[Federal Register: December 8, 2006 (Volume 71, Number 236)]
[Notices]
[Page 71201-71206]
[DOCID:fr08de06-141]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54851; File No. SR-Amex-2006-48]

Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval to Proposed
Rule Change and Amendment No. 1 Thereto Modifying the Exchange's
Independent Director and Audit Committee Corporate Governance Standards

November 30, 2006.
    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 May 17, 2006, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
Amex filed Amendment No. 1 with the Commission on September 25,
2006.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons and to
approve the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing
in its entirety. Amendment No. 1 clarified certain details of the
Exchange's initial proposal, and conformed it with recent revisions
to the corporate governance standards of The NASDAQ Stock Market LLC
(``Nasdaq''). See Securities Exchange Act Release No. 54583 (October
6, 2006), 71 FR 60782 (October 16, 2006) (approving SR-NASDAQ-2006-
021) (``Nasdaq Corporate Governance Order'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Section 121 of the Amex Company
Guide (``Company Guide'') to clarify and modify certain corporate
governance standards applicable to companies listed on the Amex,
including the definition of ``independent director,'' and audit
committee requirements. The text of the proposed rule change is
below.\4\ Proposed new language is in italics; proposed deletions are
in [brackets].
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    \4\ With the Exchange's consent, a few technical spacing changes
have been made to the text of the proposed rule change. Telephone
conversation between Kristie Diemer, Special Counsel, Division of
Market Regulation, Commission and Courtney McBride, Assistant
General Counsel, Amex.
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* * * * *

Company Guide

Independent Directors and Audit Committee

Sec. 121. A. Independent Directors:

    (1) Each [listed company] issuer must have a sufficient number of
independent directors on its [B]board of [D]directors [(1)] (a) such
that at least a majority of such directors are independent directors
(subject to the exceptions set forth in Section 801 and, with respect
to small business issuers, Section 121B(2)(c)), and [(2)] (b) to
satisfy the audit committee requirement set forth below.
    (2) ``Independent director'' means a person other than an executive
officer or employee of the company [or any parent or subsidiary]. No
director qualifies as independent unless the issuer's [B]board of
[D]directors affirmatively determines that the director does not have a
[material] relationship [with the listed company] that would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director. In addition to the requirements
contained in this Section 121A, directors serving on[,] audit
committees [members] must also comply with the additional, more
stringent requirements set forth in Section [paragraph] 121B(2) below.
The following is a non-exclusive list of persons who shall not be
considered independent:
    (a) a director who is, or during the past three years was, employed
by the company [or by any parent or subsidiary of the company], other
than prior employment as an interim executive officer [Chairman or
CEO*] (provided the interim employment did not last longer than one
year) (See Commentary .08);
    (b) a director who accepted[s] or has an immediate family member
who accepted[s] any [payments] compensation from the company [or any
parent or subsidiary of the company] in excess of $60,000 during any
period of twelve consecutive months within the three years preceding
the determination of independence [the current or any of the past three
fiscal years], other than the following:
    [(1)] (i) compensation for board or board committee service,
    [(2) payments arising solely from investments in the company's
securities,
    (3)] (ii) compensation paid to an immediate family member who is [a
non-executive] an employee (other than an executive officer) of the
company [or of a parent or subsidiary of the company],
    [(4)] (iii) compensation received for former service as an interim
executive officer [Chairman or CEO] (provided the interim employment
did not last longer than one year) (See Commentary .08), or
    [(5)] (iv) benefits under a tax-qualified retirement plan, or [(6)]
non-discretionary compensation;[,]
    [(7) loans permitted under Section 13(k) of the Exchange Act
    (8) loans from a financial institution provided that the loans (i)
Were made in the ordinary course of business, (ii) were made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with the
general public, (iii) did not involve more than a normal degree of risk
or other unfavorable factors, and (iv) were not otherwise subject to
the specific disclosure requirements of SEC Regulation S-K, Item 404,
or
    (9) payments from a financial institution in connection with the
deposit of funds or the financial institution acting in an agency
capacity, provided such payments were (i) Made in the ordinary course
of business, (ii) made on substantially the same terms as those
prevailing at the time for comparable transactions with the general
public, and (iii) not otherwise subject to the disclosure requirements
of SEC Regulation S-K, Item 404.*]
    (c) a director who is an immediate family member of an individual
who is, or at any time during [has been in any of] the past three years
was, employed by the company [or any parent or subsidiary of the
company] as an executive officer;[*]
    (d) a director who is, or has an immediate family member who is, a

partner in, or a controlling shareholder or an executive officer of,
any organization to which the company made, or from which the company
received, payments (other than those arising solely from investments in
the company's securities or payments under non-discretionary charitable
contribution matching programs) that exceed 5% of the organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the most recent three fiscal years;[*]
    (e) a director [of the listed company] who is, or has an immediate
family member who is, employed as an executive officer of another
entity where at any time during the most recent three fiscal years any
of the [listed company's] issuer's executive officers serve on [that
entity's] the compensation committee of such other entity;[*] or
    (f) a director who is, or has an immediate family member who is, a
current partner of the company's outside auditor, or was a partner or
employee of the company's outside auditor who worked on the company's
audit at any time during any of the past three years.[*]
    [(g)] (3)[i]In the case of an investment company, in lieu of
[paragraphs] Sections 121A(2)(a) through (f), a director who is an
``interested person'' of the investment company as defined in Section
2(a)(19) of the Investment Company Act of 1940, other than in his or
her capacity as a member of the board of directors or any board
committee.

