Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on May 3, 2021, 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 and II 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 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. 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/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 equities trading platform (“EDGX Equities”) to (1) modify the criteria of certain Non-Displayed Add Volume Tiers, (2) modify and eliminate certain Retail Volume Tiers, and (3) reduce the rate for internalization for Members meeting a certain volume threshold. The Exchange proposes to implement the proposed change to its Fee Schedule on May 3, 2021.

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 Exchange Act, to which market participants may direct their order flow. Based on publicly available information, no single registered equities exchange has more than 15% 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 “Maker-Taker” model whereby it pays rebates to members that add liquidity and assesses fees to those that remove liquidity. The Exchange's Fee Schedule sets forth the standard rebates and rates applied per share for orders that provide and remove liquidity, respectively. 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.

Non-Displayed Add Volume Tiers

Pursuant to footnote 1 of the Fee Schedule, the Exchange offers Non-Displayed Add Volume Tiers that provide an enhanced rebate on Members' orders yielding fee codes “DM”, “HA”, “MM”, and “RP” where a Member reaches certain required volume-based criteria offered in each tier. Specifically, the criteria for Non-Displayed Add Volume Tiers 1 through 3 are as follows:

• Tier 1 provides an enhanced rebated of $0.0015 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.01% of TCV for Non-Displayed orders that yield fee codes DM, HA, “HI”, MM or RP.

• Tier 2 provides an enhanced rebated of $0.0022 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.05% of TCV for Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP.
• Tier 3 provides an enhanced rebated of $0.0025 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.10% of TCV for Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP.

Now, the Exchange is proposing to increase the ADAV thresholds for Non-Displayed Add Volume Tiers 1 and 2 and add alternate criteria for Tiers 1 through 3. Specifically, the proposed criteria for Non-Displayed Add Volume Tiers 1 through 3 are as follows:

• Tier 1 would provide an enhanced rebated of $0.0015 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.05% of TCV for Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP; or a Member has an ADAV greater than or equal to 4,000,000 for Non-Displayed orders that yield fee codes DM, HA, HI, MM, or RP.
• Tier 2 would provide an enhanced rebated of $0.0022 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.08% of TCV for Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP; or a Member has an ADAV greater than or equal to 7,000,000 for Non-Displayed orders that yield fee codes DM, HA, HI, MM, or RP.
• Tier 3 would provide an enhanced rebated of $0.0025 per share on qualifying orders (i.e., orders yielding fee code DM, HA, MM or RP) where a Member has an ADAV greater than or equal to 0.10% of TCV for Non-Displayed orders that yield fee codes DM, HA, HI, MM or RP; or a Member has an ADAV greater than or equal to 9,000,000 for Non-Displayed orders that yield fee codes DM, HA, HI, MM, or RP.

The Exchange notes the Non-Displayed Add Volume Tiers, as modified, continue to be available to all Members and provide Members an opportunity to receive an enhanced rebate, albeit using more stringent criteria. Moreover, the proposed changes are designed to encourage Members to increase non-displayed liquidity on the Exchange, which further contributes to a deeper, more liquid market and provides even more execution opportunities for active market participants at improved prices.

Retail Volume Tiers

Pursuant to footnote 3 of the Fee Schedule, the Exchange currently offers Retail Volume Tiers which provide Retail Member Organizations (“RMOs”) an opportunity to receive an enhanced rebate from the standard rebate for Retail Orders that add liquidity (i.e., yielding fee code “ZA” ). Currently, the Retail Volume Tiers offer four levels of criteria difficulty and incentive opportunities in which RMOs may qualify for enhanced rebates for Retail Orders. The tier structure is designed to encourage RMOs to increase their order flow in order to receive an enhanced rebate on their liquidity adding orders, and the Exchange now proposes to amend existing Retail Volume Tier 2. The current Retail Volume Tier 2 provides an enhanced rebate of $0.0036 per share to Members that add a Retail Order ADV (i.e., yielding fee code ZA) equal to or greater than 0.60% of the TCV. Now, the Exchange proposes to increase the rebate to $0.0037 and lessen the Retail Order ADV threshold to 0.45%. Thus, the proposed Retail Volume Tier 2 would provide an enhanced rebate of $0.0037 per share to Members that add a Retail Order ADV (i.e., yielding fee code ZA) equal to or greater than 0.45% of the TCV.

The Exchange also proposes to eliminate Retail Volume Tier 4 as the Exchange no longer wishes to, nor is it required to, maintain such a tier. Further, the Exchange would rather redirect resources to proposed Retail Volume Tier 2, which is intended to incentivize increased order flow.

