Document ID: SEC-2019-1011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2019-07-17T04:00Z

[Federal Register Volume 84, Number 137 (Wednesday, July 17, 2019)]
[Notices]
[Pages 34247-34250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15134]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86352; File No. SR-CboeEDGX-2019-044]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Amend the Fee Schedule Applicable to Members and Non-
Members of the Exchange Pursuant to EDGX Rules 15.1(a) and (c)

July 11, 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 July 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. (the ``Exchange'' or ``EDGX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the fee schedule applicable to Members and non-
Members \3\ of the Exchange pursuant to EDGX Rules 15.1(a) and (c). The 
text of the proposed rule change is provided in Exhibit 5.
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    \3\ A 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 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 
options trading platform (``EDGX Options'') in connection with the fee 
assessed for Customer orders in Mini-SPX Index (``XSP'') options 
(yielding fee code XC), as well as add certain XSP-related fee codes to 
the Automated Improvement Mechanism (``AIM'') Pricing table, effective 
July 1, 2019.
    The Exchange currently provides a standard rebate of $0.05 for 
Customer orders in XSP (an Exchange proprietary product). The Exchange 
no longer wishes to provide a rebate for Customer XSP transactions and 
now proposes to remove the current rebate and amend the fee schedule so 
that Customer orders in XSP will be free. The Exchange notes that it 
currently assesses no charge or a marginal charge on other Customer 
transactions. For example, the Exchange does not charge a transaction 
fee for Customer Agency orders in an AIM auction (including Customer-
to-Customer orders and AIM Agency orders in XSP), for certain Customer 
complex orders (including complex orders leg into the Simple Book and 
Customer-to-Customer complex orders), and Qualified Contingent Cross 
(``QCC'') orders (both Agency and Contra QCC orders).
    In addition to this, the Exchange also proposes to add the fee 
codes for AIM-related orders in XSP to Footnote 6 and add references to 
the fee codes in the AIM Pricing table under Footnote 6. This includes 
fee code XD, appended to Customer AIM orders in XSP, and fee code XB, 
appended to Customer-to-Customer Immediate Cross AIM orders in XSP. The 
AIM Pricing table summarizes AIM fees and rebates for orders that 
transact in an AIM Auction (specifically, orders that yield fee codes,

[[Page 34248]]

