Document ID: SEC-2019-0178-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2019-02-21T05:00Z

[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Notices]
[Pages 5515-5517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02890]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85130; File No. SR-CboeEDGX-2019-004]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fee Schedule as It Relates to Pricing for the Use of Certain 
Routing Strategies

February 14, 2019.
    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 February 1, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the fee schedule applicable to the EDGX 
equities trading platform (``EDGX Equities'') as it relates to pricing 
for the use of certain routing strategies. The text of the proposed 
rule change is attached as Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the EDGX 
Equities fee schedule to change the pricing applicable to orders routed 
using the ROUC routing strategy in connection with planned changes to 
the System routing table.\3\ ROUC is a routing strategy offered by the 
Exchange that is used to target certain low cost protected market 
centers by routing to those venues after accessing available liquidity 
on the EDGX Book and certain non-exchange destinations, and prior to 
routing to other trading centers included

[[Page 5516]]

in the System routing table and posting to the EDGX Book, if possible. 
The Exchange periodically changes the low cost venues targeted by the 
ROUC routing strategy to ensure that the venues prioritized for routing 
can be accessed at a low cost. Currently, four exchanges are included 
in the System routing table as low cost protected market centers: Cboe 
BYX Exchange, Inc. (``BYX''), Cboe EDGA Exchange, Inc. (``EDGA''), 
Nasdaq BX, Inc. (``BX''), and New York Stock Exchange LLC (``NYSE''). 
Pursuant to Rule 11.11(g), the Exchange has determined to modify System 
routing table such that NYSE would no longer be listed as a low cost 
protected market center where orders are first routed after seeking 
available liquidity on the EDGX Book and certain non-exchange 
destinations. In addition, the Exchange has decided to add NYSE 
American LLC (``NYSE American'') and NYSE National, Inc. (``NYSE 
National'') as low cost protected market centers. These changes to the 
System routing table are scheduled to be introduced on February 1, 
2019.
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    \3\ The term ``System routing table'' refers to the proprietary 
process for determining the specific trading venues to which the 
System routes orders and the order in which it routes them. See Rule 
11.13(b)(3). The Exchange reserves the right to route orders 
simultaneously or sequentially, maintain a different System routing 
table for different routing options and to modify the System routing 
table at any time without notice. Id.
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    Currently, orders routed using the ROUC routing strategy are 
provided a rebate of $0.00150 per share when routed to BYX,\4\ charged 
a fee of $0.00290 per share when routed to Nasdaq PSX (``PSX''),\5\ or 
charged a fee of $0.00200 per share when routed to a non-exchange 
destination.\6\ Orders routed to other markets may be subject to 
different non-ROUC specific pricing. The Exchange proposes to add two 
new fee codes, MX and NX, that relate to orders routed to NYSE American 
and NYSE National, respectively, using the ROUC routing strategy. In 
securities at or above $1.00, orders routed using the ROUC routing 
strategy would be charged a fee of $0.00020 per share if executed on 
NYSE American, and provided a rebate of $0.00200 per share if executed 
on NYSE National. As proposed, the Exchange would not charge a fee or 
provide a rebate for orders routed in securities priced below $1.00. 
The proposed fees and rebates chosen for routing to these venues 
generally reflect the current transaction fees and rebates available 
for accessing liquidity on those markets.\7\
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    \4\ See EDGX Equities Schedule of Fees, fee code ``BY.'' This 
rebate applies to securities priced at or above $1.00. For 
securities priced below $1.00, a fee equal to 0.10% of the dollar 
value is applied instead. Id.
    \5\ See EDGX Equities Schedule of Fees, fee code ``K.'' This fee 
applies to securities priced at or above $1.00. For securities 
priced below $1.00, a fee equal to 0.30% of the dollar value is 
applied instead. Id.
    \6\ See EDGX Equities Schedule of Fees, fee code ``Q.'' This fee 
applies to securities priced at or above $1.00. For securities 
priced below $1.00, a fee equal to 0.30% of the dollar value is 
applied instead. Id.
    \7\ NYSE American currently charges a fee for removing liquidity 
that is $0.00020 per share in securities priced at or above $1.00, 
and 0.25% of the total dollar value of the transaction in securities 
priced below $1.00. See NYSE American Equities Price List, I. 
Transaction Fees. NYSE National currently provides a rebate of 
$0.00200 per share in securities priced at or above $1.00 for 
members that achieve their taking tier. See NYSE National Schedule 
of Fees and Rebates, I. Transaction Fees, B. Tiered Rates. Orders 
that remove liquidity in securities below $1.00 are executed without 
charge or rebate. See NYSE National, Schedule of Fees and Rebates, 
I. Transaction Fees, A. General Rates.
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    In addition, pursuant to fee code ``I,'' orders routed to EDGA that 
are not otherwise eligible for routing strategy specific rates 
specified in the fee schedule are provided a rebate of $0.00240. The 
Exchange proposes that this rebate, which is a pass through of the 
current rebate available on EDGA, be applied specifically to orders 
routed using its low cost routing strategies--i.e., ROUC and ROUE. 
Orders routed to EDGA using other routing strategies would continue to 
qualify for routing strategy specific rates, which also largely reflect 
the current rebate available for orders that remove liquidity on 
EDGA,\8\ or in limited circumstances would be charged based on the 
Exchange's default routing rate of $0.00300 per share.\9\
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    \8\ See e.g., EDGX Equities Schedule of Fees, fee codes ``AA'' 
and ``RR,'' which similarly provide a rebate of $0.00240 for orders 
routed to EDGA using the ALLB and DIRC routing strategies, 
respectively.
    \9\ See EDGX Equities Schedule of Fees, fee code ``X.''
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\10\ in general, and furthers the 
requirements of Section 6(b)(4),\11\ in particular, 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. 
The Exchange believes the proposed routing fee changes are appropriate 
as they reflect changes to the System routing table used to determine 
the order in which venues are accessed using the ROUC routing strategy. 
ROUC specifically targets certain equities exchanges that provide cheap 
executions or rebates to liquidity removing orders, and routes to those 
venues after trading with the EDGX Book and certain non-exchange 
destinations, and prior to accessing liquidity that may be available on 
other venues on the System routing table. The Exchange believes that 
the proposed changes reflect the intent of members when they submit 
routable order flow to the Exchange using the ROUC routing strategy.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to 
provide special pricing for orders routed to NYSE American and NYSE 
National using the ROUC routing strategy. As mentioned previously, the 
Exchange is adding these two exchanges to its list of low cost 
protected market centers, and wishes to provide the benefit of the 
rebate or lower fee provided by those markets to EDGX members using the 
ROUC routing strategy. The Exchange believes that these changes may 
increase interest in the Exchange's ROUC routing strategy, in 
particular, by passing on better pricing to EDGX members that choose to 
enter such orders on the Exchange, thereby encouraging additional order 
flow to be entered to the EDGX Book.
    The rebates provided to orders routed to NYSE National using the 
ROUC routing strategy would be limited to order price at or above $1.00 
in light of the fact that NYSE National does not provide rebates to 
liquidity removing orders in securities priced below $1.00. For 
securities priced below $1.00, the Exchange would charge no fee and 
provide no rebate, which is equivalent to pricing on NYSE National.\12\ 
Without limiting the proposed rebate for NYSE National to securities 
priced at or above $1.00, the Exchange would pay a significant rebate 
that would not be recouped via a rebate earned from the execution 
venue. The Exchange believes that is reasonable and equitable to limit 
routing rebates to circumstances where the Exchange would actually earn 
a rebate from the away venue in order to properly recoup the costs of 
accessing liquidity on such markets. Similarly, the Exchange would 
charge no fee and provide no rebate for orders routed to NYSE American 
using the ROUC routing strategy in securities priced below $1.00. 
Although such orders are charged a fee by NYSE American equal to 0.25% 
of the total dollar value of the transaction, the Exchange has 
determined to provide free executions as an additional inducement for 
members to send their routable order flow to EDGA.
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    \12\ See supra note 8.
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    The Exchange also believes that it is reasonable and equitable to 
limit fee code I to orders routed to EDGA using the ROUC and ROUE 
routing strategies, which are both intended as low cost routing 
strategies. This fee code is a catchall for orders routed to EDGA and 
applies to a limited subset of routing strategies that are not 
otherwise subject to special pricing pursuant to other fee