Internalization Rate

The Exchange proposes to amend footnote 7, which provides a reduced fee for internalization (i.e., orders yielding fee codes “EA” or “ER” ). An internalized trade is a trade where the two orders inadvertently match against each other and share the same Market Participant Identifier (“MPID”). Internalized trades (i.e., orders yielding fee codes EA or ER) are charged a standard fee of $0.00050 in securities priced at or above $1.00 and 0.15% of the dollar value in securities priced below $1.00. Currently, footnote 7 provides a reduced fee of $0.0001 per share per side for orders yielding fee code EA or ER to Members that add an ADV of at least 10,000,000 shares. Now, the Exchange proposes to eliminate the fee for internalized trades meeting the criteria provided under footnote 7. Specifically, as proposed, footnote 7 would provide that if a Member adds an ADV of at least 10,000,000 shares, then the Member's rate for internalization (fee codes EA or ER) decreases to Free per share per side, for securities priced at, above, or below $1.00. The Exchange believes the proposal is reasonable as it is designed to incentivize Members (and their customers) to send orders to the Exchange that may otherwise be internalized off exchange, which further contributes to a deeper, more liquid market and provide even more execution opportunities for active market participants at improved prices. This overall increase in activity deepens the Exchange's liquidity pool, offers additional cost savings, supports the quality of price discovery, promotes market transparency and improves market quality, for all investors.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act, in general, and furthers the objectives of Section 6(b)(4) and 6(b)(5), in particular, as it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its Members, issuers and other persons using its facilities.

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 proposed rule changes reflect 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. The Exchange notes that relative volume-based incentives and discounts have been widely adopted by exchanges, including the Exchange, 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.

The Exchange believes the proposed Non-Displayed Add Volume Tiers are reasonable because each tier continues to be available to all Members and provide Members an opportunity to receive an enhanced rebate, even as modified. Additionally, as noted above, the Exchange operates in a highly competitive market. The Exchange is only one of several equity venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. It is also only one of several maker-taker exchanges. Competing equity exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon members achieving certain volume thresholds. These competing pricing schedules, moreover, are presently comparable to those that the Exchange provides, including the pricing of comparable tiers.

The Exchange also believes that the current enhanced rebates under Non-Displayed Add Volume Tiers 1 through 3 continue to be commensurate with the proposed criteria. That is, the enhanced rebates reasonably reflect the difficulty in achieving the corresponding criteria as amended. Also, the Exchange's affiliated equities exchange, Cboe BZX Exchange, Inc. (“BZX”), currently has Non-Displayed Volume Tiers in place, which offer similar enhanced rebates and corresponding criteria.

Overall, the Exchange believes that the proposed changes to the Non-Displayed Add Volume Tiers, each based on a Member's liquidity adding orders, will benefit all market participants by incentivizing continuous liquidity and, thus, deeper more liquid markets as well as increased execution opportunities. Particularly, the proposed changes to the Non-Displayed Add Volume Tiers are designed to incentivize non-displayed liquidity, which further contributes to a deeper, more liquid market and provide even more execution opportunities for active market participants at improved prices. This overall increase in activity deepens the Exchange's liquidity pool, offers additional cost savings, supports the quality of price discovery, promotes market transparency and improves market quality, for all investors.

The Exchange also believes that the proposal represents an equitable allocation of fees and rebates and is not unfairly discriminatory because all Members are eligible for Non-Displayed Add Volume Tiers and would have the opportunity to meet the tiers' criteria and would receive the applicable rebate if such criteria is met. Without having a view of activity on other markets and off-exchange venues, the Exchange has no way of knowing whether this proposed rule change would definitely result in any Members qualifying for the proposed tiers. While the Exchange has no way of predicting with certainty how the proposed tier will impact Member activity, the Exchange anticipates that approximately 2 Members will be able to satisfy Non-Displayed Tier 1, 2 Members will be able to satisfy Non-Displayed Tier 2, and 1 Member will be able to satisfy Non-Displayed Tier 3. The Exchange also notes that proposed tiers will not adversely impact any Member's ability to qualify for other reduced fee or enhanced rebate tiers. Should a Member not meet the proposed criteria under any of the proposed tiers, the Member will merely not receive that corresponding enhanced rebate.

The Exchange believes the proposal to amend Retail Volume Tier 2 is reasonable because the tier, as modified continues to be available to all RMOs and provide RMOs an opportunity to receive an enhanced rebate using less stringent criteria. The Exchange also believes that the proposed enhanced rebate under Retail Volume Tier 2 is reasonable as it's in line with existing rebates under the Retail Volume Tiers and is commensurate with the proposed amended criteria. That is, the rebate reasonably reflects the difficulty in achieving the corresponding criteria as amended.

