Document ID: SEC-2018-1299-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2018-08-20T04:00Z

[Federal Register Volume 83, Number 161 (Monday, August 20, 2018)]
[Notices]
[Pages 42175-42178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17833]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83846; File No. SR-CboeEDGX-2018-032]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change Related 
to Fees for Use on the Exchange's Equity Options Platform

August 14, 2018.
    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 August 8, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-Members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c).
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts 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 for its equity 
options platform (``EDGX Options'') to (i) reduce the standard rebates 
for Complex Orders, Customer (contra Non-Customer) in Penny Pilot 
(``Penny'') and Non-Penny Pilot (``Non-Penny'') Securities; (ii) 
increase the standard rates for Market-Maker orders that remove 
liquidity in Penny and Non-Penny Securities; (iii) increase the 
standard rate for BAM Contra orders; (iv) amend the Customer Volume 
Tiers; (v) amend the Complex Customer Penny Tiers; (vi) amend the 
Complex Customer Non-Penny Tiers; and (vii) and eliminate the Complex 
Market-Maker Penny and Non-Penny Tiers.\6\
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    \6\ The Exchange initially filed the proposed fee changes on 
August 1, 2018 (SR-CboeEDGX-2018-026) for August 1, 2018 
effectiveness. On business date August 8, 2018, the Exchange 
withdrew that filing and submitted this filing.
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Complex Order, Customer (Contra Non-Customer) Penny and Non-Penny 
Rebates
    Currently, the Exchange applies fee code ZA to Customer complex 
orders that are executed on the complex order book (``COB'') with a 
non-Customer \7\ as the contra-party in Penny Securities and provides 
such orders a rebate of $0.47 per contract. The Exchange also currently 
applies fee code ZB to Customer complex orders that are executed on the 
COB with a non-Customer as the contra-party in Non-Penny Securities and 
provides such orders a rebate of $0.97 per contract. The Exchange 
proposes to reduce the rebates for these orders. Particularly, the 
Exchange proposes to reduce the rebate for Customer complex orders with 
a non-Customer as the contra party in Penny Securities from $0.47 per 
contract to $0.45 per contract. The Exchange proposes to reduce the 
rebate for Customer complex orders with a non-Customer as the contra 
party in Non-Penny Securities from $0.97 per contract to $0.80 per 
contract.
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    \7\ ``Non-Customer'' applies to any transaction that is not a 
Customer order. See EDGX Options Exchange Fee Schedule.
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Market Maker Remove Rate, Penny and Non-Penny
    By way of background, fee codes PT and NT are currently appended to 
all Market Maker orders in Penny Securities and Non-Penny Securities, 
respectively, that remove liquidity, and result in a standard fee of 
$0.19 per contract. The Exchange proposes to increase the standard fee 
of $0.19 per contract for Market Maker orders in Penny and Non-Penny 
Securities that remove liquidity to $0.23 per contract. The Exchange 
notes that this increase is in line with the amounts assessed by other 
exchanges for similar transactions.\8\
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    \8\ See e.g., Nasdaq PHLX LLC Pricing Schedule, Section II, 
Multiply Listed Options Fees. See also NYSE Arca Options Fees and 
Charges, NYSE Arca Options: Trade-Related Charges for Standard 
Options, Transaction Fee for Electronic Executions--Per Contract.

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[[Page 42176]]