[[Page 5517]]

codes. The Exchange believes that specifying the routing strategies to 
which this fee code would be applied will increase transparency around 
the pricing for orders routed using Exchange provided routing 
strategies. With this change, only a limited number of routing 
strategies would be subject to a higher default routing fee. The 
Exchange believes that it is reasonable and equitable to limit its pass 
through rebates to specified routing strategies where the Exchange has 
determined to offer such pricing as an inducement for members to 
utilize such strategies. The Exchange's routing functionality is 
offered on a purely voluntary basis and members that utilize routing 
strategies that are not subject to such an incentive are free to route 
their orders directly to EDGA, or to use other routing strategies where 
the Exchange has determined to provide pass through rebates.
    Finally, the Exchange believes that the proposed changes are 
equitable and not unfairly discriminatory as the proposed fees and 
rebates would apply equally to all members that use the Exchange to 
route orders using the associated routing strategy. The proposed fees 
are designed to reflect the fees charged and rebates offered by certain 
away trading centers that are accessed by Exchange routing strategies, 
and are being made in conjunction with changes to the System routing 
table designed to provide members with low cost executions for their 
routable order flow. Furthermore, if members do not favor the proposed 
pricing, they can send their routable orders directly to away markets 
instead of using routing functionality provided by the Exchange. 
Routing through the Exchange is voluntary, and the Exchange operates in 
a competitive environment where market participants can readily direct 
order flow to competing venues or providers of routing services if they 
deem fee levels to be excessive.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed routing fee changes are designed to reflect changes being made 
to the System routing table used to determine where to send certain 
routable orders, and generally provide better pricing to members for 
orders routed to low cost protected market centers using the Exchange's 
routing strategies. The Exchange operates in a highly competitive 
market in which market participants can readily direct their order flow 
to competing venues. In such an environment, the Exchange must 
continually review, and consider adjusting, its fees and rebates to 
remain competitive with other exchanges. For the reasons described 
above, the Exchange believes that the proposed fee changes reflect this 
competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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 \13\ and paragraph (f) of Rule 19b-4 \14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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-CboeEDGX-2019-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeEDGX-2019-004. 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 this filing will also 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-2019-004 and should be 
submitted on or before March 14, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02890 Filed 2-20-19; 8:45 am]
BILLING CODE 8011-01-P