The Exchange believes that the proposal relating to the Retail Volume Tier 2 also represents an equitable allocation of rebates and is not unfairly discriminatory because all RMOs will continue to be eligible for the Retail Volume Tier. The proposed changes are designed as an incentive to any and all RMOs interested in meeting the tier criteria, as amended, to submit additional adding and/or removing, or Retail, order flow to the Exchange. The Exchange notes that greater add volume order flow provides for deeper, more liquid markets and execution opportunities, and greater remove volume order flow increases transactions on the Exchange, which incentivizes liquidity providers to submit additional liquidity and execution opportunities, thus, providing an overall increase in price discovery and transparency on the Exchange. Also, an increase in Retail Order flow, which orders are generally submitted in smaller sizes, tends to attract Market Makers, as smaller size orders are easier to hedge. Increased Market Maker activity facilitates tighter spreads, signaling an additional corresponding increase in order flow from other market participants, which contributes towards a robust, well-balanced market ecosystem. Increased overall order flow benefits all investors by deepening the Exchange's liquidity pool, potentially providing even greater execution incentives and opportunities, offering additional flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection. The Exchange also notes all RMOs will continue to have the opportunity to submit the requisite order flow and will receive the applicable enhanced rebate if the tier criteria is met. The Exchange additionally notes that while the Retail Volume Tiers are applicable only to RMOs, the Exchange does not believe this application is discriminatory as the Exchange offers similar rebates to non-RMO order flow.

Without having a view of activity on other markets and off-exchange venues, the Exchange has no way of knowing whether this proposed rule change would definitely result in any RMOs qualifying for the proposed amended tier. The Exchange notes that most recently, no Member has satisfied Retail Volume Tier 2. While the Exchange has no way of predicting with certainty how the proposed tier will impact Member activity, the Exchange anticipates that at least three Members will be able to satisfy Retail Volume Tier 2 (as amended). The Exchange also notes that the proposed amended tier will not adversely impact any RMO's ability to qualify for other rebate tiers. Rather, should an RMO not meet the criteria for Retail Volume Tier 2, as amended, the RMO will merely not receive the corresponding proposed enhanced rebate. Furthermore, the rebates under each Retail Volume Tiers would uniformly apply to all RMOs that meet the required criteria.

The Exchange also believes the proposed rule change to remove Retail Volume Tier 4 is reasonable because the Exchange no longer wishes to, nor is it required to, maintain such a tier. Further, the Exchange would rather redirect resources to proposed Retail Volume Tier 2, which is intended to incentivize increased order flow. The Exchange believes that the proposed elimination of Retail Volume Tier 4 is equitable and not unfairly discriminatory as it applies equally to all Members. Additionally, as noted above, the Exchange operates in a highly competitive market. The Exchange is only one of several equity venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. It is also only one of several maker-taker exchanges. Competing equity exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon members achieving certain volume thresholds. These competing pricing schedules, moreover, are presently comparable to those that the Exchange provides, including the pricing of comparable tiers.

The Exchange believes the proposal to eliminate the fee for internalized trades meeting the required volume threshold is reasonable and equitable because the incentive would be available to all Members and Members would not be subject to any fee for such transactions. Without having a view of activity on other markets and off-exchange venues, the Exchange has no way of knowing whether this proposed rule change would definitely result in any Members qualifying for the eliminated fee. While the Exchange has no way of predicting with certainty how the proposed change will impact Member activity, in the most recent month 10 Members satisfied the internalization volume threshold and the Exchange anticipates that approximately 10 Members will continue to be able to satisfy the internalization volume threshold. The Exchange also notes that proposal to eliminate the fee will not adversely impact any Member's ability to qualify for other reduced fees or enhanced rebate tiers. Should a Member not meet the proposed criteria, the Member will merely not receive the reduced fee.

Additionally, as noted above, the Exchange operates in a highly competitive market. The Exchange is only one of several equity venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. Furthermore, competing pricing schedules are presently comparable to those that the Exchange provides, including the pricing of internalized trades. The Exchange believes the proposal is reasonable as it is designed to incentivize Members (and their customers) to send orders to the Exchange that may otherwise be internalized off exchange, which further contributes to a deeper, more liquid market and provide even more execution opportunities for active market participants at improved prices. This overall increase in activity deepens the Exchange's liquidity pool, offers additional cost savings, supports the quality of price discovery, promotes market transparency and improves market quality, for all investors.

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

The Exchange does not believe that the proposed rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Rather, as discussed above, the Exchange believes that the proposed change 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 change furthers 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 change does not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposed changes to the Non-Displayed Add Volume Tiers applies to all Members equally in that all Members are eligible for these tiers, have a reasonable opportunity to meet the tiers' criteria and will receive the enhanced rebates if such criteria is met. Similarly, the proposed changes to the Retail Volume Tiers apply to all RMOs equally in that all RMOs are eligible for those tiers, have a reasonable opportunity to meet the tiers' criteria and will receive the enhanced rebates if such criteria are met. The proposed change to the internalization rate under footnote 7 also applies to all Members equally in that all Members are eligible for the reduced fee, have a reasonable opportunity to meet the volume thresholds, and will receive the eliminated fee if such criteria is met.

Additionally, the proposed tiers and eliminated fees are designed to attract additional order flow to the Exchange. The Exchange believes that the updated criteria would incentivize market participants to direct liquidity adding and/or removing order flow to the Exchange, bringing with it 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.

Next, the Exchange believes the proposed rule change does 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 15% of the market share. 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.” 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 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'. . . .”. 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)(ii) of the Act.

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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule 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 ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-CboeEDGX-2021-026 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-2021-026. 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-2021-026, and should be submitted on or before June 9, 2021.