Document ID: SEC-2018-1282-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-08-16T04:00Z

[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40800-40803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17628]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83820; File No. SR-IEX-2018-17]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Increase the Spread-Crossing Eligible Remove Fee to $0.0009 Per Share 
for Executions at or Above $1.00 That Remove Non-Displayed Liquidity

August 10, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\

[[Page 40801]]

notice is hereby given that, on (date), the Investors Exchange LLC 
(``IEX'' or the ``Exchange'') 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 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to modify its Fee Schedule, pursuant to IEX Rule 15.110(a) and 
(c), to increase the Spread-Crossing Eligible Remove Fee to $0.0009 per 
share for executions at or above $1.00 that remove non-displayed 
liquidity. Changes to the Fee Schedule pursuant to this proposal are 
effective upon filing and will be operative on August 1, 2018.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.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

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

1. Purpose
    The Exchange proposes to modify its Fee Schedule, pursuant to IEX 
Rule 15.110(a) and (c), to increase the Spread-Crossing Eligible Remove 
Fee to $0.0009 per share for executions at or above $1.00. The proposed 
change eliminates the pricing incentive for removing non-displayed 
liquidity at or above $1.00 with a spread-crossing eligible order, as 
such execution will be subject to a fee of $0.0009. On May 1, 2018, the 
Exchange filed an immediately effective rule filing to introduce a more 
deterministic fee of $0.0003 per share for executions at or above $1.00 
that result from removing liquidity with an order that is executable at 
the far side of the NBBO after accounting for the order's limit (if 
any), peg instruction (if any), market conditions, and all applicable 
rules and regulations (the ``Spread-Crossing Eligible Remove Fee'' 
incentive).\6\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 83147 (May 1, 2018), 
83 FR 20118 (May 7, 2018) (SR-IEX-2018-9) [sic].
---------------------------------------------------------------------------

    As discussed in the rule filing to adopt the Spread-Crossing 
Eligible Remove Fee,\7\ the intended purpose of the fee was to 
incentivize Members to route more orders to the Exchange that are 
executable at the far side of the NBBO by reducing the variability in 
fees to access liquidity on the Exchange. However, the Exchange has 
observed over time that the Spread-Crossing Eligible Remove Fee 
incentive has not served its intended purposes. Specifically, the 
Exchange has not seen any notable increase in spread-crossing orders 
\8\ entered on the Exchange since the operative date of the Spread-
Crossing Eligible Remove Fee incentive on May 1, 2018. In fact, the 
average monthly percentage of the Exchange's volume represented by 
executions resulting from spread-crossing orders decreased from 22.8% 
in May, to 21.6% in June of 2018. Accordingly, the Exchange is 
proposing to eliminate the Spread-Crossing Eligible Remove Fee 
incentive for interacting with resting non-displayed interest by 
increasing the fee to $0.0009.\9\
---------------------------------------------------------------------------

    \7\ Id.
    \8\ The Exchange defines ``spread-crossing eligible order'' as a 
buy order that is executable at the NBO or a sell order that is 
executable at the NBB after accounting for the order's limit (if 
any), peg instruction (if any), market conditions, and all 
applicable rules and regulations. See the Investors Exchange Fee 
Schedule, available on the Exchange public website.
    \9\ Consistent with the Exchange's existing Fee Schedule, the 
fee for executions below $1.00 will be 0.30% of the total dollar 
value of the transaction.
---------------------------------------------------------------------------

    As a result of the proposed change, the following fees will be 
increasing to $0.0009 from $0.0003 for executions at or above $1.00 
that result from removing non-displayed liquidity with a spread-
crossing eligible order. All other fees shall remain unchanged.

------------------------------------------------------------------------
         Fee codes                   Description                Fee
------------------------------------------------------------------------
IN.........................  Removes non-displayed               $0.0009
                              liquidity with a spread-
                              crossing eligible order.
IQN........................  Removes non-displayed           \10\ 0.0009
                              liquidity during periods
                              of quote instability with
                              a spread-crossing eligible
                              order.
------------------------------------------------------------------------

2. Statutory Basis
---------------------------------------------------------------------------

    \10\ The Exchange notes that, consistent with the existing Fee 
Schedule, executions with Fee Code Q that exceed the CQRF Threshold 
are subject to the Crumbling Quote Remove Fee identified in the Fee 
Code Modifiers table. Executions with Fee Code Q that do not exceed 
the CQRF Threshold are subject to the fees identified in the Fee 
Codes and Associated Fees table. See the Investors Exchange Fee 
Schedule, available on the Exchange public website.
---------------------------------------------------------------------------

