2024-18200. Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Related to the Standard Rebate and Volume Tiers

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Securities and Exchange Commission

1. [Release No. 34-100682; File No. SR-CboeEDGA-2024-031]

August 9, 2024.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder,^[2] notice is hereby given that on August 1, 2024, Cboe EDGA Exchange, Inc. (“Exchange” or “EDGA”) 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

Cboe EDGA Exchange, Inc. (the “Exchange” or “EDGA”) proposes to amend its 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. ( print page 66474)

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 equities trading platform (“EDGA Equities”) by: (1) modifying the standard rebate for orders that remove liquidity in securities priced at or above $1.00; (2) modifying certain Add/Remove Volume Tiers; and (3) discontinuing certain Add/Remove Volume Tiers. The Exchange proposes to implement these changes effective August 1, 2024.

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 Securities Exchange Act of 1934 (the “Act”), to which market participants may direct their order flow. Based on publicly available information,^[3] no single registered equities exchange has more than 16% 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. Currently, for orders in securities priced at or above $1.00, the Exchange provides a standard rebate of $0.0014 per share for orders that remove liquidity and assesses a fee of $0.0030 per share for orders that add liquidity.^[4] For orders in securities priced below $1.00, the Exchange does not assess any fees or provide any rebates for orders that add or remove liquidity.^[5] Additionally, in response to the competitive environment, the Exchange also 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 Rates

Currently, the Exchange offers standard rebates to remove liquidity for orders appended with fee codes 6,^[6] BB,^[7] N,^[8] and W.^[9] The Exchange now proposes to revise the standard rebate associated with securities priced at or above $1.00 from $0.00140 per share to $0.00160 per share for orders appended with fee codes 6, BB, N, or W. There is no proposed change in the rebate amount provided for securities priced below $1.00. The purpose of increasing the standard rebate associated with fee codes 6, BB, N, and W in securities priced at or above $1.00 is for business and competitive reasons, as the Exchange believes that increasing such rebate as proposed has the potential to make the Exchange more competitive in attracting orders designed to remove volume. The Exchange notes that the standard rebate remains competitive and continues to be more favorable for Members than the standard rebate provided by competing exchanges.^[10]

Add/Remove Volume Tiers

Under footnote 7 of the Fee Schedule, the Exchange currently offers various Add/Remove Volume Tiers. In particular, the Exchange offers four Add/Remove Volume Tiers that each provide a reduced fee for Members' qualifying orders yielding fee codes 3,^[11] 4,^[12] B,^[13] V,^[14] and Y ^[15] where a Member reaches certain add or remove volume-based criteria.^[16] The Exchange now proposes to modify the criteria associated with Add Volume Tier 2. The current criteria for Add Volume Tier 2 is as follows:

• Add Volume Tier 2 provides a reduced fee of $0.0016 per share for securities priced at or above $1.00 to qualifying orders (i.e., orders yielding fee codes 3, 4, B, V, or Y) where a Member adds or removes an ADV ^[17] ≥0.50% of the TCV ^[18] or Members adds or removes an ADV ≥52,000,000.

The proposed criteria for Add Volume Tier 2 is as follows:

• Add Volume Tier 2 provides a reduced fee of $0.0016 per share for securities priced at or above $1.00 to qualifying orders (i.e., orders yielding fee codes 3, 4, B, V, or Y) where a Member adds or removes an ADV ≥0.35% of the TCV or Member adds or removes an ADV ≥35,000,000.

