83 FR 16407 - 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

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 73 (April 16, 2018)

[Federal Register Volume 83, Number 73 (Monday, April 16, 2018)]
[Notices]
[Pages 16407-16409]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-07808]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83026; File No. SR-CboeEDGX-2018-013]


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

April 10, 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 April 2, 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 modify its fee schedule with 
respect to Market Maker Fees on its equity options platform.
    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 the 
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) increase the standard rate 
for Market-Maker orders in Penny-Pilot and Non-Penny Pilot Securities 
that add liquidity, (ii) modify criteria necessary to achieve Market 
Maker Volume Tiers (``Volume Tiers'') 1, 4, 7 and 8, (iii) increase 
rates for Volume Tiers 1, 3, 5, 6, 7, 8 and (iv) eliminate Volume Tier 
2.
    By way of background, fee codes PM and NM are currently appended to 
all Market Maker orders in Penny Pilot Securities and Non-Penny Pilot 
Securities that add liquidity, and result in a standard fee of $0.19 
per contract. The Exchange determines reduced fees or enhanced rebates 
using a tiered pricing structure under the Volume Tiers. Specifically, 
the Volume Tiers in footnote 2 of the Fee Schedule consist of eight 
separate tiers, each providing a reduced fee or rebate to a Member's 
Market Maker order that yields fee codes PM or NM upon satisfying the 
monthly volume criteria required by the respective tier.
Market Maker Standard Fee Increase
    The Exchange first proposes to increase the standard fee of $0.19 
per contract for Market Maker orders in Penny Pilot and Non-Penny Pilot 
Securities that add liquidity to $0.20 per contract. The Exchange notes 
that this increase is in line with the amounts assessed by other 
exchanges for similar transactions.\5\
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    \5\ See e.g., Nasdaq PHLX LLC Pricing Schedule, Section II, 
Multiply Listed Options Fees.
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Market Maker Volume Tier Criteria Modifications
    Pursuant to Volume Tier 1, the lowest volume tier, a Member will 
pay a reduced fee (currently $0.16 per contract) if the Member has an 
ADV \6\ in Market Maker orders equal to or greater than 0.05% of 
average OCV.\7\ Pursuant

[[Page 16408]]