B. Audit Committee

(1) Charter
    Each [I]issuer must certify that it has adopted a formal written
audit committee charter and that the [A]audit [C]committee has reviewed
and reassessed the adequacy of the formal written charter on an annual
basis. The charter must specify the following:
    [(i)](a) the scope of the audit committee's responsibilities, and
how it carries out those responsibilities, including structure,
processes, and membership requirements;
    [(ii)](b) the audit committee's responsibility for ensuring its
receipt from the outside auditors of a formal written statement
delineating all relationships between the auditor and the [company]
issuer, consistent with Independence Standards Board Standard 1, and
the audit committee's responsibility for actively engaging in a
dialogue with the auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence of the
auditor and for taking, or recommending that the full board take,
appropriate action to oversee the independence of the outside auditor;
[and]
    [(iii)](c) the audit committee's purpose of overseeing the
accounting and financial reporting processes of the issuer and the
audits of the financial statements of the issuer; and
    [(iv)](d) the specific audit committee responsibilities and
authority set forth in [paragraph (4) of this subs]Section 121B(4).
(2) Composition
    (a) Each issuer must have, and certify that it has and will
continue to have, an [A]audit [C]committee of at least three members,
each of whom:
    (i) satisfies the independence standards specified in Section 121A
and Rule 10A-3 under the Securities Exchange Act of 1934; [and]
    (ii) must not have participated in the preparation of the financial
statements of the issuer or any current subsidiary of the issuer at any
time during the past three years; and
    (iii) is able to read and understand fundamental financial
statements, including a company's balance sheet, income statement, and
cash flow statement. Additionally, each issuer must certify that it
has, and will continue to have, at least one member of the audit
committee who is financially sophisticated, in that he or she has past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication,
including but not limited to being or having been a chief executive
officer, chief financial officer, other senior officer with financial
oversight responsibilities. A director who qualifies as an audit
committee financial expert under Item 401(h) of Regulation S-K, Item
401(e) of Regulation S-B or Item 3 of Form N-CSR (in the case of a
registered management investment company) is presumed to qualify as
financially sophisticated.
    (b) Notwithstanding [paragraph] Section 121B(2)(a), one director
who is not independent as defined in Section 121A, but who satisfies
the requirements of Rule 10A-3 under the Securities Exchange Act of
1934 (see [sub-paragraph] Section 121B(2)(a)(i)), and is not a current
officer or employee or an immediate family member of such officer or
employee, may be appointed to the [A]audit [C]committee, if the board,
under exceptional and limited circumstances, determines that membership
on the committee by the individual is required by the best interests of
the [company] issuer and its shareholders, and the board discloses, in
the next annual meeting proxy statement (or in its next annual report
on SEC Form 10-K or equivalent if the issuer does not file an annual
proxy statement) subsequent to such determination, the nature of the
relationship and the reasons for that determination. A director
appointed to the [A]audit [C]committee pursuant to this exception may
not serve for in excess of two consecutive years and may not chair the
[A]audit [C]committee.
    (c) Small Business Issuers--Small Business Issuers (as defined in
SEC Regulation S-B) are subject to all requirements specified in this
Section 121B(2), except that such issuers are only required to maintain
a [B]board of [D]directors comprised of at least 50% independent
directors, and an [A]audit [C]committee of at least two members,
comprised solely of independent directors who also meet the
requirements of Rule 10A-3 under the Securities Exchange Act of 1934.
(3) Meeting Requirements
    The [A]audit [C]committee of each [listed company] issuer must meet
on at least a quarterly basis, except that with respect to [listed]
registered closed-end management investment companies, the [A]audit
[C]committee must meet on a regular basis as often as necessary to
fulfill its responsibilities, including at least annually in connection
with issuance of the investment company's audited financial statements.
(4) Audit Committee Responsibilities and Authority
    The [A]audit [C]committee of each [listed company] issuer must have
the specific audit committee responsibilities, authority and procedures
necessary to comply with Rule 10A-3(b)(2), (3), (4) and (5) under the
Securities Exchange Act of 1934 (subject to the exemptions provided in
Rule 10A-3(c) under the Securities Exchange Act of 1934), concerning
responsibilities relating to: ([i]a) registered public accounting
firms, ([ii]b) complaints relating to accounting, internal accounting
controls or auditing matters, ([iii]c) authority to engage advisors,
and ([iv]d) funding as determined by the audit committee. Audit
committees for investment companies must also establish procedures for
the confidential, anonymous submission of concerns regarding
questionable accounting or auditing matters by employees of the
investment adviser, administrator,

principal underwriter, or any other provider of accounting related
services for the investment company, as well as employees of the
investment company.

(5) Exception

    At any time when an issuer has a class of common equity securities
(or similar securities) that is listed on another national securities
exchange or national securities association subject to the requirements
of SEC Rule 10A-3 under the Securities Exchange Act of 1934, the
listing of classes of securities of a direct or indirect consolidated
subsidiary or an at least 50% beneficially owned subsidiary of the
issuer (except classes of equity securities, other than non-
convertible, non-participating preferred securities, of such
subsidiary) shall not be subject to the requirements of this Section
121B.
    See Also Section 803.
    [* With respect to independent directors who are not members of the
Audit Committee, the applicable ``look-back'' period will be only one
year for the first year after the amendment or adoption (as applicable)
of Sections 121A(1), 121B(2)(c) and 802(a) with respect to board of
director composition. With respect to independent directors who are
members of the Audit Committee, the applicable ``look-back'' period
will be only one year for the first year after the amendment or
adoption (as applicable) of paragraphs (b), (e) and (f) of Section
121A. The applicable three-year ``look-back'' periods specified in
Section 121A will begin to apply only from and after December 1, 2004.]
* * * Commentary
    .01 No change.
    .02 ``Company'' includes any parent or subsidiary of the issuer
listed on the Exchange. ``Parent'' or ``subsidiary'' includes entities
that are consolidated with the issuer's financial statements as filed
with the SEC (but not if the issuer reflects such entity solely as an
investment in its financial statements).
    .03-.05 No change.
    .06 In order to affirmatively determine that an independent
director does not have a material relationship with the [listed
company] issuer that would interfere with the exercise of independent
judgment, as specified in [paragraph] Section 121A, the board of
directors of each [listed company] issuer must obtain from each such
director full disclosure of all relationships which could be material
in this regard[, including but not limited to any payments specified in
paragraphs (b)(8) and (9)].
    .07 The three year look-back periods referenced in Sections
121A(2)(a), (c), (e) and (f) commence on the date the relationship
ceases. For example, a director employed by the company is not
independent until three years after such employment terminates.
    .08 For purposes of Section 121A(2)(a), employment by a director as
an executive officer on an interim basis shall not disqualify that
director from being considered independent following such employment,
provided the interim employment did not last longer than one year. A
director would not be considered independent while serving as an
interim officer. Similarly, for purposes of Section 121A(2)(b),
compensation received by a director for former service as an interim
executive officer need not be considered as compensation in determining
independence after such service, provided such interim employment did
not last longer than one year. Nonetheless, the issuer's board of
directors still must consider whether such former employment and any
compensation received would interfere with the director's exercise of
independent judgment in carrying out the responsibilities of a
director. In addition, if the director participated in the preparation
of the company's financial statements while serving as an interim
executive officer, Section 121B(2)(a)(ii) would preclude service on the
issuer's audit committee for three years.
    .09 Section 121A(2)(b) is generally intended to capture situations
where compensation is made directly to (or for the benefit of) the
director or an immediate family member of the director. For example,
consulting or personal service contracts with a director or an
immediate family member of the director would be analyzed under Section
121A(2)(b). In addition, political contributions to the campaign of a
director or an immediate family member of the director would be
considered indirect compensation under Section 121A(2)(b). Non-
preferential payments made in the ordinary course of providing business
services (such as payments of interest or proceeds related to banking
services or loans by an issuer that is a financial institution or
payment of claims on a policy by an issuer that is an insurance
company), payments arising solely from investments in the company's
securities and loans permitted under Section 13(k) of the Securities
Exchange Act of 1934 will not preclude a finding of director
independence as long as the payments are non-compensatory in nature.
Depending on the circumstances, a loan or payment could be compensatory
if, for example, it is not on terms generally available to the public.
* * * * *

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

    In its filing with the Commission, Amex included statements
concerning the purpose of and basis for the proposal and discussed any
comments it received on the proposal. The text of these statements may
be examined at the places specified in Item IV below. Amex 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
    In 2003, the Commission approved broad enhancements to the
corporate governance standards applicable to issuers listed on the
Amex.\5\ The enhancements related to, among other things, board of
director composition and independence standards, as well as audit
committee composition, authority, and disclosure obligations. These
revisions also included new tests to determine the independence of
directors. Comparable standards were adopted by Nasdaq and by the New
York Stock Exchange (``NYSE'').\6\
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    \5\ See Securities Exchange Act Release No. 48863 (December 1,
2003), 68 FR 68432 (December 8, 2003) (approving SR-Amex-2003-65).
    \6\ See Securities Exchange Act Release No. 48745 (November 4,
2003), 68 FR 64154 (November 12, 2003) (approving SR-NYSE-2002-33,
SR-NASD-2002-77, SR-NASD-2002-80, SR-NASD-2002-138, SR-NASD-2002-
139, and SR-NASD-2002-141).
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    Since implementing the enhanced corporate governance standards, the
Exchange has proposed various changes to these standards based upon its
experience administering the corporate governance program. The Exchange
now proposes several changes to the independent director and audit
committee requirements applicable to listed issuers that, according to
the Exchange, are designed to: (i) Eliminate unnecessary restrictions;
(ii) clarify certain aspects of the Exchange's corporate governance
requirements; and (iii) make these requirements consistent with those
of Nasdaq and NYSE.
    Section 121A of the Company Guide (Independent Directors) requires
most listed issuers to have a board of directors comprised of a
majority of independent directors. It also specifies

