[Federal Register Volume 85, Number 37 (Tuesday, February 25, 2020)]
[Notices]
[Pages 10760-10765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03646]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88243; File No. SR-CBOE-2020-011]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fees Schedule
February 19, 2020.
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 February 6, 2020, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The text of the proposed rule change is available on the Exchange's
website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx),
at the Exchange's Office of the Secretary, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule to (1) amend
certain SPX fees, (2) amend the standard transaction fee for Clearing
Trading Permit Holder Proprietary orders in Underlying Symbol List A,
(3) amend certain VIX fees, (4) adopt fee codes for waived linkage
transactions, (5) re-adopt the Clearing Trading Permit Holder position
re-assignment rebate, (6) clarify that Network Access Ports will be
available for physical connections to PULSe through February 29, 2020,
and (7) reduce the rebate under the GTH SPX/SPXW LLM program.\3\
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\3\ The Exchange initially filed the proposed fee changes on
February 3, 2020 (SR-CBOE-2020-008). On February 4, 2020, the
Exchange withdrew that filing and submitted SR-CBOE-2020-009. On
February 6, 2020, the Exchange withdrew that filing and submitted
this filing.
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SPX Fees
Standard Transaction Fees
The Exchange first proposes to adopt modest fee increases for SPX
and SPXW transactions. With respect to Customer orders (capacity ``C'')
in SPX and SPXW, the Exchange proposes to increase transaction fees by
$0.01 per contract. More specifically, the Exchange proposes to
increase Customer transaction fees for SPX/SPXW orders with a premium
of (1) $0.00-$0.10 and $0.11-$0.99 from $0.35 per contract to $0.36 per
contract and (2) $1.00 or more from $0.44 per contract to $0.45 per
contract. The Exchange next proposes to increase transaction fees for
Broker-Dealer (capacity ``B''), Joint Back-Office (capacity ``J''),
Non-Trading Permit Holder (``TPH'') Market-Maker (capacity ``N''), and
Professional (capacity ``U'') orders in SPX and SPXW from $0.40 per
contract to $0.42 \4\ per contract.
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\4\ The Exchange proposes to adopt new fee code BT for Non-
Customer, Non-Market-Maker SPX and SPXW orders.
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SPX Liquidity Provider Sliding Scale
The Exchange proposes to amend its sliding scale for Market-Maker
transaction fees in SPX and SPXW (``SPX Liquidity Provider Sliding
Scale''). Currently, Market-Makers' transaction fees in SPX and SPXW
are determined by their average monthly contracts in SPX and SPXW. The
SPX Liquidity Provider Sliding Scale currently provides for five tiers.
The Exchange proposes to increase the transaction fees under Tiers 4
and 5 of the SPX Liquidity Provider Sliding Scale by $0.01 per contract
(and thereby lessen the current discount). More specifically, the
Exchange proposes to increase the transaction rate under Tier 4 \5\
from $0.22 per contract to $0.23 per contract, and the transaction rate
under Tier 5 \6\ from $0.20 per contract to $0.21 per contract. The
Exchange believes that
[[Page 10761]]
notwithstanding the proposed transaction fee increase under Tiers 4 and
5, the SPX Liquidity Provider Sliding Scale will continue to provide
incremental incentives for Market-Makers to reach the highest tier
level and encourage trading of SPX options, as it continues to provide
progressively lower rates if increased volume thresholds in SPX
(including SPXW) options are attained during a month.
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\5\ The volume threshold for Tier 4 is 9.00%-$15.00%.
\6\ The volume threshold for Tier 5 is above 15.00%.
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SPXW Execution Surcharge
The Exchange proposes to amend the Execution Surcharge for SPXW
(``SPXW Surcharge''). Currently, the Exchange assesses a SPXW Surcharge
of $0.10 per contract for non-Market-Maker orders in SPXW that are
executed electronically (with some exceptions).\7\ The Exchange
proposes to increase the Execution Surcharge for SPXW to $0.13 per
contract. The Exchange notes the proposed SPXW Surcharge is still less
than the Execution Surcharge assessed for SPX transactions.\8\
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\7\ See Cboe Options Fees Schedule, Footnote 21.
\8\ See Cboe Options Fees Schedule, Rate Table--Underlying
Symbol List A, Execution Surcharge, SPX only.
