Document ID: SEC-2023-0505-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGA Exchange, Inc.
Posted Date: 2023-05-10T04:00Z

[Federal Register Volume 88, Number 90 (Wednesday, May 10, 2023)]
[Notices]
[Pages 30185-30187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09905]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97432; File No. SR-CboeEDGA-2023-007]

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

May 4, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 1, 2023, 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 applicable to its 
equities trading platform (``EDGA Equities'') by introducing new fee 
code DX and modifying the description of existing fee code DQ. The 
Exchange proposes to implement these changes effective May 1, 2023.
    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 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,\3\ 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. 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 remove and provide 
liquidity, respectively. Currently, for orders in securities priced at 
or above $1.00, the Exchange provides a standard rebate of $0.00180 
[sic] per share for orders that remove liquidity and assesses a fee of 
$0.0030 per share for orders that add liquidity.\4\ For orders in 
securities priced below $1.00, the Exchange does not assess any fees or 
provide any rebates for orders that add or remove liquidity.\5\ 
Additionally, 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.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (April 21, 2023), available at https://www.cboe.com/us/equities/market_statistics/.
    \4\ See EDGA Equities Fee Schedule, Standard Rates.
    \5\ Id.
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Fee Codes DQ and DX
    The Exchange currently offers fee code DQ, which is appended to 
Midpoint Discretionary Orders (``MDOs'') \6\ using the Quote Depletion 
Protection (``QDP'') \7\ order instruction. QDP is designed to provide 
enhanced protections to MDOs by tracking significant executions that 
constitute the best bid or offer on the EDGA Book \8\ and enabling 
Users to avoid potentially unfavorable executions by preventing MDOs 
entered with the optional QDP instruction from exercising discretion to 
trade at more aggressive prices when

[[Page 30186]]

QDP has been triggered.\9\ Currently, MDOs entered with the QDP 
instruction are appended fee code DQ and assessed a flat fee of 
$0.00040 per share in securities at or above $1.00 and 0.30% of dollar 
value for securities priced below $1.00. The Exchange now proposes to 
amend fee code DQ to be appended to MDOs entered with a QDP instruction 
that add liquidity to the Exchange. The Exchange also proposes to amend 
the fee associated with fee code DQ from $0.00040 per share in 
securities at or above to $1.00 to $0.0010 per share. The Exchange also 
proposes to introduce fee code DX, which would be appended to MDOs with 
a QDP instruction that remove liquidity from the Exchange. Orders 
appended with fee code DX would be assessed a fee of $0.00040 per share 
in securities at or above $1.00 and 0.30% of dollar value for 
securities priced below $1.00.
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    \6\ See Exchange Rule 11.8(e).
    \7\ See Exchange Rule 11.8(e)(10).
    \8\ See Exchange Rule 1.5(d).
    \9\ See Securities Exchange Act Release No. 89016 (June 4, 
2020), 85 FR 35488 (June 10, 2020) (SR-CboeEDGA-2020-005) (``Notice 
of Filing of Amendment No. 1 and Order Granting Accelerated Approval 
of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend 
the Rule Relating to MidPoint Discretionary Orders to Allow Optional 
Offset or Quote Depletion Protection Instructions'').
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\10\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \11\ 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) \12\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers as well as Section 6(b)(4) \13\ 
as it is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
    \13\ 15 U.S.C. 78f(b)(4).
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    As described above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. The Exchange believes the 
proposed addition of fee code DX and the revised applicability of fee 
code DQ are reasonable as the Exchange offers many other fee codes that 
are specifically designed for orders that add liquidity to the Exchange 
or remove liquidity from the Exchange.\14\ In addition, the Exchange 
notes that its affiliate exchanges have adopted a similar pricing 
structure for MDOs containing a QDP instruction.\15\ While the fee 
assessed for orders appended with fee code DQ will be slightly higher 
than the fee assessed for orders appended with fee code DX, the 
Exchange believes that promoting liquidity-removing MDOs containing a 
QDP instruction represents an equitable allocation of fees and rebates 
and is not unfairly discriminatory because the fees will apply to all 
Members who add or remove liquidity utilizing an MDO with a QDP 
instruction, equally. Furthermore, the Exchange believes that assessing 
a lower fee under fee code DX will promote a reasonable means to 
encourage liquidity removing volume to the Exchange for MDOs utilizing 
a QDP instruction. While Members are assessed a small fee to utilize 
MDOs with a QDP instruction, the Exchange believes that promoting 
liquidity removing activity would help deepen the Exchange's liquidity 
pool, support the quality of price discovery, and improve market 
quality, for all investors.
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    \14\ See e.g., EDGA Equities Fee Schedule, Fee Codes 3 and 6.
    \15\ See e.g., EDGX Equities Fee Schedule, Fee Codes DQ and DX.
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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 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 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 proposed fees associated 
with fee code DX would apply to all Members equally in that all Members 
would be subject to the same flat fee for the execution of an MDO with 
a QDP instruction that removes liquidity from the Exchange. Although 
MDOs entered with the QDP instruction would be subject to the pricing 
described in this proposed rule change, the Exchange does not believe 
that pricing would impose any significant burden on intramarket 
competition as this fee would be applied in the same manner to the 
execution of any MDO entered with a QDP instruction that removes 
liquidity from the Exchange. Both MDO and the associated QDP 
instruction are available to all Members on an equal and non-
discriminatory basis. As a result, any Member can decide to use (or not 
use) the QDP instruction based on the benefits provided by that 
instruction in potentially avoiding unfavorable executions, and the 
associated charge that the Exchange proposes to introduce. As 
discussed, any firm that chooses to use the QDP instruction with an MDO 
that removes liquidity would be charged the same flat fee for the 
execution of orders that are entered with this instruction. The 
proposal to modify fee code DQ to apply only to MDO orders using the 
QDP instruction that add liquidity to the Exchange similarly does not 
impose a burden on intramarket competition in that the applicability of 
the fee code will apply equally to all Members in that all Members 
would be subject to the same, revised flat fee for the execution of an 
MDO with a QDP instruction that adds liquidity to the Exchange.
    Next, the Exchange believes the proposed rule changes 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.

[[Page 30187]]

Based on publicly available information, no single equities exchange 
has more than 16% of the market share.\16\ 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.'' \17\ 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'. . . .''.\18\ 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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    \16\ Supra note 3.
    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \18\ 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 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 \19\ and paragraph (f) of Rule 19b-4 \20\ 
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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-CboeEDGA-2023-007 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 Number SR-CboeEDGA-2023-007. 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. 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-2023-007, and should be 
submitted on or before May 31, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09905 Filed 5-9-23; 8:45 am]
BILLING CODE 8011-01-P