the criteria the board of directors must utilize in determining whether
a director can be considered independent and sets forth certain
``bright line'' tests that preclude a finding of independence. Section
121B of the Company Guide (Audit Committee) sets forth the requirements
for the composition of an issuer's audit committee, which must consist
of, among other things, at least three directors who satisfy the
independence standards in Section 121A. Such independence standards are
substantially the same as Nasdaq standards \7\ and are conceptually
similar to NYSE standards.\8\
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    \7\ Nasdaq Rule 4200(a)(15) and IM-4200. See also Nasdaq
Corporate Governance Order, supra note 3.
    \8\ Section 303A.02 of the NYSE Listed Company Manual.
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    (i) Definition of Independent Director \9\
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    \9\ The change described in this subsection relates to a
provision in the preamble to current Section 121A of the Company
Guide that would become the preamble to Section 121A(2) as part of
Amex's proposed numbering scheme.
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    Section 121A of the Company Guide currently provides that an
independent director of a listed company may not be an officer or
employee of the company or any parent or subsidiary thereof, or have a
material relationship with the listed company that would interfere with
the exercise of independent judgment. The Exchange proposes to clarify
that any relationship, not just a material relationship, that would
interfere with the exercise of judgment in specifically carrying out
the responsibilities of a director may preclude a determination of
independence. According to the Exchange, this clarifying change will
make the Amex's definition of independent director consistent with the
Nasdaq's definition of independent director.\10\
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    \10\ Nasdaq Rule 4200(a)(15).
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    (ii) Service as a Compensated Interim Officer \11\
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    \11\ The change described in this subsection relate to current
Sections 121A(a) and 121A(b)(4) of the Company Guide, which would
become Sections 121A(2)(a) and 121A(2)(b)(iii), respectively, in
Amex's proposed numbering scheme.
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    Pursuant to current Section 121A(a) of the Company Guide, a
director who is, or during the past three years was, employed by a
company or by a parent or subsidiary of such company as an interim
Chairman or CEO is not automatically precluded from being considered
independent. Further, compensation received in excess of $60,000 during
the current or past three fiscal years for former service as an interim
Chairman or CEO does not automatically preclude a director from being
considered independent. The Exchange proposes to expand both exceptions
to cover the former service and compensation of all interim executive
officers, not just the Chairman and CEO. Amex believes that the
proposed rule change will enable issuers to more easily fill director
seats by broadening the pool of prospective independent directors to
include interim executive officers and others with particular
expertise.
    However, the Exchange proposes to limit the ability to exclude such
past service and compensation as an interim executive officer to one
year, in order to prevent potential abuse of the exceptions. The
Exchange also proposes to clarify in new Commentary .08 that current
service as an interim officer would preclude a director from being
considered independent. In addition, if, while acting as an interim
officer, a director participated in the preparation of the financial
statements of an issuer or current subsidiary of the issuer, the
director would be precluded from serving on such issuer's audit
committee for three years. Of course, depending upon the magnitude of
the compensation and the length of service as a former interim
executive officer, a board could still determine on its own--without
regard to a ``bright line'' test--that an individual should not be
considered independent. In this respect, the proposed new Commentary
.08 to Section 121 specifies the board's obligation to consider such
former service and related compensation in making an independence
determination.
    In its proposal, Amex notes that the Commission recently published
notice of a filing by Nasdaq in which Nasdaq proposed similar changes
to its corporate governance standards.\12\ According to the Exchange,
NYSE standards also provide that compensated service as an interim
officer does not disqualify a director from being considered
independent following such service.\13\ In Amex's view, the proposed
rule change would result in more uniformity across market centers with
respect to how interim service by directors is treated for independence
purposes.
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    \12\ The Commission notes that the Nasdaq proposal has since
been approved. See Nasdaq Corporate Governance Order, supra note 3.
    \13\ Commentary to Sections 303A.02(b)(i) and (ii) of the NYSE
Listed Company Manual.
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    (iii) Compensation over $60,000 \14\
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    \14\ The change described in this subsection relate to current
Section 121A(b) of the Company Guide, which would become Section
121A(2)(b) in the new numbering scheme Amex proposes in this filing.
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    Section 121A(b) of the Company Guide currently precludes a finding
of independence if a director, or an immediate family member of the
director, accepts any payments from the company or any parent or
subsidiary of the company in excess of $60,000 during the current or
any of the past three fiscal years preceding the determination of
independence. Certain types of payments that are unlikely to taint a
director's independence are excluded from the $60,000 test.\15\
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    \15\ Exceptions in the current rule, for example, include
payments from a financial institution (e.g., interest on a savings
account), payments arising solely from investments in the company's
securities, and loans permitted under Section 13(k) of the Act.
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    The Exchange notes that over the course of administering Section
121A(b), additional types of payments have been identified that should
be excepted from the test because they are unlikely to taint a
director's independence. Rather than continuing to codify examples of
``payments'' that should be excluded from the test as they arise, the
Exchange believes that the more effective approach is to amend Section
121A(b) to focus on ``compensation.'' As a result, the Exchange
proposes to modify Section 121A(b) to provide that a finding of
independence is precluded if a director accepts, or has an immediate
family member who accepts, any compensation, with certain exceptions,
from a company or its affiliates in excess of $60,000 during any
consecutive twelve-month period within the three years prior to the
independence determination.
    To provide further guidance, the Exchange proposes adding new
Commentary .09, which would specify that Section 121A(b) is intended to
capture situations where compensation is made directly to (or for the
benefit of) the director or the director's immediate family member. In
order to illustrate such intention, proposed Commentary .09 provides
specific examples of direct and indirect compensation that would
preclude a finding of director independence, such as contributions made
to the political campaign of a director or an immediate family member
of the director.\16\ The Exchange also proposes modifying Section
121A(b) to clarify that compensation for service on a board committee
will not preclude a