BAM Contra Rate
    Fee code BB is currently appended to all Bats Auction Mechanism 
(``BAM'') Contra Orders \9\ executed in a BAM auction and is currently 
assessed $0.04 per contract. The Exchange proposes to increase the rate 
from $0.04 per contract to $0.05 per contract. The Exchange notes that 
the proposed rate is still in line with relevant rates related to price 
improvement auctions offered by other options exchanges.\10\
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    \9\ ``BAM Contra Order'' or ``Initiating Order'' is an order 
submitted by a Member entering a BAM Agency Order for execution 
within BAM that will potentially execute against the BAM Agency 
Order pursuant to Rule 21.19. See EDGX Options Exchange Fee 
Schedule.
    \10\ See e.g., Miami International Securities Exchange, LLC 
(``MIAX'') Fee Schedule, MIAX Price Improvement Mechanism 
(``PRIME'') Fees.
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Customer Volume Tiers
    By way of background, fee codes PC and NC are currently appended to 
all Customer orders in Penny Securities and Non-Penny Securities, 
respectively, and result in a standard rebate of $0.01 per contract. 
The Customer Volume Tiers in footnote 1 consist of four separate tiers, 
each providing an enhanced rebate to a Member's Customer orders that 
yield fee codes PC or NC upon satisfying monthly volume criteria 
required by the respective tier. The Exchange proposes to amend the 
volume criteria in Customer Volume Tiers 1-4. Particularly, Customer 
Volume Tier 1 provides an enhanced rebate of $0.10 per contract where a 
Member has an ADV \11\ in Customer orders greater than or equal to 
0.20% of average OCV. The Exchange proposes to increase the ADV 
requirement from 0.20% of average OCV \12\ to 0.35% of average OCV. 
Customer Volume Tier 2 provides an enhanced rebate of $0.16 per 
contract where a Member has an ADV in Customer orders greater than or 
equal to 0.40% of average OCV. The Exchange proposes to increase the 
ADV requirement of Customer Volume Tier 2 from 0.40% of average OCV to 
0.45% of average OCV. Customer Volume Tier 3 provides an enhanced 
rebate of $0.21 per contract where a Member has an ADV in Customer 
orders greater than or equal to 0.65% of average OCV. The Exchange 
proposes to increase the ADV requirement of Customer Volume Tier 3 from 
0.65% of average OCV to 0.75% of average OCV. Lastly, Customer Volume 
Tier 4 provides an enhanced rebate of $0.21 per contract where a Member 
(i) has an ADV in Customer orders greater than or equal to 0.30% of 
average OCV and (ii) has an ADV in Customer or Market Maker orders 
greater than or equal to 0.50% of average OCV. The Exchange proposes to 
increase the ADV requirements in both prongs from 0.30% of average OCV 
to 0.60% of average OCV in the first prong and from 0.50% of average 
OCV to 1.00% of average OCV in the second prong. The Exchange lastly 
proposes to reduce the enhanced rebate in Customer Tier Volume 2 from 
$0.16 per contract to $0.13 per contract.
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    \11\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day. ADV is calculated 
on a monthly basis. See EDGX Options Exchange Fee Schedule.
    \12\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close See 
EDGX Options Exchange Fee Schedule.
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Complex Customer Penny Rebates and Tiers
    As noted above, fee code ZA is currently appended to all Customer 
complex orders executed on the COB with a non-Customer as the contra-
party in Penny Securities and currently results in a standard rebate of 
$0.47 per contract (as discussed above however, the Exchange is 
proposing to reduce the standard rebate for these orders to $0.45 per 