    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \11\ of the Act in general, and furthers the 
objectives of Sections 6(b)(4) \12\ of the Act, in particular, in that 
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 that the proposed fee change is 
reasonable, fair and equitable, and non-discriminatory. The Exchange 
believes the proposal to eliminate the Spread-Crossing Eligible Remove 
Fee incentive is reasonable because, as discussed above, the fee 
incentive has not been successful in achieving its intended purpose of 
incentivizing Members to route more orders to the Exchange that are 
executable at the far side of the NBBO. The Exchange has limited 
resources available to it to devote to the operation of pricing 
incentives and as such, it is reasonable and equitable for the Exchange 
to reallocate those resources away from programs that are ineffective. 
The proposed change is also equitable and not unfairly discriminatory 
because the Spread-Crossing Eligible Remove Fee incentive for 
executions against resting non-displayed interest will be eliminated 
for all Members, as the increased fee will be charged to all Members 
that remove non-displayed liquidity with a spread-crossing eligible 
order.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange notes that as proposed, spread-crossing orders that 
remove displayed liquidity will be charged a lower fee than if such 
orders had removed non-displayed liquidity. However, the Exchange 
believes the proposal remains reasonable, equitable, and not unfairly 
discriminatory because spread-crossing orders may interact with non-
displayed interest resting

[[Page 40802]]

within the spread, thereby receiving price improvement equal to the 
delta between the execution price and the far side quotation (i.e., the 
difference between the trade price and the NBO (NBB) for buy (sell) 
orders). Accordingly, the Exchange believes that spread-crossing orders 
removing non-displayed liquidity receive a significant benefit in the 
form of potential price improvement, and are thus not subject to 
unfairly discriminatory fees.
    Moreover, the Exchange notes that the proposed fee for spread-
crossing eligible orders that remove liquidity is identical to the fee 
assessed by the Exchange prior to the introduction of the Spread-
Crossing Eligible Remove Fee, pursuant to the IEX Fee Schedule that was 
filed with the Commission pursuant to the Act.\13\ Thus, the Exchange 
believe the proposed change does not present any unique or novel issues 
under the Act that have not already been considered by the Commission.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 80453 (April 13, 
2017), 82 FR 18503 (April 19, 2017) (SR-IEX-2016-09).
---------------------------------------------------------------------------

    The Exchange further believes the proposed increase in the Spread-
Crossing Remove Fee to $0.0009 from $0.0003 is reasonable in that is 
within the range of transaction fees currently charged by the 
Exchange,\14\ and continues to be substantially lower than the fee for 
removing liquidity on competing exchanges with a ``maker-taker'' fee 
structure (i.e., that provide a rebate to liquidity adders and charge 
liquidity removers).\15\
---------------------------------------------------------------------------

    \14\ For example, the proposed Spread-Crossing Remove Fee is 
equal to the Non-Displayed Match Fee. See the Investors Exchange Fee 
Schedule, available on the Exchange public website.
    \15\ See e.g., the New York Stock Exchange (``NYSE'') trading 
fee schedule on its public website reflects fees to ``take'' 
liquidity ranging from $0.0024-$0.0030 depending on the type of 
market participant, order and execution; the Nasdaq Stock Market 
(``Nasdaq'') trading fee schedule on its public website reflects 
fees to ``remove'' liquidity ranging from $0.0025-$0.0030 per share 
for shares executed in continuous trading at or above $1.00 or 0.30% 
of total dollar volume for shares executed below $1.00; the Cboe BZX 
Exchange (``Cboe BZX) trading fee schedule on its public website 
reflects fees for ``removing'' liquidity ranging from $0.0025-
$0.0030, for shares executed in continuous trading at or above $1.00 
or 0.30% of total dollar volume for shares executed below $1.00.
---------------------------------------------------------------------------

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 not necessary or appropriate in 
furtherance of the purposes of the Act. With regard to intra-market 
competition, the Exchange notes that the increased fee will be charged 
to all Members that remove non-displayed liquidity with a spread-
crossing eligible order, and thus there will be no competitive burdens 
placed on Members as a result of the proposed change. With regard to 
inter-market competition, the Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive. In such an environment, the Exchange must continually 
adjust its fees to remain competitive with other exchanges and 
alternative trading systems. Because competitors are free to modify 
their own fees in response, and because market participants may readily 
adjust their order routing practices, the Exchange believes that the 
degree to which fee changes in this market may impose any burden on 
competition is extremely limited.
    Moreover, trading venues are free to adjust their fees and credits 
in response to any changes that the Exchange makes to its fees and 
credits. If any of the changes proposed herein are unattractive to 
market participants, it is likely that the Exchange will lose market 
share as a result. Accordingly, the Exchange does not believe that the 
proposed changes will impair the ability of members or competing order 
execution 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

    Written comments were neither solicited nor 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 \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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-IEX-2018-17 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-IEX-2018-17. 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. All submissions should refer to 
File Number SR-IEX-2018-17 and should be submitted on or before 
September 6, 2018.

[[Page 40803]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2018-17628 Filed 8-15-18; 8:45 am]
 BILLING CODE 8011-01-P