finding of independence. The Amex indicates that, while the current
provision carves out compensation for board service and was meant to
cover compensation for service on board committees, there appears to be
some confusion in this regard among companies.
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    \16\ Proposed Commentary .09 further clarifies that, in general,
under the proposed rule, non-preferential payments made in the
ordinary course of providing business services (such as payments of
interest or proceeds related to banking services or loans by an
issuer that is a financial institution or payment of claims on a
policy by an issuer that is an insurance company) will not preclude
a finding of director independence as long as the payments are non-
compensatory in nature. See Company Guide, Section 121, proposed
Commentary .09.
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    The Exchange believes that a revised rule based on compensation
rather than payments will better capture the types of compensation that
bear on a director's independence. Amex notes that a similar proposed
rule change recently filed by Nasdaq \17\ and published by the
Commission, and a comparable NYSE provision,\18\ preclude independence
if a director or family member has received direct compensation above a
minimum threshold. Accordingly, the Exchange believes that the proposed
rule change will make Section 121A(b) consistent with the corresponding
provisions of Nasdaq and NYSE, thereby creating greater uniformity
across market centers with respect to the standards for evaluating a
director's independence.
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    \17\ The Nasdaq proposal has since been approved. See Nasdaq
Corporate Governance Order, supra note 3.
    \18\ Section 303A.02(b)(2) of the NYSE Listed Company Manual.
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    (iv) Timeframes for Determining Independence \19\
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    \19\ The changes described in this subsection relate to current
Section 121A(b) of the Company Guide, which would become Section
121A(2)(b), and to current Sections 121A(a), (c), (e), and (f),
which would become Sections 121A(2)(a), (c), (e), and (f) in Amex's
proposed numbering scheme.
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    The Exchange proposes that the applicable one-year period or three-
year period preceding the determination of independence set forth in
current Section 121A(b) of the Company Guide be measured
chronologically rather than by fiscal year. Under the proposed rule,
the look-back period would be any period of twelve consecutive months
within the three years preceding the date independence is to be
determined. The Exchange believes that such proposed modification is
appropriate because it introduces a simpler calculation that is not
dependent on a company's particular fiscal year end. Additionally, the
Exchange proposes to clarify in new Commentary .07 that the three-year
look-back periods referenced in current paragraphs (a), (c), (e), and
(f) of Section 121A commence on the date the relationship ceases. These
proposed rule changes would conform the Exchange's look-back periods to
the Nasdaq look-back periods.\20\
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    \20\ Nasdaq Rule 4200(a)(15) and IM-4200.
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    (v) Other Changes
    The Exchange also proposes to make other clarifying changes to
Section 121. First, the Exchange proposes to clarify that the term
``non-executive employee'' in current Section 121A(b)(3) (proposed
Section 121A(2)(b)(ii)) means an employee other than an executive
officer, a term defined by reference to Commission Rule 16a-1(f) under
the Act.\21\ Second, the Exchange proposes to clarify that references
to ``the company'' in Section 121 include any parent or subsidiary of
the listed issuer. Third, the Exchange proposes to clarify in proposed
new Section 121B(5) that an exception to the audit committee
requirements contained in Commission Rule 10A-3(c)(2) under the Act
\22\ for certain subsidiaries of listed issuers also is applicable to
the Amex's audit committee requirements. The Amex states that such
clarifying revisions will make Section 121 consistent with Nasdaq's
recent proposed rule change.\23\
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    \21\ 17 CFR 240.16a-1(f).
    \22\ 17 CFR 240.10A-3(c)(2).
    \23\ See Nasdaq Corporate Governance Order, supra note 3.
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    Finally, the Exchange proposes several organizational and
grammatical changes to Section 121 which, though non-substantive, are
intended to simplify reading of its corporate governance standards.
    (vi) Transition
    The Exchange will implement the proposed rule change immediately
upon approval by the Commission. In order to facilitate transition to
the modified standards, any director that would be considered
independent under the current standards, but that would no longer be
deemed independent under the modified standards, would be permitted to
continue serving on the board of directors as an independent director
until no later than 90 days after the approval of this filing.\24\
---------------------------------------------------------------------------

    \24\ The Commission notes that this transition period does not
affect an issuer's obligation to comply with the requirements
relating to audit committee composition.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is responsive
to concerns of its listed issuers and would benefit investors and
issuers by providing additional transparency and clarity to Amex's
corporate governance standards. The Exchange notes that such additional
transparency and clarity also would facilitate uniform application and
ease administration of corporate governance standards. Furthermore, the
Exchange believes that by making the Amex standards more consistent
with those of Nasdaq and NYSE, the proposed rule change would promote
greater uniformity across listing markets.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with
Section 6(b) of the Act,\25\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\26\ in particular, in that it is designed
to promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, the Exchange believes
that the proposed rule change will promote greater uniformity with the
corporate governance standards of other markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-Amex-2006-48 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

    All submissions should refer to File Number SR-Amex-2006-48. This
file number should be included on the subject line if e-mail 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 Web site (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 inspection
and copying in the Commission's Public Reference Room. 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; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-Amex-2006-48 and should be submitted on or before
December 29, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\27\ In particular, the Commission believes that the proposal
is consistent with Section 6(b)(5) of the Act,\28\ which requires 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 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.
---------------------------------------------------------------------------

    \27\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f). 28 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change would provide
clarity and guidance to Amex listed companies, particularly with
respect to the determination of whether a director is independent. In
particular, the proposed rule change would preclude a finding of
independence if a director accepts any compensation from the company or
its affiliates in excess of $60,000 during the prescribed time
period.\29\ This proposed change would align the Amex rule with
corresponding rules of Nasdaq and NYSE relating to corporate governance
standards of listed issuers.\30\ The proposal also would revise various
other provisions of Amex's corporate governance standards, including by
amending several provisions to conform more closely with Nasdaq's and
NYSE's corporate governance standards for its listed issuers.\31\
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    \29\ Under current Section 121A of the Company Guide, a director
of a listed company would not be considered independent if the
director or a family member of the director has accepted more than
$60,000 in payments from the company or its parent or subsidiary
during the time period set forth in the rule. The proposed rule
change would amend the rule to refer to compensation in excess of
$60,000 from the company, rather than payments.
    \30\ See Nasdaq's IM-4200 to Nasdaq Rule 4200 and Section
303A.02(b)(ii) of the NYSE Listed Company Manual. Proposed changes
to Section 121A of the Company Guide would provide examples of non-
compensatory payments, such as interest related to banking services,
insurance proceeds, and non-preferential loans from financial
institutions. At the same time, the proposed changes to Section 121A
of the Company Guide would make clear that payments made by the
company for the benefit of the director--such as political
contributions to the campaign of a director or a family member and
loans to a director or family member that are on terms not generally
available to the public--could be considered indirect compensation
so as to preclude a finding that the director was independent.
    \31\ These other changes relate to: status of independent
directors who served as interim officers for a maximum one-year
period; the definition of ``non-executive employee;'' inclusion of
parent and subsidiary within the meaning of ``company;'' and an
exception in Amex's standards relating to audit committees for
certain issuers that have a listed parent, consistent with a similar
exception contained in Rule 10A-3 under the Act, 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Commission finds good cause, consistent with Section 19(b)(2)
of the Act,\32\ for approving this proposal, as amended, before the
thirtieth day after the publication of notice thereof in the Federal
Register. The Commission notes that the proposal raises no new issues
and believes that accelerating its approval would harmonize corporate
governance listing standards among exchanges.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\33\ that the proposed rule change, as amended (SR-Amex-2006-48),
is hereby approved on an accelerated basis.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 34 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-20804 Filed 12-7-06; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 86, Number 54 (Tuesday, March 23, 2021)]
[Notices]
[Pages 15530-15536]
[FR Doc No: 2021-05912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91338; File No. SR-CboeEDGX-2021-014]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fees Applicable to the EDGX Top Feed

