchange, thereby 
promoting market depth, price discovery and transparency and enhancing 
order execution opportunities for members. As a result, the Exchange 
believes that the proposed change furthers the Commission's goal in 
adopting Regulation NMS of fostering integrated competition among 
orders, which promotes ``more efficient pricing of individual stocks 
for all types of orders, large and small.'' \31\
---------------------------------------------------------------------------

    \31\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    Intramarket Competition. The proposed changes are designed to 
attract additional Members and retail order flow to the Exchange. The 
Exchange believes that the proposed changes would continue to 
incentivize market participants to become Exchange members and direct 
order flow, especially retail 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 lower 
fees and discounts 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 
members on the same and equal terms, who would benefit from the changes 
on the same basis. Moreover, the Exchange believes that it is 
appropriate to limit the proposed Program to New Member RMOs as the 
Exchange is attempting to increase retail participation and as 
discussed above, the presence of Retail Orders on EDGX has the 
potential to benefit all market participants. The Exchange notes that 
competition for retail order flow is particularly fierce and in that 
context, the Exchange believes that it is appropriate to provide 
additional incentives for retail-oriented broker dealers to become 
Members submit retail order flow. Accordingly, the proposed change 
would not impose a disparate burden on competition among market 
participants on the Exchange.
    Intermarket Competition. 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 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

[[Page 41134]]

than 16% of the market share.\32\ 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.'' \33\ 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'. . . .''.\34\ 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.
---------------------------------------------------------------------------

    \32\ Supra note 4. [sic].
    \33\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \34\ 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)).
---------------------------------------------------------------------------

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 \35\ and paragraph (f) of Rule 19b-4 \36\ 
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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#93e1e6fff6bef0fcfefef6fde7e0d3e0f6f0bdf4fce5"><span class="__cf_email__" data-cfemail="7f0d0a131a521c1012121a110b0c3f0c1a1c51181009">[email protected]</span></a>. Please include 
File Number SR-CboeEDGX-2021-034 on the subject line.

Paper Comments

    <bullet> 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-2021-034. 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 Number SR-CboeEDGX-2021-034, and should be 
submitted on or before August 20, 2021.
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16228 Filed 7-29-21; 8:45 am]
BILLING CODE 8011-01-P


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