Additionally, under footnote 7, the Exchange offers three Add/Remove Volume Tiers that each provide an enhanced rebate for Members' qualifying orders yielding fee codes N, W, 6 and BB where a Member reaches certain add or remove volume-based criteria.^[19] The Exchange now proposes to modify the enhanced rebate associated with Remove Volume Tier 1. Currently, the Exchange provides an enhanced rebate of $0.0018 per share for securities priced at or above $1.00 to qualifying orders ( i.e., orders yielding fee codes N, W, 6 and BB) that satisfy the criteria of Remove Volume Tier 1. The Exchange proposes to increase the enhanced rebate from $0.0018 to $0.0020 per share for securities priced at or above $1.00 to qualifying orders ( i.e., orders yielding fee codes N, W, 6 and BB) that satisfy the criteria of Remove Volume Tier 1. This change is being made for business and competitive reasons, as the Exchange believes that ( print page 66475) increasing the enhanced rebate as proposed could make the Exchange more competitive in attracting orders that remove volume in a manner consistent with the Exchange's overall pricing philosophy of encouraging added liquidity. The Exchange does not propose to modify the criteria associated with Remove Volume Tier 1. Additionally, the Exchange proposes to discontinue Remove Volume Tiers 2-3 as the Exchange no longer wishes to, nor is required to, maintain such tiers. More specifically, the proposed change removes these tiers as the Exchange would rather redirect future resources and funding into other programs and tiers intended to incentivize increased order flow.

The Exchange believes that the proposed modification to Add Volume Tier 2 and the proposed increase to the enhanced rebate associated with Remove Volume Tier 1 will incentivize Members to add volume to and remove volume from the Exchange, thereby contributing to a deeper and more liquid market, which benefits all market participants and provides greater execution opportunities on the Exchange. While the proposed criteria of Add Volume Tier 2 is slightly easier to achieve than the current criteria, the Exchange believes that the criteria continues to be commensurate with the reduced fees offered by the Exchange, is a reflection of current market trends, and will continue to encourage Members to submit order flow to the Exchange. Similarly, the Exchange believes that the proposed increased enhanced rebate remains commensurate with the existing criteria for Remove Volume Tier 1 and will encourage Members to submit liquidity-removing orders to the Exchange.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.^[20] Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) ^[21] 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. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) ^[22] requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers as well as Section 6(b)(4) ^[23] 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.

As described above, 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 Exchange believes that its proposal to: (1) modify the standard rebate for orders that remove liquidity in securities priced at or above $1.00 and (2) modify certain Add/Remove Volume tiers 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.

Specifically, the Exchange's proposal to modify Add Volume Tier 2 is not a significant departure from existing criteria, is reasonably correlated to the reduced fees offered by the Exchange and other competing exchanges,^[24] and will continue to incentivize Members to submit order flow to the Exchange. The criteria proposed by the Exchange is intended to reflect current market trends while continuing to encourage Members to submit order flow to the Exchange. Further, the Exchange's proposal to modify the enhanced rebate associated with Remove Volume Tier 1 is not a significant departure from existing enhanced rebates, is reasonably correlated to the enhanced rebates offered by the Exchange and other competing exchanges,^[25] and will continue to incentivize Members to submit order flow to the Exchange. Additionally, the Exchange notes that relative volume-based incentives and discounts have been widely adopted by exchanges,^[26] including the Exchange,^[27] and are reasonable, equitable and non-discriminatory 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 to an exchange's market quality and (ii) associated higher levels of market activity, such as higher levels of liquidity provision and/or growth patterns. Competing equity exchanges offer similar tiered pricing structures, including schedules of rebates and fees that apply based upon members achieving certain volume and/or growth thresholds, as well as assess similar fees or rebates for similar types of orders, to that of the Exchange.

In particular, the Exchange believes its proposal to modify Add Volume Tier 2 and Remove Volume Tier 1 is reasonable because the tiers will be available to all Members and provide all Members with an opportunity to receive a reduced fee or increased enhanced rebate. The Exchange further believes that modified Add Volume Tier 2 and Remove Volume Tier 1 will provide a reasonable means to encourage adding liquidity to and removing liquidity from the Exchange and to incentivize Members to continue to provide volume to the Exchange by offering them an additional opportunity to receive a reduced fee or increased enhanced rebate on qualifying orders. An overall increase in activity would deepen the Exchange's liquidity pool, offers additional cost savings, support the quality of price discovery, promote market transparency and improve market quality, for all investors.