BA, \4\ BB, \5\ BC, \6\ BD, \7\ BE, \8\ and CC, \9\ already provided 
for in the Fee Codes and Associated Fees section of the fee schedule, 
in a table form and includes a provision regarding AIM Break-Up Credits 
for such orders (as described below). By way of background, AIM 
includes functionality in which a Member (an ``Initiating Member'') may 
electronically submit for execution an order it represents as agent on 
behalf of a Priority Customer,\10\ broker dealer, or any other person 
or entity (``Agency Order'') against principal interest or against any 
other order it represents as agent (an ``Initiating Order'') provided 
it submits the Agency Order for electronic execution into the AIM 
Auction pursuant Rule 21.19. All options traded on EDGX Options are 
eligible for AIM. The Exchange notes that any person or entity other 
than the Initiating Member may submit responses to an Auction. An AIM 
Auction takes into account responses to the Auction as well as interest 
resting on the Exchange's order book at the conclusion of the auction 
(``unrelated orders''), regardless of whether such unrelated orders 
were already present on the Exchange's order book when the Agency Order 
was received by the Exchange or were received after the Exchange 
commenced the applicable Auction. If contracts remain from one or more 
unrelated orders at the time the Auction ends, they will be considered 
for participation in the AIM order allocation process. The Exchange 
also applies an AIM Break-Up Credit to the Member that submits an AIM 
Agency Order, including a Member who routes an order to the Exchange 
with a Designated Give Up, when the AIM Agency Order trades with an AIM 
Responder Order. Currently, the AIM Break-Up Credit provided with 
respect to an AIM Auction in a Penny Pilot Security is $0.25 per 
contract and the AIM Break-Up Credit provided with respect to an AIM 
Auction in a Non-Penny Pilot Security is $0.60 per contract.
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    \4\ Fee code BA is appended to Non-Customer AIM orders and is 
assessed a fee of $0.20 per share.
    \5\ Fee code BB is appended to AIM Contra orders and is assessed 
a fee of $0.05 per share.
    \6\ Fee code BC is appended to AIM Agency Customer orders and is 
provided a rebate of $0.14 per share.
    \7\ Fee code BD is appended to AIM Responder Penny Pilot orders 
and is assessed a fee of $0.50 per share.
    \8\ Fee code BE is appended to AIM Responder Non-Penny Pilot 
orders and is assessed a fee of $1.05 per share.
    \9\ Fee code CC is appended to AIM Customer-to-Customer 
Immediate Cross orders and is free.
    \10\ The term ``Priority Customer'' means any person or entity 
that is not: (A) A broker or dealer in securities; or (B) a 
Professional. The term ``Priority Customer Order'' means an order 
for the account of a Priority Customer. See Rule 16.1.
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    In April 2019, the Exchange added to its fee schedule certain fee 
codes related to orders in XSP, including for Customer AIM orders in 
XSP (yielding fee code XD) and AIM Customer-to-Customer Immediate Cross 
orders in XSP (orders yielding fee code XB). At this time, however, the 
Exchange inadvertently neglected to add such AIM-related Customer XSP 
fee codes to the AIM Pricing table and adopt AIM Break-Up Credits for 
orders yielding XB and XD. The Exchange now proposes to add these fee 
codes to Footnote 6, including adding references in the AIM Pricing 
table in order to provide additional clarity to Members regarding AIM-
related Customer orders in XSP, as well as apply the AIM Break-Up 
Credit to orders yielding fee codes XD and XB. As stated, the AIM 
Pricing table merely summarizes AIM fees and rebates for orders 
yielding certain fee codes, that are already provided for in the Fee 
Codes and Associated Fees section of the fee schedule, and the AIM 
Break-Up Credit already applies to the other AIM-related orders found 
within the Fee Codes and Associated Fees section.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\11\ in general, and furthers the 
requirements of Section 6(b)(4),\12\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposed change to assess no charge 
for Customer transactions in XSP is consistent with Section 6(b)(4) of 
the Act in that the proposal is reasonable, equitable and not unfairly 
discriminatory. The Exchange believes that it is reasonable and 
equitable to assess no charge for Customer transactions in XSP because 
Customers won't have to pay any fee for XSP transactions. Moreover, it 
is in line with multiple other types of Customer orders for which the 
Exchange does not assess a fee. As described above, the Exchange 
currently does not charge a transaction fee for various other Customer 
orders in an AIM auction, various Customer complex orders, nor for 
Customer QCC orders. The Exchange believes that, although it is 
eliminating the rebate for Customer XSP orders, the proposal to not 
assess any fees for such transactions will continue to incentivize 
Customer order flow in XSP, which enhances liquidity on the Exchange. 
This enhanced Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Market Makers. An 
increase in Market Maker activity in turn facilitates tighter spreads, 
which may cause an additional corresponding increase in order flow from 
other market participants.
    The Exchange also believes that the proposed Customer transaction 
fee is equitable and not unfairly discriminatory because the proposed 
fee assessment (of no charge) will apply equally to all Customer 
transactions in XSP, i.e., all Customers will be assessed the same 
amount. Moreover, the Exchange notes that while Customer's will not be 
assessed any fees, as compared to other market participants,\13\ the 
Exchange believes that the proposal to not assess any fee is equitable 
and not unfairly discriminatory because, as stated above, Customer 
order flow enhances liquidity on the Exchange, in turn providing more 
trading opportunities and attracting Marker-Makers to facilitate 
tighter spreads to the benefit of all market participants. Moreover, 
the options industry has a long history of providing preferential 
pricing to Customers, and the Exchange's current Fee Schedule currently 
does so in many places, as do the fees structures of multiple other 
exchanges.\14\
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    \13\ See EDGX Options Fee Schedule, ``Fee Codes and Associated 
Fees'', which assesses a fee of $0.45 for all Firm orders in XSP, 
$0.20 for all Market Maker liquidity adding orders in XSP, and $0.48 
for all Non-Market Maker/Non-Customer orders in XSP.
    \14\ See MIAX Options Fee Schedule, Transaction Fees, SPIKES, 
which gives preferential Customer [sic] treatment for transaction in 
MIAX Option's proprietary product, SPIKES. The Exchange notes XSP is 
an Exchange proprietary product.
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    That Exchange also believes that its proposed change to add fee 
codes XD and XB to the AIM Pricing table is consistent with Section 
6(b)(4) of the Act in that the proposal is reasonable, equitable and 
not unfairly discriminatory. The Exchange believes that the proposed 
change is reasonable because it serves to update the AIM Pricing chart 
as a result of an inadvertent oversight. As stated, in April 2019, the 
Exchange added to its fee schedule certain fee codes related to orders 
in XSP, including for Customer AIM orders in XSP (yielding fee code XD) 
and AIM Customer-to-Customer Immediate Cross orders in XSP (orders 
yielding fee code XB), yet inadvertently failed to add such AIM-related 
Customer XSP fee codes to Footnote 6