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SPX Index License Surcharge
The Exchange proposes to increase the Index License Surcharge Fee
for SPX (including SPXW) (the ``SPX Surcharge'') from $0.16 per
contract to $0.17 per contract. The Exchange licenses from S&P Dow
Jones Indices (``SPDJI'') (the ``SPDJI License'') the right to offer an
index option product based on the S&P 500 index (that product being SPX
and other SPX-based index option products). In order to offset the
costs associated with the SPDJI License, the Exchange assesses the SPX
Surcharge. The Exchange therefore proposes to increase the SPX
Surcharge from $0.16 per contract to $0.17 per contract in order to
offset more of the costs associated with the SPX license.
Clearing Trading Permit Holder Proprietary Fees
The Exchange proposes to increase the standard transaction fee for
Clearing Trading Permit Holders and for Non-Clearing Trading Permit
Holder Affiliates (``Firms'') (capacities ``F'' and ``L'',
respectively) in Underlying Symbol List A \9\ (excluding VIX) by $0.01.
Specifically the Exchange proposes to increase the fee from $0.25 per
contract to $0.26 per contract.
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\9\ Underlying Symbol List A currently includes OEX, XEO, RUT,
RLG, RLV, RUI, UKXM, SPX (includes SPXw) and VIX. See Cboe Options
Fees Schedule, Footnote 34.
\10\ The Exchange assesses $0.18 per contract for customer ETF
orders that are >=100 contracts, and customer orders in multi-listed
index products. See Cboe Options Fees Schedule, Rate Table--All
Products Excluding Underlying Symbol List A.
\11\ The Exchange does not assess a fee for customer ETF orders
that are <100 contracts or for customer orders in equity options.
See Cboe Options Fees Schedule, Rate Table--All Products Excluding
Underlying Symbol List A.
\12\ The Exchange assesses a $0.04 per contract fee for customer
XSP orders. See Cboe Options Fees Schedule, Rate Table--All Products
Excluding Underlying Symbol List A.
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VIX Fees
The Exchange next proposes to amend standard Customer (capacity
``C'') transaction fees for VIX transactions. First the Exchange
proposes to decrease certain VIX transaction fees, adopt separate fees
for simple versus complex VIX transactions, and adopt a new fee for VIX
orders with a premium of $2.00 or more, along with the noted fee codes,
as follows:
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Proposed
Current premium Proposed premium Current Proposed simple fees Fee code complex fees Fee code
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$0.00-$0.10.............................. $0.00-$0.10................. $0.10 No change.................. CV $0.05 CZ
$0.11-$0.99.............................. $0.11-$0.99................. 0.25 No change.................. CW 0.17 DA
Greater than $1.00....................... $1.00-$1.99................. 0.45 $0.40...................... CX 0.30 DB
N/A...................................... $2.00 and above............. N/A $0.45...................... CY 0.45 DC
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The Exchange proposes to reduce fees for Customer simple orders
with a premium between $1.00-$1.99 to incentivize the sending of more
orders within this premium range. Similarly, the Exchange proposes to
adopt reduced fees for Customer complex VIX orders in order to
encourage the sending of additional complex VIX orders. The Exchange
did not believe it was necessary to assess different fees for simple
and complex VIX orders with a premium of $2.00 or greater. The Exchange
notes that Customer VIX orders with a premium of $2.00 or greater
account for a very small percentage of overall VIX trading.
Linkage Waiver
The Exchange proposes to adopt fee codes for linkage transactions
for which away transaction fees are waived. More specifically, the
Exchange currently provides that it will not pass through or otherwise
charge customer orders (of any size) routed to other exchanges that
were originally transmitted to the Exchange from the trading floor
through an Exchange[hyphen]sponsored terminal (e.g. a PULSe
Workstation). Currently, this waiver is implemented manually. Beginning
February 3, 2020, this waiver will be automated and the Exchange
therefore proposes to adopt specific fee codes for such transactions.
Particularly, the Exchange proposes to adopt the following fee codes
for customer orders (of any size) routed to other exchanges that were
originally transmitted to the Exchange from the trading floor through
an Exchange-sponsored terminal:
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Fee Code Rate
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TD........................ Routed to AMEX, BOX, BX, \10\ $0.18
EDGX, MERC, MIAX, PHLX,
>=100 contracts, ETF.
TE........................ Routed to AMEX, BOX, BX, \11\ 0.00
EDGX, MERC, MIAX, PHLX,
<100 contracts ETF, Equity.