March 17, 2021.
    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 March 4, 2021, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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 Exchange. 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\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fees applicable to the EDGX Top Feed.
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 purpose of the proposed rule change is to amend the fees
applicable to the EDGX Top Feed,\3\ which is an uncompressed data feed
that offers both top-of-book quotations and execution information based
on equity orders entered into the System.\4\ Specifically, the Exchange
proposes to: (1) Increase the fee for internal distribution of the EDGX
Top Feed; and (2) introduce Professional User fees for internal
Professional Users of the EDGX Top Feed.\5\ The current fees for
external distribution of the EDGX Top Feed will continue to apply,
without change, including various incentive programs that the Exchange
has adopted to facilitate the provision of lower-cost market data to
retail and other investors.\6\
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    \3\ The Exchange initially filed the proposed fee changes on
January 4, 2021. See Securities Exchange Act Release No. 90923
(January 14, 2021), 86 FR 6719 (January 22, 2021) (SR-CboeEDGX-2021-
002). On March 4, 2021, the Exchange withdrew that filing and
submitted this proposal.
    \4\ See EDGX Rule 13.8(c).
    \5\ A Professional User of an Exchange Market Data product is
any User other than a Non-Professional User. See EDGX Schedule of
Fees, Market Data Fees, Definitions. A ``Non-Professional User'' of
an Exchange Market Data product is a natural person or qualifying
trust that uses Data only for personal purposes and not for any
commercial purpose and, for a natural person who works in the United
States, is not: (i) Registered or qualified in any capacity with the
Securities and Exchange Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (ii) engaged as an ``investment adviser'' as that term
is defined in Section 202(a)(11) of the Investment Advisors Act of
1940 (whether or not registered or qualified under that Act); or
(iii) employed by a bank or other organization exempt from
registration under federal or state securities laws to perform
functions that would require registration or qualification if such
functions were performed for an organization not so exempt; or, for
a natural person who works outside of the United States, does not
perform the same functions as would disqualify such person as a Non-
Professional User if he or she worked in the United States. Id.
    \6\ See e.g., EDGX Schedule of Fees, EDGX Top, Small Retail
Broker Distribution Program; EDGX Schedule of Fees, Financial
Product Distribution Program. The Small Retail Broker Distribution
Program is a pricing program offered by the Exchange that allows
small retail brokers that purchase top-of-book market data from the
Exchange to benefit from discounted fees for access to such market
data. The Financial Product Distribution Program lowers the cost of
distributing Derived Data based upon the Exchange's top-of-book
offerings, including Derived Data that is often used by retail
investors.
---------------------------------------------------------------------------

Market Background
    The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. 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.'' \7\ As the Commission
itself recognized, the market for trading services in NMS stocks has
become ``more fragmented and competitive.'' \8\
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    \7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
    \8\ See Securities Exchange Act Release No. 84875, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
---------------------------------------------------------------------------

    Equity trading is currently dispersed across sixteen exchanges,
including three new U.S. equities exchanges that launched trading in
2020, 32 alternative trading systems,\9\ and numerous broker-dealer
internalizers and wholesalers, all competing fiercely for order flow.
Based on publicly-available information, no single U.S. equities
exchange has more than 20% market share.\10\ In turn, the market for
top-of-book quotation and transaction data is highly competitive as
national securities exchanges compete vigorously with each other to
provide efficient, reliable, and low-cost data to a wide range of
investors and market participants. In fact, there are twelve competing
products offered by other national securities exchanges today,\11\ not
counting products offered by the Exchange's affiliates, and each of the
Exchange's affiliated U.S. equities exchanges also offers similar top-
of-book data. Each of those exchanges offer top-of-book quotation and
last sale information based on their own quotation and trading activity
that is substantially similar to the information provided by the
Exchange through the EDGX Top Feed.\12\ Exchange top-of-book data is
therefore widely available today from a number of different sources.
---------------------------------------------------------------------------

    \9\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
    \10\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \11\ Competing top of book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BQT, NYSE
Arca BBO/Trades, NYSE American BBO/Trades, NYSE Chicago BBO/Trades,
IEX TOPS, MIAX PEARL Equities Top of Market Feed, and MEMX MEMOIR
Top.
    \12\ For example, The Nasdaq Stock Market LLC (``Nasdaq'')
offers ``Nasdaq Basic'' which is a real-time market data product
that offers best bid and offer and last sale information for all
U.S. exchange-listed securities based on liquidity within the Nasdaq
market center and trades reported to the FINRA/Nasdaq Trade
Reporting Facility (``Nasdaq TRF''). See Nasdaq Equity Rules, Equity
7, Pricing Schedule, Section 147(a). The type of information
contained on the EDGX Top Feed is substantially similar to that
offered through Nasdaq Basic, except that the Exchange disseminates
information about quotes and trades on EDGX, whereas Nasdaq Basic
provides information about quotes and trades on Nasdaq and the
Nasdaq TRF. Other national securities with competing top-of-book
products also offer substantially similar types of information
through those top-of-book products.
---------------------------------------------------------------------------

Fees for Internal Distribution of the EDGX Top Feed
    Currently, the Exchange charges a modest fee of $500 per month for
internal distribution of EDGX Top Feed data,\13\ i.e., distribution
within the distributor's own firm,\14\ and does not charge any
additional fees for internal distribution based on the number of
Professional or Non-Professional Users that receive access to this
information. These internal distribution fees have been in place,
without change, since early 2015 when the Exchange first began offering
the EDGX Top Feed.\15\ In the time since, the Exchange has made a
number of significant enhancements to its platform, including notably
the introduction of priority for retail limit orders,\16\ that have
resulted in improved trading opportunities for investors and,
consequently, more valuable market data.\17\
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    \13\ See EDGX Schedule of Fees, EDGX Top, Internal Distribution.
    \14\ The Exchange's fee schedule defines an Internal Distributor
of an Exchange Market Data product as a Distributor that receives
the Exchange Market Data product and then distributes that data to
one or more Users within the Distributor's own entity. See EDGX
Schedule of Fees, Market Data Fees, Definitions.
    \15\ See Securities Exchange Act Release No. 74282 (February 17,
2015), 80 FR 9487 (February 23, 2015) (SR-EDGX-2015-09).
    \16\ See Securities Exchange Act Release No. 87200 (October 2,
2019), 84 FR 53788 (October 8, 2019) (SR-CboeEDGX-2019-012)
(Approval Order).
    \17\ The Exchange is also about to extend its early trading
hours to begin at 4:00 a.m. ET, which would similarly provide
additional value to EDGX Top subscribers who would receive
additional information about quotes and trades on EDGX during the
Early Trading Session. See Securities Exchange Act Release No. 90509
(November 24, 2020), 85 FR 77310 (December 1, 2020) (SR-CboeEDGX-
2020-056).
---------------------------------------------------------------------------

    As discussed, the Exchange now proposes to increase certain fees
applicable to firms that consume this

data as internal distributors, i.e., firms that use EDGX Top Feed data
for internal purposes as opposed to firms that distribute such data
externally to its customers. As proposed, the Exchange would increase
the monthly charge for internal distribution of EDGX Top Feed data to
$750 per month, which would continue to be significantly cheaper than
similar products offered by the Exchange's main competitors.\18\ In
addition, the Exchange would introduce Professional User fees for
internal Professional Users of the EDGX Top Feed. Those Professional
User fees will be the same as the modest fee currently charged for
external distribution of the EDGX Top Feed, i.e., $4 per month for each
Professional User. There would continue to be no charge associated with
internal distribution to Non-Professional Users. Further, as discussed,
the current fees for external distribution of the EDGX Top Feed would
continue to apply, without change, including various incentive programs
that the Exchange has adopted to facilitate the provision of lower-cost
market data to retail and other investors. As a result, the Exchange
believes that the proposed fee changes would allow it to be
appropriately compensated for the value of its market data,
particularly from professional financial services firms that use that
data for internal purposes, while simultaneously ensuring that its data
would continue to be available to a wide range of investors and market
participants at a cost that facilitates widespread availability of such
data.
---------------------------------------------------------------------------

