Document ID: SEC-2021-0853-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGA Exchange, Inc.
Posted Date: 2021-06-17T04:00Z

[Federal Register Volume 86, Number 115 (Thursday, June 17, 2021)]
[Notices]
[Pages 32298-32301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12745]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92152; File No. SR-CboeEDGA-2021-015]

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

June 11, 2021.
    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 June 9, 2021, Cboe EDGA Exchange, Inc. (the

[[Page 32299]]

``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'') 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/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 as follows: (1) 
Decrease the standard liquidity adding rebate, (2) define the term 
``Step-Up ADV'', and (3) rename the existing Remove Volume Tier 1 to 
Remove Volume Tier 2 and add new Remove Volume Tiers 1 and 3.\3\
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    \3\ The Exchange initially filed the proposed fee changes June 
1, 2021 (SR-CboeEDGA-2021-014). On June 9, 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,\4\ no single registered 
equities exchange has more than 15% 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. Particularly, for 
securities at or above $1.00, the Exchange provides a standard rebate 
of $0.0018 per share for orders that remove liquidity and assesses a 
fee of $0.0030 per share for orders that add liquidity. For order 
priced below $1.00, the Exchange does not assess any fees or provide 
any rebates for orders that add or remove liquidity. 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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    \4\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (May 24, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    Additionally, in response to the competitive environment, the 
Exchange offers tiered pricing which provides Members opportunities to 
qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. Tiered pricing provides an incremental 
incentive for Members to strive for higher tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
Standard Liquidity Rebate
    As stated above, the Exchange currently provides a standard rebate 
of $0.0018 per share for liquidity removing orders (i.e., those 
yielding fee codes N,\5\ W,\6\ 6,\7\ and BB \8\) in securities priced 
at or above $1.00. Orders in securities priced below $1.00 that remove 
liquidity are provided no rebate and assessed no fee. The Exchange now 
proposes to reduce the standard rebate for liquidity removing orders to 
$0.0016 per share. Although this proposed standard rebate for liquidity 
removing orders is lower than the current base rebate for such orders, 
the proposed rebate is in line with or superior to similar rebates for 
liquidity removing orders in place on other ``Taker-Maker'' 
exchanges.\9\
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    \5\ Orders yielding Fee Code ``N'' are removing liquidity from 
EDGA (Tape C).
    \6\ Orders yielding Fee Code ``W'' are removing liquidity from 
EDGA (Tape A).
    \7\ Orders yielding Fee Code ``6'' are removing liquidity from 
EDGA (All Tapes).
    \8\ Orders yielding Fee Code ``BB'' are removing liquidity from 
EDGA (Tape B).
    \9\ E.g., Nasdaq BX, Inc. (``BX''), which operates a ``Taker-
Maker'' model, charges a standard fee of $0.0007 for liquidity 
removing orders unless certain volume criteria is met, in which case 
BX provides a rebate ranging from $0.0004 up to $0.0018.
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Definition and Remove Volume Tiers
    The Exchange proposes to adopt a new definition for the term 
``Step-Up ADV''. Specifically, as proposed ``Step-up ADV'' means ADV 
\10\ in the relevant baseline month subtracted from current ADV. Such 
definition would be referenced in the proposed Remove Volume Tier 3, as 
discussed below.
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    \10\ ADV means daily volume calculated as the number of shares 
added to, removed from, or routed by, the Exchange, or any 
combination or subset thereof, per day. ADV is calculated on a 
monthly basis.
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    Pursuant to footnote 7 of the fee schedule, the Exchange currently 
offers a Remove Volume Tier that provides a rebate to Members meeting a 
certain volume threshold. Specifically, Tier 1 currently provides an 
opportunity for Members to receive an enhanced rebate of $0.0022 per 
share for qualifying liquidity removing orders (i.e., yielding fee 
codes N, W, 6, and BB), where a Member adds or removes an ADV greater 
than or equal to 0.05% of the TCV.\11\ Now, the Exchange proposes to 
rename existing Tier 1 of the Remove Volume Tiers to Tier 2, and add 
additional Tiers 1 and 3. Specifically, proposed Tier 1 would provide a 
rebate of $0.0018 per share to Members that add or remove an ADV of 
greater than or equal to 0.02% of the TCV. Proposed Tier 3 would 
provide a rebate of $0.0024 to Members that (1) add or remove a Step-Up 
ADV from May 2021 greater

