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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES1

2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6b of the Act,15 in general, and furthers the objectives of Sections 6b4 and 5 of the Act,16 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers.
The Proposed Fee Change Is Reasonable As discussed above, the Exchange operates in a highly fragmented and competitive market. 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. 17
The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue to reduce use of certain categories of products, in response to fee changes.
With respect to Retail Orders, ETP
Holders can choose from any one of the 16 currently operating registered exchanges, and numerous off-exchange venues, to route such order flow.
Accordingly, competitive forces reasonably constrain exchange transaction fees that relate to Retail Orders on an exchange. Stated otherwise, changes to exchange transaction fees can have a direct effect on the ability of an exchange to compete for order flow.
In particular, the Exchange believes that the proposed elimination of credits is reasonable because the Exchange has determined to no longer provide credits for Retail Orders that are internalized.
With this proposed rule change, the Exchange is eliminating credits only for a subset of Retail Orders, i.e., orders that are internalized. The Exchange currently provides credits for Retail Orders that provide liquidity that other market participants can interact with.
U.S.C. 78fb.
U.S.C. 78fb4 and 5.
17 See Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005.

Retail Orders that are internalized, on the other hand, do not share that characteristic and therefore, the Exchange has determined not to provide credits for such orders. The Exchange notes that market participants are free to shift their order flow to competing venues if they believe other markets offer more favorable fees and credits.
Additionally, the proposed rule change would apply only to a subset of Retail Orders directed to the Exchange by ETP
Holders, i.e., those that share the same MPID and that add and remove retail liquidity. All other Retail Orders would continue to be subject to current fees and credits.
The Exchange believes it is reasonable to no longer provide credits for certain types of orders transacted on the Exchange because the Exchange is not required to provide such credits. As noted above, the Exchange believes that it is reasonable to eliminate credits for Retail Orders that are internalized because the pricing incentive currently in place is intended to attract liquidity that other market participants can interact with. The Exchange is not required to provide credits for activity that it believes does not accrue liquidity on the Exchange for the benefit of other market participants. The Exchange notes that other markets have utilized a similar basis for eliminating rebates. In particular, Cboe BZX Exchange, Inc.
BZX recently eliminated the rebate applied to orders in securities priced below $1.00 because, as BZX noted, it no longer wishes to, nor is it required to, provide such a rebate. 18
The Exchange believes that, despite the removal of the credits, ETP Holders may continue to direct orders to the Exchange that may otherwise be internalized off-exchange, which would contribute to a deeper, more liquid market and provide even more execution opportunities for market participants.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits The Exchange believes the proposal is an equitable allocation of fees among its market participants because all ETP
Holders that participate on the Exchange will be able to internalize their Retail Orders on the Exchange at no cost, i.e., they would not receive any credit or pay any fee for the execution of Retail Orders that are internalized.
Notwithstanding the elimination of credits for Retail Orders that are internalized under Retail Order Step-Up
Tiers 13, the Exchange believes it would continue to be an attractive venue for ETP Holders because they would still be able to execute Retail Orders that are internalized at no cost.
However, without having a view of ETP
Holders activity on other markets and off-exchange venues, the Exchange has no way of knowing whether the Exchanges current fee structure would result in any ETP Holder sending their Retail Orders to the Exchange. The Exchange believes that its fee structure for Retail Orders that are not internalized should incentivize ETP
Holders to continue to send such orders to the Exchange. The Exchange cannot predict with certainty how many ETP
Holders would avail themselves of this opportunity but additional Retail Orders would benefit all market participants because it would provide greater execution opportunities on the Exchange.
The Exchange further notes that the market for attracting Retail Orders remains competitive. For example, until recently, CBOE EDGX Equities, Inc.
EDGX charged its members an internalization fee of $0.00050 per share for orders, including Retail Orders, that add liquidity and a fee of $0.00050 per share for orders, including Retail Orders, that remove liquidity if such members did not have an adding ADV
of 10,000,000 shares.19 As a result of the recent EDGX fee change, EDGX now pays a rebate for Retail Orders that ranges between $0.0032 per share and $0.0037 per share. The Exchange believes that its fee structure for Retail Orders that are not internalized or do not qualify for Retail Order Step-Up Tiers 13 should continue to incentivize ETP Holders to send such orders to the Exchange. Specifically, under the Exchanges step up tiers for Retail Orders, ETP Holders can receive more favorable credits that range between $0.0035 per share and $0.0038 per share.
The Exchange believes the proposed change is equitable and not unfairly discriminatory because ETP Holders would continue to not pay any fees for Retail Orders that are internalized.
Further, the Exchange believes the proposed change is equitable and not unfairly discriminatory because it would apply equally to all ETP Holders.
Notwithstanding the elimination of credits for Retail Orders that are internalized under the Retail Order Step-Up Tiers 13, the Exchange believes that its current fee structure,
18 See Securities Exchange Act Release No. 92013
May 25, 2021, 86 FR 29312 June 1, 2021 SR
CboeBZX2021040.

19 See Securities Exchange Act Release No. 92445
July 20, 2021, 86 FR 40097 July 26, 2021 SR
CboeEDGX2021033.

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