    \18\ See infra notes 32-39 and accompanying text.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\19\ in general, and
furthers the objectives of Section 6(b)(4),\20\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data. In addition, the Exchange believes that the proposed
rule change is consistent with Section 11(A) of the Act as it supports
(i) fair competition among brokers and dealers, among exchange markets,
and between exchange markets and markets other than exchange markets,
and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities.\21\ Finally, the proposed rule change is also consistent
with Rule 603 of Regulation NMS,\22\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(4).
    \21\ 15 U.S.C. 78k-1.
    \22\ See 17 CFR 242.603.
---------------------------------------------------------------------------

    The Exchange operates in a highly competitive environment. Indeed,
with the launch of three new national securities exchanges that trade
U.S. equity securities last September, there are now sixteen registered
U.S equities exchanges, and with the exception of Long-Term Stock
Exchange, Inc. (``LTSE''), which has determined to not offer any
proprietary market data feeds, each of these exchanges offer associated
market data products to their customers, either with or without a fee.
It is in this robust and competitive market in which the Exchange is
proposing to increase its fees, while still providing its data at a
significantly lower price than competing products offered by other
national securities exchanges with similar data quality.
    The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Further, with respect
to market data, the decision of the United States Court of Appeals for
the District of Columbia Circuit in NetCoalition v. SEC upheld the
Commission's reliance on the existence of competitive market mechanisms
to evaluate the reasonableness and fairness of fees for proprietary
market data: ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' '' \23\
The court agreed with the Commission's conclusion that ``Congress
intended that `competitive forces should dictate the services and
practices that constitute the U.S. national market system for trading
equity securities.' '' \24\ As discussed in this filing, significant
competitive forces constrain the ability of the Exchange to charge
supra-competitive fees.
---------------------------------------------------------------------------

    \23\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
    \24\ Id. at 535.
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i. The EDGX Top Feed Is an Optional Market Data Product, and the
Exchange Is Constrained in Its Pricing by Significant Competitive
Forces
    Subscribing to the EDGX Top Feed is entirely optional. The Exchange
is not required to make the EDGX Top Feed available to any customers,
nor is any customer required to purchase the EDGX Top Feed.\25\ A
customer's decision as to whether to purchase the EDGX Top Feed is
therefore entirely discretionary, and is based on that firms individual
business needs. Generally, firms that choose to subscribe to the EDGX
Top Feed do so because they believe that it is a cost-effective source
for top-of-book data that provides valuable information about the
market for national market system (``NMS'') stocks traded on the
Exchange, where a consolidated display covering all U.S. equities
exchanges is not required. Such firms are able to determine for
themselves whether the EDGX Top Feed helps them to achieve their
business goals, and if so, whether or not it is attractively priced
compared to other similar top-of-book products offered by competing
exchanges.
---------------------------------------------------------------------------

    \25\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
---------------------------------------------------------------------------

    Indeed, if the EDGX Top Feed does not provide sufficient value to
firms based on the uses those firms may have for it, such firms may
simply choose to conduct their business operations in ways that do not
use the EDGX Top Feed. In fact, comparing the number of internal
distributors that currently subscribe to the EDGX Top Feed, based on
data compiled by the Exchange as of November 2020, to the total number
of internal distributors that subscribe to core data offered by the CTA
and UTP SIPs, as published on plan websites for Q3 2020,\26\ less than
1.9% of internal distributors that purchase U.S. equities data choose
to subscribe to the EDGX Top Feed.\27\ The EDGX Top Feed

therefore represents an insignificant proportion of the market for such
market data, and significantly more internal distributors choose not to
purchase this product than those that do. Given the insignificant
percentage of internal distributors that consume the EDGX Top Feed, it
is clear that such firms can and do exercise their right to choose to
purchase, or not purchase, this particular market data product. And, as
discussed later in this filing, any internal distributor of top-of-book
data that does not wish to purchase the EDGX Top Feed, due to the price
of that data or for any other reason, can choose to substitute similar
information from other exchanges.
---------------------------------------------------------------------------

    \26\ See CTA Quarterly Population Metrics (Q3 2020), available
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_3Q2020.pdf; UTP Quarterly Population
Metrics (Q3 2020), available at https://www.utpplan.com/DOC/UTP_2020_Q3_Stats_with_Processor_Stats.pdf.
    \27\ This statistic reflects the number of internal distributors
that purchase the EDGX Top Feed divided by the number of internal
distributors that purchase consolidated market data from the SIPs,
as reflected in publicly available information. Id. The Exchange
does not have similar information about the number of internal
distributors that purchase top-of-book data from other exchanges as
competing exchanges do not typically make this information publicly
available due to the commercially sensitive nature of such
information.
---------------------------------------------------------------------------

    Although the Exchange is not required to make any data, including
top-of-book data, available through its proprietary market data
platform, the Exchange believes that making such data available
increases investor choice, and contributes to a fair and competitive
market. Specifically, making such data publicly available through
proprietary data feeds allows investors to choose alternative,
potentially less costly, market data based on their business needs. For
example, a buy-side investor or fintech firm may choose to purchase the
EDGX Top Feed, or a similar product from another exchange, in order to
perform investment analysis, or to provide general information about
the market for U.S. equity securities, respectively. In either case the
choice to purchase the EDGX Top Feed would be based on the firm's
determination of the value of the data offered by their chosen product
compared to the cost of acquiring this data instead of receiving
similar data from other sources. The EDGX Top Feed serves as a valuable
reference for investors that do not require a consolidated display.
Making alternative products available to market participants ultimately
ensures competition in the marketplace, and constrains the ability of
exchanges to charge supra-competitive fees.
    Further, in the event that a market data customer views one
exchange's top-of-book data product and/or fees as more or less
attractive than a competitor's offerings they can and often do switch
between competing products. As discussed, similar top-of-book
information is available from a number of competing U.S. equities
exchanges. \28\ This include a number of large established exchanges
that charge for access to such top-of-book data, as well as certain
smaller or new exchange entrants that provide similar data without
charge, in many cases as a way of attracting customers to their
exchange while they seek to grow market share. In this way, the EDGX
Top Feed and other top-of-book products offered by a number of U.S.
equities exchanges, are all substitutes. The availability of these
substitute products constrains the Exchange's ability to charge supra-
competitive prices as market participants can easily obtain similar
data from one of the Exchange's many competitors. In fact, the impact
of competition on the market in which the EDGX Top Feed is offered to
market participants and investors is showcased by the Exchange's other
recent fee changes related to this product, which involved the
reduction of fees to facilitate the Exchange's ability to compete for
customers.\29\ And, other exchanges have similarly filed to reduce the
prices of their top-of-book data in order to compete with products
offered by the Exchange and other competing exchanges.\30\
---------------------------------------------------------------------------