to Volume Tier 4, a Member will pay a reduced fee (currently $0.07 per 
contract) if the Member has an ADV in Market Maker orders equal to or 
greater than 0.40% of average OCV. The Exchange proposes to modify the 
criteria necessary to achieve Volume Tiers 1 and 4 by increasing the 
ADV requirement from 0.05% of average OCV to 0.10% of average OCV and 
from 0.40% to 0.50%, respectively.
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    \6\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \7\ ``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.
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    Pursuant to Volume Tier 7, a Member will currently be charged a 
reduced fee of $0.04 [sic] per contract where the Member has an ADV in: 
(i) Customer orders equal to or greater than 0.15% of average OCV and 
(ii) Customer or Market Maker orders equal to or greater than 0.35% of 
average OCV. The Exchange proposes to amend prongs 1 and 2, as well as 
add new prongs 3 and 4. Particularly, the Exchange proposes to increase 
the ADV requirement in the first prong from greater or equal to 0.15% 
of average OCV to 0.30% of average OCV. The Exchange also proposes to 
increase the threshold in the second prong from greater or equal to 
0.35% of average OCV to 0.50% of average OCV. The Exchange proposes to 
add a third prong which requires that the member have an ADV in BAM 
Agency Orders \8\ equal to or greater than 0.15% of average OCV. 
Lastly, the Exchange proposes to add a fourth prong that requires the 
member to have an ADV in complex Customer orders (yielding fee codes 
ZA, ZB, ZC, or ZD) greater or equal to 5,000 contracts. The Exchange 
notes that the third and fourth prongs are similar to prongs already 
established for Volume Tier 8.
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    \8\ BAM Agency Orders (yielding fee codes BC and BA) are orders 
represented as agent by a Member on behalf of another party and 
submitted to BAM for potential price improvement pursuant to Rule 
21.19. See the Exchange's Fee Schedule available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/.
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    Pursuant to Volume Tier 8, a Member will currently be charged a 
reduced fee of $0.02 per contract where the Member has an ADV in: (i) 
Customer orders equal to or greater than 0.30% of average OCV; (ii) 
Customer or Market Maker orders equal to or greater than 0.50% of 
average OCV; (iii) BAM Agency Orders equal to or greater than 25,000 
contracts; and (iv) complex Customer orders (yielding fee codes ZA, ZB, 
ZC, or ZD) equal to or greater than 5,000 contracts. The Exchange 
proposes to modify each of these criteria as follows: Increase the ADV 
requirement of the first prong to 0.70% of average OCV, increase the 
ADV requirement of the second prong to 1.10% of average OCV; change the 
ADV requirement of the third prong to 0.15% of average OCV; and change 
the ADV requirement of the fourth prong to 0.20% of average OCV. The 
Exchange believes the proposed changes described above will encourage 
the entry of additional orders to the Exchange.
Volume Tier Rate Increases
    The Exchange next proposes to increase the rates set forth in 
Volume Tiers 1, 3, 5, 6, 7, and 8. Specifically, Volume Tier 1 will 
increase from $0.16 per contract to $0.17 per contract; Volume Tier 3 
will increase from $0.10 per contract to $0.13 per contract; Volume 
Tier 5 will increase from $0.02 per contract to $0.03 per contract; 
Volume Tier 6 will increase from a rebate of $0.01 per contract to a 
fee of $0.01 per contract; Volume Tier 7 will increase from $0.03 per 
contract to $0.04 per contract; and Volume Tier 8 will increase from 
$0.02 per contract to $0.03 per contract. The Exchange notes that the 
proposed rates still provide a discount from the standard Market Maker 
PM and NM rate and will continue to provide an incremental incentive 
for Members to strive for the higher tier levels, which provides 
increasingly higher discounts.
Volume Tier 2
    Lastly, the Exchange proposes to eliminate Volume Tier 2 in its 
entirety and renumber the following Volume Tiers accordingly. The 
Exchange is eliminating Volume Tier 2 because it is increasing the ADV 
requirement in Volume Tier 1 and does not believe it's necessary to 
maintain a Tier that is only slightly incrementally higher.
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.\9\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposal to increase the standard fee of 
$0.19 per contract to $0.20 per contract for Market Maker orders in 
Penny Pilot and Non-Penny Pilot Securities that add liquidity is 
reasonable because it is only a $0.01 per contract increase and because 
it is still in line with what other exchanges assess for similar 
transactions.\11\ With respect to the proposed increases to the rates 
in Volume Tiers 1, 3, 5, 6, 7 and 8, the proposed changes are 
reasonable because Market Makers still have the opportunity to receive 
a lower Market Maker fee that the standard rate (albeit less of a 
discount than before). The Exchange also believes the rates will 
continue to provide an incremental incentive for Members to strive for 
higher tier level, which provides increasingly higher discounts. The 
Exchange believes the proposed changes are equitable and 
nondiscriminatory because the proposed changes apply uniformly to all 
Market Makers.
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    \11\ See e.g., Nasdaq PHLX LLC Pricing Schedule, Section II, 
Multiply Listed Options 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 the value of an exchange's market 
quality associated with higher levels of market activity, such as 
higher levels of liquidity provision and/or growth patterns, and 
introduction of higher volumes of orders into the price and volume 
discovery processes. While the proposed modifications to the existing 
Volume Tiers make such tiers more difficult to attain, each is intended 
to incentivize Members to send additional Customer and/or Market Maker 
orders to the Exchange, and in the case of Market Maker Volume Tiers 7 
and 8, also to encourage the submission of BAM Agency Orders and 
complex orders to the Exchange in an effort to qualify or continue to 
qualify for the lower fees made available by the tiers. The Exchange 
notes that increased volume on the Exchange provides greater trading 
opportunities for all market participants.
    Lastly, the Exchange believes it's reasonable to eliminate Volume 
Tier 2 because it is increasing the ADV requirement in Volume Tier 1 
and does not believe it's necessary to maintain a Tier that is only 
slightly incrementally higher. Additionally, the Exchange notes that it 
will still provide opportunities for Market Makers to receive lower 
fees as it is keeping the remaining tiers.

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

    The Exchange believes the proposed amendments to its fee schedule 
would

[[Page 16409]]

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 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 \12\ and paragraph (f) of Rule 19b-4 
thereunder.\13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-2018-013 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-2018-013. 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-2018-013, and should be 
submitted on or before May 7, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07808 Filed 4-13-18; 8:45 am]
 BILLING CODE 8011-01-P