contract). The Complex Customer Tiers for Penny Securities in footnote 
1 consist of three separate tiers, each providing an enhanced rebate to 
a Member's Customer orders that yield fee code ZA upon satisfying 
monthly volume criteria required by the respective tier. The Exchange 
proposes to amend the volume criteria thresholds in Complex Customer 
Penny Tiers 1-3. Particularly, Complex Customer Penny Tier 1 currently 
provides an enhanced rebate of $0.48 per contract where a Member has an 
ADV in Customer orders greater than or equal to 0.30% of average OCV. 
The Exchange proposes to increase the ADV requirement from 0.30% of 
average OCV to 0.40% of average OCV. Complex Customer Penny Tier 2 
currently provides an enhanced rebate of $0.49 per contract where a 
Member has an ADV in Customer orders greater than or equal to 0.40% of 
average OCV. The Exchange proposes to increase the ADV requirement of 
Complex Customer Penny Tier 2 from 0.40% of average OCV to 0.55% of 
average OCV. Complex Customer Penny Tier 3 currently provides an 
enhanced rebate of $0.50 per contract where a Member has an ADV in 
Customer orders greater than or equal to 0.65% of average OCV. The 
Exchange proposes to increase the ADV requirement of Complex Customer 
Penny Tier 3 from 0.65% of average OCV to 0.75% of average OCV.
    The Exchange also proposes to amend the enhanced rebates in each of 
the Complex Customer Penny Tiers. Particularly, the Exchange proposes 
to reduce the rates as follows: In Complex Customer Penny Tier 1, 
reduce the rebate from $0.48 per contract to $0.47 per contract; in 
Complex Customer Penny Tier 2, reduce the rebate from $0.49 per 
contract to $0.48 per contract; and in Complex Customer Penny Tier 3, 
reduce the rebate from $0.50 per contract to $0.49 per contract.
Complex Customer Non-Penny Rebates and Tiers
    As noted above, fee code ZB is currently appended to all Customer 
complex orders executed on the COB with a non-Customer as the contra-
party in Non-Penny Securities and currently results in a standard 
rebate of $0.97 per contract (as discussed above however, the Exchange 
is proposing to reduce the standard rebate for these orders to $0.80 
per contract). The Complex Customer Tiers for Non-Penny Securities in 
footnote 1 consist of three separate tiers, each providing an enhanced 
rebate to a Member's Customer orders that yield fee code ZB upon 
satisfying monthly volume criteria required by the respective tier. The 
Exchange proposes to amend the volume criteria thresholds in Complex 
Customer Non-Penny Tiers 1-3. Particularly, Complex Customer Non-Penny 
Tier 1 currently provides an enhanced rebate of $0.98 per contract 
where a Member has an ADV in Customer orders greater than or equal to 
0.30% of average OCV. The Exchange proposes to increase the ADV 
requirement from 0.30% of average OCV to 0.40% of average OCV. Complex 
Customer Non-Penny Tier 2 currently provides an enhanced rebate of 
$0.99 per contract where a Member has an ADV in Customer orders greater 
than or equal to 0.40% of average OCV. The Exchange proposes to 
increase the ADV requirement of Complex Customer Non-Penny Tier 2 from 
0.40% of average OCV to 0.55% of average OCV. Complex Customer Non-
Penny Tier 3 currently provides an enhanced rebate of $1.00 per 
contract where a Member has an ADV in Customer orders greater than or 
equal to 0.65% of average OCV. The Exchange proposes to increase the 
ADV requirement of Complex Customer Non-Penny Tier 3 from 0.65% of 
average OCV to 0.75% of average OCV.
    The Exchange also proposes to reduce the enhanced rebates in each 
of the Complex Customer Non-Penny Tiers. Particularly, the Exchange 
proposes to reduce the rates as follows: In Complex