[[Page 32300]]

than or equal to 0.05% of the TCV or add or remove a Step-Up ADV from 
May 2021 greater than or equal to 3,000,000 shares; and (2) add an ADV 
greater than or equal to 0.05% or add an ADV of greater than or equal 
to 3,000,000 shares.
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    \11\ 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.
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    The Exchange notes that the Remove Volume Tiers, as modified, will 
continue to be available to all Members and provide Members an 
opportunity to receive enhanced rebates. Moreover, the proposed changes 
are designed to encourage Members to increase both adding and removing 
liquidity on the Exchange, which further contributes to a deeper, more 
liquid market and provides even more execution opportunities for active 
market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4),\13\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and issuers and other persons 
using its facilities. The Exchange also believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \14\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. The proposed rule change 
reflects a competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange believes would enhance market quality to the benefit of all 
Members.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f.(b)(5).
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    In particular, the Exchange believes that the proposed amendment to 
reduce the standard liquidity removing rebate is reasonable because the 
proposed change represents a modest rebate decrease and Members will 
continue to receive a rebate on all liquidity removing orders, albeit 
at a lower amount. The proposed change is also equitable and non-
discriminatory as such rebates are equally applicable to all Members of 
the Exchange. Additionally, the proposed rebates for liquidity removing 
orders are in-line with rebates offered at other exchanges for similar 
transactions.\15\
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    \15\ Supra note 8.
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    The Exchange also believes the proposal to define the term ``Step-
Up ADV'' is reasonable as it will clarify terminology used in the fee 
schedule, to the benefit of all Members. Further, the Exchange believes 
the proposed changes to the Remove Volume Tiers are reasonable because 
each tier, as modified, will be available to all Members and provide 
Members an opportunity to receive an enhanced rebate. The Exchange next 
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 to 
all Members on an equal basis and provide additional discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated with higher levels of market activity, such as higher 
levels of liquidity provision and/or growth patterns. The Exchange also 
believes that the proposed and existing rebates under the Remove Volume 
Tiers are commensurate with the respective proposed and existing 
criteria. That is, the rebates reasonably reflect the difficulty in 
achieving the corresponding criteria.
    The Exchange believes that the changes to the Remove Volume Tiers, 
will benefit all market participants by incentivizing continuous 
liquidity and, thus, deeper more liquid markets as well as increased 
execution opportunities. Particularly, the proposed changes to the 
Remove Volume Tiers are designed to incentivize both adding and 
removing liquidity, which further contributes to a deeper, more liquid 
market and provide even more execution opportunities for active market 
participants at improved prices. This overall increase in activity 
deepens the Exchange's liquidity pool, offers additional cost savings, 
supports the quality of price discovery, promotes market transparency 
and improves market quality, for all investors.
    The Exchange also believes that the proposed amendments to the 
Remove Volume Tiers represent an equitable allocation of rebates and 
are not unfairly discriminatory because all Members are eligible for 
the Remove Volume Tiers and would have the opportunity to meet the 
tiers' criteria and would receive the proposed rebate if such criteria 
is met. The Exchange also notes that the proposed changes will not 
adversely impact any Member's ability to qualify for other reduced fee 
or enhanced rebate tiers. Should a Member not meet the proposed 
criteria under any of the proposed tiers, the Member will merely not 
receive that corresponding enhanced rebate. A number of Members have a 
reasonable opportunity to satisfy proposed Remove Volume Tiers 1 and 3, 
which the Exchange believes are less and more stringent than existing 
Tier 1, respectively. While the Exchange has no way of knowing whether 
this proposed rule change would definitively result in any particular 
Member qualifying for the proposed tiers, the Exchange anticipates at 
least seven Members to compete for and reasonably achieve proposed tier 
1 and five Members to compete for and reasonably achieve proposed tier 
3. However, the proposed tiers are open to any Member that satisfies 
the applicable tier's criteria. The Exchange believes the proposed 
tiers could provide an incentive for other Members to submit additional 
liquidity on the Exchange to qualify for the proposed enhanced rebate.
    As noted above, the Exchange operates in a highly competitive 
market. The Exchange is only one of 16 equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. It is also only one of several taker-
maker exchanges. Competing equity exchanges offer similar rates and 
tiered pricing structures to that of the Exchange, including schedules 
of rebates and fees that apply based upon members achieving certain 
volume thresholds.

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. Particularly, the proposed 
standard rebate reduction applies to all liquidity removing orders 
equally, and thus applies to all Members equally. Similarly, all 
Members have the opportunity to meet the tiers' criteria and would 
receive the proposed rebate

[[Page 32301]]

if such criteria is met. 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 purpose 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 15% 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 changes 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 rule-comments@sec.gov. Please include 
File Number SR-CboeEDGA-2021-015 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-2021-015. 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-CboeEDGA-2021-015 and should be 
submitted on or before July 8, 2021.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-12745 Filed 6-16-21; 8:45 am]
BILLING CODE 8011-01-P