    \28\ Although the Exchange does not have access to the customer
lists for other competing products, it understands based on
conversations with subscribers to the EDGX Top Feed that they
typically view exchange top-of-book products as substitutes and do
not generally look to purchase such data from more than one national
securities exchange.
    \29\ See supra note 6. The Exchange also notes that while this
proposed fee change involves an increase in fees, it is
simultaneously filing another proposed fee change to expand its
Financial Products Distribution Program and further reduce certain
fees. See Securities Exchange Act Release No. 90914 (January 13,
2021), 86 FR 6393 (January 21, 2021) (SR-CboeEDGX-2021-003) [sic].
    \30\ See e.g., Securities Exchange Act Release No. 90616
(December 9, 2020), 85 FR 81237 (December 15, 2020) (SR-NASDAQ-2020-
086).
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    Distributors can discontinue use of the EDGX Top Feed at any time
and for any reason, including due to an assessment of the
reasonableness of fees charged. Indeed, the Exchange's affiliate, Cboe
BZX Exchange, Inc. (``BZX''), which also filed to increase fees for its
top-of-book product, i.e., the BZX Top Feed, had one internal
distributor cancel its subscription to that product as of February 2021
based on its fee increase. Internal distributors of the EDGX Top Feed
are free to similarly cancel their subscriptions in favor of a
competitor offering, or cheaper or free data offered by the Exchange's
affiliated U.S. equities exchanges, if they believe that the fees are
too high given their particular use case for obtaining the data that
the Exchange provides over the EDGX Top Feed. The Exchange offers all
of its proprietary market data products pursuant to a month-to-month
contract that allows subscribers to choose to terminate their
subscription at any time. As a result, there are no contractual or
other legal impediments for firms that wish to cancel their
subscription to the Exchange's market data products, including the EDGX
Top Feed. In addition, the Exchange notes that all but one internal
distributor of the EDGX Top Feed either receives this data through a
market data vendor, as opposed to directly from the Exchange, or is a
market data vendor itself. Thus, firms can seamlessly switch to any
other competitor product offered by their chosen vendor without
incurring additional switching costs, such as the cost of establishing
connectivity to another exchange to receive its market data.\31\
Further, based on discussions with the one internal distributor that
has chosen not to receive this data through a relationship with a
vendor, the Exchange believes that the firm likely has access to a
number of competing exchanges from which it could source similar data
without incurring significant switching costs.
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    \31\ Market data vendors typically establish connectivity to a
number of national securities exchanges to be able to offer their
market data to customers.
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    In setting the proposed fees for the EDGX Top Feed, the Exchange
considered the competitiveness of the market for proprietary data and
all of the implications of that competition. Indeed, the Exchange is
not in a position to charge unreasonable fees for its top-of-book data
as there are a number of competing products in the market, including
products that are currently offered free of charge by certain other
exchanges that have determined not to charge for their market data. The
existence of alternatives to the EDGX Top Feed ensures that the
Exchange cannot set unreasonable fees when vendors and subscribers can
freely elect these alternatives or choose not to purchase a specific
proprietary data product if the attendant fees are not justified by the
returns that any particular vendor or data recipient would achieve
through the purchase.
ii. The Proposed Fees Are Reasonable Given the Value of the Data
Provided to Customers, and When Compared to Competing Market Data
Products
    The proposed fees are also reasonable as even with the proposed fee
increase they would continue to represent a relatively modest fee for
top-of-book

data that has proven valuable for investors, particularly as the
Exchange grows market share due to its innovative market model that has
been successful in attracting retail limit orders, increasing the
Exchange's market share to more than 7.5% consolidated U.S. equities
volume.\32\ The EDGX Top Feed is a competitively-priced alternative to
top-of-book data disseminated by other national securities exchanges.
It is purchased by a wide variety of market participants and vendors,
including data platforms, websites, fintech firms, buy-side investors,
retail brokers, regional banks, and securities firms inside and outside
of the U.S. that desire low cost, high quality, real-time U.S. equity
market data. By providing lower cost access to U.S. equity market data,
the EDGX Top Feed benefits a wide range of investors that participate
in the national market system. As discussed, the decision to purchase a
particular market data product from a particular exchange is largely
based on two factors: (1) The quality of the data, and (2) the price
charged for access to that data. The Exchange believes that the EDGX
Top Feed is competitive on both of these factors.
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    \32\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at http://markets.cboe.com/us/equities/market_share/.
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    First, the EDGX Top Feed would remain competitively priced compared
to similar products offered by other comparable U.S. equities
exchanges. Although the EDGX Top Feed is not offered free of charge
like certain other competitor offerings, particularly those offered by
newer U.S. equities exchanges that are seeking to grow market share, it
is made available at a price that is significantly lower than the
prices charged by the Exchange's main competitors--i.e., those with
comparable market shares and data quality. Notably, even with the
proposed fee increase, the EDGX Top Feed would remain significantly
cheaper than similar products offered by New York Stock Exchange LLC
(``NYSE''), NYSE Arca, Inc. (``Arca''), and Nasdaq both in terms of the
fees charged for internal distribution and the fees charge for each
Professional User that is provided access to the feed. For example,
NYSE charges a total of $3,000 per month for internal distribution of
their equivalent products, i.e., $1,500 per month for applicable top-
of-book quotation information,\33\ and an additional $1,500 per month
for transaction information,\34\ both of which are included in the EDGX
Top Feed for a single fee.\35\ Arca, which has a similar pricing model
to NYSE, also charges a higher rate of $1,500 per month for internal
distribution of its equivalent products, separated into a $750 per
month charge for top-of-book quotation information and an additional
$750 per month charge for transaction information.\36\ Finally, Nasdaq
charges its internal distributors a fee of $1,500 per month for Nasdaq
Basic, which includes both top-of-book quotation information and
transaction information for the same fee, similar to the Exchange's
pricing model, but again at a higher cost.\37\ In each case, the
internal distribution charges associated with obtaining comparable U.S.
equities market data from NYSE, Arca, and Nasdaq runs at least double
and up to four times as much as the proposed fee to be charged by the
Exchange, meaning that the Exchange would continue to be offering its
data at a price that is attractive compared to the prices charged by
its competitors. Similarly, each of these exchanges charges a fee for
each professional subscriber.\38\ Those professional subscriber fees
are each higher than that proposed by the Exchange--i.e., $26 per month
for Nasdaq,\39\ and $8 per month total for both NYSE and Arca.\40\
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    \33\ See NYSE PDP Market Data Pricing, Section 1.3, NYSE BBO.
    \34\ See NYSE PDP Market Data Pricing, Section 1.4, NYSE Trades.
    \35\ See supra note 4 and accompanying text. The Exchange also
offers a separate market data product, i.e., EDGX Last Sale, that
exclusively provides last sale information. See EDGX Rule 13.8(d).
However, all of the information contained in the EDGX Last Sale Feed
is also made available in the EDGX Top Feed at no additional charge.
    \36\ See NYSE PDP Market Data Pricing, Section 3.3, NYSE Arca
BBO; NYSE PDP Market Data Pricing, Section 3.4, NYSE Arca Trades.
    \37\ See Nasdaq Equity Rules, Equity 7, Pricing Schedule,
Section 147(c)(1). In addition, Nasdaq also charges distributors a
$100 monthly administrative fee. See Nasdaq Equity Rules, Equity 7,
Pricing Schedule, Section 135.
    \38\ These exchanges use a definition of ``professional
subscriber'' that is substantially similar to the Professional User
definition used by the Exchange. See e.g. Nasdaq Equity Rules,
Equity 7, Pricing Schedule, Section 147(d)(4)(B); NYSE
Nonprofessional Subscriber Policy, available at https://www.nyse.com/publicdocs/nyse/data/Policy-Non-ProfessionalSubscribers_PDP.pdf.
    \39\ Nasdaq's Professional User fee is divided into Nasdaq
issues ($13), NYSE issues ($6.50), and other issues ($6.50) for a
total of $26 per month for each Professional User. See Nasdaq Equity
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
    \40\ NYSE and Arca's fees are both broken down into $4 per month
for BBO information and an additional $4 per month for Trades
information. See supra notes 33, 34, and 36.
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    Second, the proposed fees are reasonable given the value of the
data provided in the EDGX Top Feed and used by data recipients in their
profit-generating activities. The EDGX Top Feed provides top-of-book
quotations and transactions executed on the Exchange, and provides a
valuable window into the market for securities traded on a market that
accounts for more than 7.5% of U.S. equity market volume today.\41\ As
discussed, the Exchange offers the EDGX Top Feed in a competitive
environment where firms may freely choose which market data products
best suit their business needs. Invariably, firms that choose to
purchase the EDGX Top Feed instead of receiving one of the many free
products offered by other exchanges,\42\ including free products
offered by an affiliate of the Exchange,\43\ have decided that the
value of the EDGX Top Feed is greater than that offered by those other
products. The Exchange consistently ranks among the top U.S. equities
exchanges in terms of various market quality measures, e.g., NBBO quote
quality and NBBO market share.\44\ Indeed, by attracting liquidity
providing orders, e.g., through retail priority, the Exchange is able
to offer market data products that benefit from increased market
quality. In turn, investors may choose to rely on the Exchange's market
data products instead of other competitor offerings based on the value
they provide in relation to any additional cost associated with
obtaining that market data from the Exchange. For example, investors
may wish to obtain market data from an exchange that has a higher time
at the inside, as data obtained from an exchange that is quoting more
often at the NBBO may better reflect the applicable market for
securities it trades. Similarly, an exchange with greater overall
market share will produce more transaction information that may be
valuable to consumers of its data. Improvements in market quality will
therefore directly impact the value of the market data that an exchange
is able to offer to investors.
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    \41\ See https://markets.cboe.com/us/equities/market_share/.
    \42\ See e.g., Investors Exchange Fee Schedule, Market Data
fees.
    \43\ See e.g., Cboe EDGA Exchange, Inc., Fee Schedule, EDGA Top.
    \44\ See https://www.cboe.com/us/equities/market_statistics/market_quality/.
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iii. The Proposed Fees Are Equitable and Not Unfairly Discriminatory as
Internal Distributors will be Subject to Uniform Pricing Based on Their
Usage of the Data and Differences Between the Fees Charged for Internal
and External Distribution Are Appropriate
    The Exchange believes the proposed fees for internal distribution
of the EDGX Top Feed will continue to be allocated fairly and equitably
among subscribers, and are not unfairly

