July 18, 2019

Vanessa Countryman
Secretary
Securities and Exchange Commission
100 F Street NE., Washington, DC 20549

Re: SIFMA Comment Letter on Cboe EDGA Proposed Rule Change to Introduce a Liquidity Provider Protection; File No. SR-CboeEDGA-2019-012

Dear Ms. Countryman:

The Securities Industry and Financial Markets Association (“SIFMA”)1 submits this letter to comment on Cboe EDGA’s proposal2 to introduce a liquidity provider protection—effectively, an asymmetric speed bump—that would not be protected by the Order Protection Rule (“OPR”) of Regulation NMS.3 Cboe’s proposal, and the lack of OPR protection for the speed bump, raise significant questions on the resulting impact on broker-dealers’ regulatory obligations, including best execution obligations, under a scenario in which an exchange operates continuously without OPR protection. Prior to deciding to approve or disapprove Cboe’s proposal, the Commission should consider and address the impact of the speed bump on other regulatory obligations, and in particular should provide guidance on broker-dealers’ best execution obligations for routing decisions involving exchanges not subject to the OPR.

As background, SIFMA has previously expressed concern with asymmetrical speed bumps and their impact on equity market structure.4 We strongly support innovation in the equity markets, and we appreciate the spirit of innovation behind Cboe EDGA’s proposal. However, SIFMA remains concerned with the market implications of an access delay that discriminates based on type of order submitted (liquidity taking vs. liquidity providing).5 The proposal does not explain the current harm to liquidity providers that needs amelioration through a delay and how this proposal incentivizes tighter quotes or other benefits. Allowing exchanges to intentionally delay quotes to benefit certain parties could result in market makers widening quotes in the broader market to account for displayed prices that are not actionable or predictable. For instance, a previous academic study evaluating the impact of a Canadian speed bump offered by an unprotected exchange that similarly delayed liquidity taking orders found that, in aggregate, liquidity was negatively impacted, with increased market-wide costs for liquidity takers.6 Further, Commission approval of Cboe’s proposal likely would encourage other exchanges to implement additional and longer delays, potentially resulting in exchanges competing to execute orders slower.

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