[[Page 42177]]

Customer Non-Penny Tier 1, reduce the rebate from $0.98 per contract to 
$0.85 per contract; in Complex Customer Non-Penny Tier 2, reduce the 
rebate from $0.99 per contract to $0.87 per contract; and in Complex 
Customer Non-Penny Tier 3, reduce the standard rebate from $1.00 per 
contract to $0.95 per contract.
Complex Market Maker Penny and Non-Penny Tiers
    By way of background, fee codes ZM and ZN are currently appended to 
all complex Market Maker orders in Penny Securities and Non-Penny 
Securities, respectively that add liquidity, and result in a standard 
fee of $0.50 and $1.10 per contract, respectively. The Complex Market 
Maker Volume Tiers for Penny and Non-Penny Securities under footnote 2 
consist of one tier for each program respectively, each providing a 
reduced rate to a Member's Market Makers orders that yield fee code ZM 
and ZN upon satisfying monthly volume criteria required by the 
respective tier. The Exchange no longer wishes to maintain these 
particular programs. Accordingly, the Exchange proposes to eliminate 
both Complex Market Maker Penny Tier 1 and Complex Market Maker Non-
Penny Tier 1.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\13\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\14\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes that it is reasonable to reduce the 
rebates for Customer complex orders that interact with non-Customer 
orders on the COB in both Penny and Non-Penny Securities, because these 
Customer complex orders still receive a rebate (albeit a lesser rebate 
than before) and because the Exchange believes these rebates will 
continue to encourage participation on the COB by entry of Customer 
orders to the Exchange. The Exchange believes the proposed changes are 
equitable and not unfairly discriminatory because they apply uniformly 
to all Customers. The Exchange notes rebates for Customer complex 
orders are designed to encourage Customer orders entered into the 
Exchange, which orders benefit all market participants by providing 
additional trading opportunities. This attracts liquidity providers and 
an increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow originating from other market 
participants.
    Next, the Exchange believes the proposal to increase the standard 
fee of $0.19 per contract to $0.23 per contract for Market Maker orders 
in Penny and Non-Penny Securities that remove liquidity is reasonable 
because the proposed amount is still in line with the amounts assessed 
by other exchanges for similar transactions.\15\ The Exchange believes 
the proposed changes are equitable and not unfairly discriminatory 
because they apply uniformly to all Market Makers.
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    \15\ See e.g., Nasdaq PHLX LLC Pricing Schedule, Section II, 
Multiply Listed Options Fees. See also NYSE Arca Options Fees and 
Charges, NYSE Arca Options: Trade-Related Charges for Standard 
Options, Transaction Fee for Electronic Executions--Per Contract.
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    The Exchange believes the proposed increase to the BAM contra rate 
is reasonable because it is a slight increase and because it is still 
in line with what other exchanges assess for similar transactions.\16\ 
Additionally the proposed rate change applies to all market 
participants uniformly.
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    \16\ See e.g., Miami International Securities Exchange, LLC 
(``MIAX'') Fee Schedule, MIAX Price Improvement Mechanism 
(``PRIME'') Fees.
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    The Exchange next notes that volume-based discounts such as those 
currently maintained on the Exchange have been widely adopted by 
options exchanges and are equitable because they are open to all 
Members on an equal basis and provide additional benefits or discounts 
that are reasonably related to (i) the value of an exchange's market 
quality; (ii) associated with higher levels of market activity, such as 
higher levels of liquidity provision and/or growth patterns; and (iii) 
introduction of higher volumes of orders into the price and volume 
discovery processes. While the proposed modifications to the existing 
(i) Customer Volume Tiers and (ii) Complex Customer Tiers in Penny and 
Non-Penny Securities, make such tiers more difficult to attain, each is 
intended to incentivize Members to send additional Customer orders 
(and/or Market Maker orders in the case of Customer Volume Tier 4) to 
the Exchange in an effort to qualify or continue to qualify for the 
enhanced rebates made available by the tiers. The Exchange notes that 
increased volume on the Exchange provides greater trading opportunities 
for all market participants. The Exchange believes the proposed changes 
are equitable and nondiscriminatory because the proposed changes apply 
uniformly to all Customers.
    With respect to the proposal to reduce rebates under (i) Customer 
Volume Tier 2, (ii) Complex Customer Penny Tiers 1, 2, and 3, and (iii) 
Complex Customer Non-Penny Tiers 1, 2, and 3, the Exchange believes the 
proposed changes are reasonable because Customers still have the 
opportunity to receive enhanced rebates (albeit lesser amounts than 
before). The Exchange believes the rebates still provide an incremental 
incentive for Customers to strive for higher tier levels, which 
provides increasingly higher rebates. The Exchange believes the 
proposed changes are equitable and nondiscriminatory because the 
proposed changes apply uniformly to all Customers.
    The Exchange believes that the proposal to eliminate the Complex 
Market Maker Penny Tier 1 and Complex Market Maker Non-Penny Tier 1 is 
reasonable, fair, and equitable because the Exchange no longer desires 
to maintain such discounts and notes that it is not required to provide 
such discounts. The Exchange believes it's equitable and not unfairly 
discriminatory because it applies uniformly to all Members.

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

    The Exchange believes the proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed changes represent a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Members may opt to disfavor the 
Exchange's pricing if they believe that alternatives offer them better 
value. Accordingly, the Exchange does not believe that the proposed 
change will impair the ability of Members or competing venues to 
maintain their competitive standing in the financial markets.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The

[[Page 42178]]

Exchange has not received any written comments from members or other 
interested parties.

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 \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-CboeEDGX-2018-032 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-2018-032. 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-2018-032 and should be 
submitted on or before September 10, 2018.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17833 Filed 8-17-18; 8:45 am]
 BILLING CODE 8011-01-P