discriminatory, as the proposed fees will apply equally to all data
recipients that choose to subscribe to the EDGX Top Feed and distribute
that data to internal subscribers. As proposed, all internal
distributors of the EDGX Top Feed will be subject to the same internal
distribution fee, regardless of the type of business that they operate,
or the use they plan to make of the data feed. Thus, all internal
distributors would have access to the EDGX Top Feed on the same
equitable and non-discriminatory terms. Similarly, with the
introduction of Professional User fees, internal distributors of the
EDGX Top Feed will be subject to the same modest fees based solely on
the number of Professional Users that each internal distributor has
chosen to permission for access to this information. The Exchange does
not believe that it is inequitable, or unfairly discriminatory, to
charge a fee based on the number of Professional Users within a firm
that have access to the EDGX Top Feed as this ensures that firms with
the highest usage pay their equitable share for the data.
    The Exchange also believes that it is fair and equitable, and not
unfairly discriminatory, to continue not to charge a fee for internal
distribution to Non-Professional Users. The Exchange's fee structure is
generally designed to facilitate lower cost access to its market data
by retail investors, either through substantially lower User fees for
Non-Professional Users, or other incentive programs, such as the Small
Retail Broker Distribution Program, which was recently implemented to
lower the cost of the Exchange's market data to small broker-dealers
that serve retail investors. The Exchange does not believe that any
significant number of Non-Professional Users to [sic] receive EDGX Top
Feed Data through internal, i.e., within the distributor's firm, as
opposed to external distribution, and in the event that certain firms
may distribute data internally to Users that qualify as Non-
Professional, providing such Users access without any User fees would
facilitate the Exchange's overall goals of facilitating access to its
data by retail investors, which the Commission has continually found to
be consistent with the Exchange Act.
    Finally, the Exchange believes that it is fair and equitable, and
not unfairly discriminatory to continue to charge different fees for
internal and external distribution of the EDGX Top Feed. As is common
practice, the Exchange charges lower fees to distributors that use its
market data products for internal distribution only than to
distributors that redistribute that data externally to their customers.
In the case of the EDGX Top Feed, external distributors are subject to
a higher distribution fee, and are also subject to Non-Professional
User fees, which as discussed above the Exchange has determined to
continue not to charge to internal distributors.\45\ Increasing the
fees that the Exchange charges for internal distribution of the EDGX
Top Feed, as proposed, would actually serve to decrease the disparity
in charge between internal and external distribution, while at the same
time continuing to facilitate the internal distribution of the EDGX Top
Feed at a lower cost. The Exchange continues to believe that it is
appropriate to distinguish between internal and external distributors
in setting fees for the EDGX Top Feed as external distributors can
redistribute the Exchange's market data to its clients for a fee,
whereas internal distributors are not allowed to redistribute the data.
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    \45\ See EDGX Schedule of Fees, EDGX Top. The proposed
Professional User fee for internal distribution of the EDGX Top Feed
is the same as currently charged for external distribution of that
market data product. Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by competition among exchanges that
offer similar data products to their customers. Top-of-book data is
broadly disseminated by competing U.S. equities exchanges. There are
therefore a number of alternative products available to market
participants and investors, including products offered by certain
competing exchanges without charge. In this competitive environment
potential subscribers are free to choose which competing product to
purchase to satisfy their need for market information. Often, the
choice comes down to price, as market data customers look to purchase
cheaper top-of-book data products, and quality, as market participants
seek to purchase data that represents significant market liquidity.
    Intramarket Competition. The Exchange believes that the proposed
fees do not put any market participants at a relative disadvantage
compared to other market participants. As discussed, the proposed fees
would apply to all internal distributors of the EDGX Top Feed on an
equal and non-discriminatory basis, and the continued difference in
fees for internal and external distribution are appropriate given the
ability for external distributors to redistribute data externally to
their clients. The Exchange therefore believes that the proposed fees
neither favor nor penalize one or more categories of market
participants in a manner that would impose an undue burden on
competition.
    To the extent that particular fees would apply to only a subset of
subscribers, e.g., Professional versus Non-Professional Users, those
distinctions are not unfairly discriminatory and do not unfairly burden
one set of customers over another. As discussed, the Exchange does not
believe that any significant number of Non-Professional Users receive
EDGX Top Feed Data through internal distribution. Further, to the
extent that any Non-Professional Users receive the EDGX Top Feed
through internal distribution, the Exchange believes that it is not
unfairly discriminatory not to charge a fee for their usage as this
would facilitate the dissemination of market data to retail investors.
    Intermarket Competition. The Exchange believes that the proposed
fees do not impose a burden on competition or on other SROs that is not
necessary or appropriate in furtherance of the purposes of the Act. In
setting the proposed fees, the Exchange is constrained by the
availability of numerous substitute products offered by other national
securities exchanges. Because market data customers can find suitable
substitute feeds, an exchange that overprices its market data products
stands a high risk that users may substitute another product. These
competitive pressures ensure that no one exchange's market data fees
can impose an undue burden on competition, and the Exchange's proposed
fees do not do so here.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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 \46\ and paragraph (f) of Rule 19b-4 \47\
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.
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    \46\ 15 U.S.C. 78s(b)(3)(A).
    \47\ 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_ADDRESS>Please include
File Number SR-CboeEDGX-2021-014 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-2021-014. 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-2021-014 and should be
submitted on or before April 13, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05912 Filed 3-22-21; 8:45 am]
BILLING CODE 8011-01-P