Further, the Exchange believes that its proposal to modify the standard rebate associated with securities priced at or above $1.00 is reasonable, equitable, and consistent with the Act because such change is designed to make the Exchange more competitive in attracting orders that remove liquidity. The proposed increased standard rebate of $0.00160 per share is reasonable and appropriate because it remains competitive with the standard rebate offered by other exchanges.^[28] The Exchange further believes that the proposed increase to the standard rebate associated with securities priced at or above $1.00 is not unfairly discriminatory because it applies to all Members equally, in that all Members will receive the higher standard rebate ( print page 66476) upon submitting orders appended with fee codes 6, BB, N, or W.

The Exchange believes that its proposal to eliminate current Remove Volume Tiers 2-3 is reasonable because the Exchange is not required to maintain these tiers nor is it required to provide Members an opportunity to receive enhanced rebates. The Exchange believes its proposal to eliminate these tiers is also equitable and not unfairly discriminatory because it applies to all Members ( i.e., the tiers will not be available for any Member). The Exchange also notes that the proposed rule change to remove these tiers merely results in Members not receiving an enhanced rebate, which, as noted above, the Exchange is not required to offer or maintain. Furthermore, the proposed rule change to eliminate current Remove Volume Tiers 2-3 enables the Exchange to redirect resources and funding into other programs and tiers intended to incentivize increased order flow.

The Exchange believes the proposed modified Add Volume Tier 2 is reasonable as it does not represent a significant departure from the criteria currently offered in the fee schedule. The Exchange also believes that the proposal represents an equitable allocation of fees and rebates and is not unfairly discriminatory because all Members will be eligible for the revised tier and have the opportunity to meet the tier's criteria and receive the corresponding reduced fee if such criteria are met. Without having a view of activity on other markets and off-exchange venues, the Exchange has no way of knowing whether these proposed rule changes would definitely result in any Members qualifying for the new proposed tiers. While the Exchange has no way of predicting with certainty how the proposed changes will impact Member activity, based on the prior month's volume, the Exchange does not anticipate that at any Member will be able to satisfy proposed Add Volume Tier 2. The Exchange also notes that the proposed changes will not adversely impact any Member's ability to qualify for reduced fees or enhanced rebates offered under other tiers. Should a Member not meet the proposed new criteria, the Member will merely not receive that corresponding reduced fee.

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. Rather, as discussed above, the Exchange believes that the proposed changes would encourage the submission of additional order flow to a public exchange, thereby promoting market depth, execution incentives and enhanced execution opportunities, as well as price discovery and transparency for all Members. As a result, the Exchange believes that the proposed changes further the Commission's goal in adopting Regulation NMS of fostering competition among orders, which promotes “more efficient pricing of individual stocks for all types of orders, large and small.”

The Exchange believes the proposed rule changes do not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposed change to Add Volume Tier 2 and proposed increase to the enhanced rebate of Remove Volume Tier 1 will apply to all Members equally in that all Members are eligible for the tiers, have a reasonable opportunity to meet the tiers' criteria and will receive the reduced fee or increased enhanced rebate on their qualifying orders if such criteria are met. The Exchange does not believe the proposed change burdens competition, but rather, enhances competition as it is intended to increase the competitiveness of EDGA by amending existing pricing incentives in order to attract order flow and incentivize participants to increase their participation on the Exchange, providing for additional execution opportunities for market participants and improved price transparency. Greater overall order flow, trading opportunities, and pricing transparency benefits all market participants on the Exchange by enhancing market quality and continuing to encourage Members to send orders, thereby contributing towards a robust and well-balanced market ecosystem.

The Exchange believes the proposed elimination of Remove Volume Tiers 2-3 do not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposed change to eliminate the Remove Volume Tiers 2-3 will not impose any burden on intramarket competition because the changes apply to all Members uniformly, as the tiers will no longer be available to any Member.

Further, the Exchange believes the proposed increased standard rebate associated with orders that remove liquidity in securities priced at or above $1.00 does not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rebate associated with orders that remove liquidity in securities priced at or above $1.00 would apply to all Members equally in that all Members are eligible for the revised standard rebate and all Members would be subject to the same associated rebate for removing liquidity from the Exchange in securities priced at or above $1.00. As a result, any Member can decide to remove liquidity (or not remove liquidity) based on the associated rebate that the Exchange proposes to amend. Additionally, the increased rebate is designed to make the Exchange more competitive by offering an increased rebate to orders that remove liquidity from the Exchange.