[[Page 34249]]

at that time (which includes the applicability of the AIM Break-Up 
Credit under Footnote 6). In addition to this, the Exchange notes that 
the AIM Pricing table merely summarizes in table form AIM fees and 
rebates for orders yielding certain AIM-related fee codes, that are 
already provided for in the Fee Codes and Associated Fees section of 
the fee schedule (which currently includes fee codes XD and XB). 
Therefore, the Exchange believes that the proposed change to add these 
fee codes to the AIM Pricing table will provide additional clarity to 
Members by summarizing in table form the rates for their AIM-related 
orders in XSP, which already exist within the fee schedule. Moreover, 
the Exchange notes that the proposed AIM Break-Up Credits currently 
apply to the other AIM-related orders provided for in the Fee Codes and 
Associated Fees section.
    The Exchange believes that the proposed change to add fee codes XD 
and XB to the AIM Pricing chart is equitable and not unfairly 
discriminatory because the rates for such orders yielding these fee 
codes are already in place, and the proposed change will not alter 
those rates or descriptions for such orders for any type of market 
participant. Instead, this change serves to provide additional clarity 
for all Members by adding these AIM-related fee codes to the summary 
table for AIM Pricing.

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. 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. Specifically, the Exchange does not believe that 
the proposed change will impose any burden on intramarket competitions 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the proposed change will apply uniformly to all 
Customers transacting in XSP. As described above, while no fee will be 
assessed for Customers, different market participants have different 
circumstances, such as the fact that preferential pricing to Customers 
is a long-standing options industry practice which serves to enhance 
Customer order flow, thereby attracting Marker-Makers to facilitate 
tighter spreads and trading opportunities to the benefit of all market 
participants. In addition to this, the Exchange notes that it currently 
assesses no charge for various other types of Customer orders.
    In addition to this, the Exchange does not believe that the 
proposed change to add fee codes appended to AIM-related orders in XSP, 
which currently exist in the fee schedule, to Footnote 6 will impose a 
burden on intramarket competition. The AIM Pricing table merely 
summarizes the fees and rebates for AIM-related orders that are 
currently found in the fee schedule and the proposed change serves to 
provide additional clarity regarding existing AIM-related orders in XSP 
by adding them to this table. Additionally, the AIM Break-Up Credits 
currently apply to the other AIM-related orders found within the fee 
schedule and the proposal to adopt AIM Break-Up Credits for orders 
yielding XD and XB will result in such orders being treated the same as 
all other AIM-related orders.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the rule 
change affects a proprietary product, which is traded exclusively on 
the Exchange and the Exchange's affiliate, Cboe Exchange, Inc.\15\
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    \15\ See Cboe Exchange, Inc. Fees Schedule.
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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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2019-044 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-2019-044. 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-2019-044 and should be 
submitted on or before August 7, 2019.

[[Page 34250]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-15134 Filed 7-16-19; 8:45 am]
BILLING CODE 8011-01-P