Next, the Exchange believes the proposed rule changes do not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes 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 17% of the market share.^[29] 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.” ^[30] 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 ( print page 66477) 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' . . . .”.^[31] Accordingly, the Exchange does not believe its proposed fee change imposes any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

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 ^[32] and paragraph (f) of Rule 19b-4 ^[33] 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.

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 (https://www.sec.gov/​rules/​sro.shtml); or
• Send an email [e-mail]. Please include file number SR-CboeEDGA-2024-031 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-2024-031. 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 ( https://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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-CboeEDGA-2024-031 and should be submitted on or before September 5, 2024.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.^[34]

Vanessa A. Countryman,

Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.   See Cboe Global Markets, U.S. Equities Market Volume Summary, Month-to-Date (July 29, 2024), available at https://www.cboe.com/​us/​equities/​market_​statistics/​.

4.   See EDGA Equities Fee Schedule, Standard Rates.

5.   Id.

6.  Fee code 6 is appended to orders that remove liquidity from EDGA during the pre and post market in securities listed on all tapes.

7.  Fee code BB is appended to orders that remove liquidity from EDGA in Tape B securities.

8.  Fee code N is appended to orders that remove liquidity from EDGA in Tape C securities.

9.  Fee code W is appended to orders that remove liquidity from EDGA in Tape A securities.

10.   See e.g., BYX Equity Fee Schedule, Standard Rates (the standard rebate provided to orders that remove liquidity is $0.00020); Nasdaq BX Fee Schedule (orders that remove liquidity are assessed a fee of $0.0007 unless certain volume thresholds are met).

11.  Fee code 3 is appended to orders that add liquidity to EDGA in the pre and post market in Tape A or Tape C securities.

12.  Fee code 4 is appended to orders that add liquidity to EDGA in the pre and post market in Tape B securities.

13.  Fee code B is appended to orders that add liquidity to EDGA in Tape B securities.

14.  Fee code V is appended to orders that add liquidity to EDGA in Tape A securities.

15.  Fee code Y is appended to orders that add liquidity to EDGA in Tape C securities.

16.  For the sake of clarity with additional proposed changes discussed infra, the Exchange will refer to the Add/Remove Volume Tiers applicable to fee codes 3, 4, B, V, and Y as the “Add Volume Tiers” as Members who satisfy these tiers are assessed a fee to add liquidity to the Exchange.

17.  ADV means average 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.

18.  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.

19.  For the sake of clarity with the proposed changes to the Add Volume Tiers discussed supra, the Exchange will refer to the Add/Remove Volume Tiers applicable to fee codes N, W, 6, and BB as the “Remove Volume Tiers” as Members who satisfy these tiers receive an enhanced rebate for adding liquidity to the Exchange.

20.  15 U.S.C. 78f(b).

21.  15 U.S.C. 78f(b)(5).

22.   Id.

23.  15 U.S.C. 78f(b)(4).

24.   See NYSE National, Inc., Schedule of Fees and Rebates, Rates for Adding Liquidity (Per Share), available at https://www.nyse.com/​publicdocs/​nyse/​regulation/​nyse/​NYSE_​National_​Schedule_​of_​Fees.pdf.

25.   See Nasdaq BX Fee Schedule, Rebate to Remove Liquidity.

26.   See e.g., BYX Equities Fee Schedule, Footnote 1, Add/Remove Volume Tiers.

27.   See e.g., EDGA Equities Fee Schedule, Footnote 7, Add/Remove Volume Tiers.

28.   Supra note 10.

29.   Supra note 3.

30.   See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).

31.   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)).

32.  15 U.S.C. 78s(b)(3)(A).

33.  17 CFR 240.19b-4(f).

34.  17 CFR 200.30-3(a)(12).