TF........................ Routed to ARCA, BZX, C2, 0.18
ISE, GMNI, EMLD, PERL,
NOMX, >=100 contracts ETF,
Penny.
TG........................ Routed to ARCA, BZX, C2, 0.18
ISE, GMNI, EMLD, PERL,
NOMX, >=100 contracts ETF,
Non-Penny.
TH........................ Routed to ARCA, BZX, C2, 0.00
ISE, GMNI, EMLD, PERL,
NOMX, <100 contracts ETF,
Equity, Penny.
TI........................ Routed to ARCA, BZX, C2, 0.00
ISE, GMNI, EMLD, PERL,
NOMX, <100 contracts ETF,
Equity, Non-Penny.
TS........................ Routed, Index............... 0.18
TX........................ Routed, XSP, originating on \12\ 0.04
Exchange-sponsored terminal.
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[[Page 10762]]
The Exchange notes the proposed fee codes do not represent a
substantive change, but are being adopted merely in light of the
Exchange's automation of a current waiver.
Clearing Trading Permit Holder Position Re-Assignment Rebate
The Exchange proposes to adopt a rebate for transaction fees
assessed to a Clearing Trading Permit Holder who, as a result of a
trade adjustment on any business day following the original trade, re-
assigns a position established by the initial trade to a different
Clearing Trading Permit Holder. In such a circumstance, the Exchange
will rebate, for the party for whom the position is being re-assigned,
that party's transaction fees from the original transaction as well as
the transaction in which the position is re-assigned. In all other
circumstances, including corrective transactions, in which a
transaction is adjusted on any day after the original trade date,
regular Exchange fees will be assessed. The Exchange notes that the
proposed rebate is not novel. Indeed, the Exchange's Fees Schedule had
included the proposed rebate prior to the migration to a new billing
system on October 7, 2019, but had eliminated the rebate upon
migration.\13\ After further evaluation, the Exchange now wishes to re-
adopt the proposed rebate. The Exchange lastly notes that because the
Exchange may not always be able to automatically identify these
situations, in order to receive a rebate, the Fees Schedule will also
provide that a written request in a form and manner prescribed by the
Exchange must be submitted within 3 business days of the original
transaction.
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\13\ See Securities and Exchange Act Release No. 87303 (October
15, 2019), 84 FR 56276 (October 21, 2019) (SR-CBOE-2019-080).
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Network Access Ports
By way of background, a physical port is utilized by a TPH or non-
TPH to connect to the Exchange at the data centers where the Exchange's
servers are located. Prior to migration of its trading platform to a
new system on October 7, 2019, the Exchange utilized Network Access
Ports for these physical connections to the Exchange. Upon migration,
the TPHs and non-TPHs had the option to alternatively elect to connect
to Cboe Options via new latency equalized Physical Ports. The Exchange
had noted in its Fees Schedule that through January 31, 2020, Cboe
Options market participants would continue to have the ability to
connect to Cboe Options' trading system via the current Network Access
Ports. The Exchange notes that all Network Access Ports have been
decommissioned as of January 31, 2020, with the exception of a couple
Network Access Ports used solely to connect to PULSe. The Exchange
notes that although the new latency equalized Physical Ports became
available on October 7, 2019, the new Physical Ports were not
originally able to be utilized to send orders to PULSe. Accordingly,
users who wished to route orders to PULSe via the Exchange's physical
ports had to maintain and use a legacy Network Access Fee Port and
could not use any of the new Physical Ports for such purpose. The
Exchange notes that although the new Physical Ports are now able to be
used to connect to PULSe, a couple of TPHs have not yet made the
transition from the Exchange's legacy Network Access Ports to the new
Physical Ports for purposes of connecting to PULSe. As such, the
Exchange proposes to amend the Fees Schedule to clarify that Network
Access Ports will be available through February 29, 2020 to connect to
PULSe. The fee waiver for Network Access Ports used solely to access
PULSe will continue to remain in place.
GTH SPX/SPXW LMM Incentive Program
Pursuant to the Fees Schedule, a LMM in SPX/SPXW will receive a
pro-rata share of a compensation pool for SPX equal to $15,000 times
the number of LMMs appointment in SPX and if the LMM meets the
heightened quoting standard described below for SPXW, the LMM will
receive an additional pro-rata share of a compensation pool for SPXW
equal to $15,000 times the number of LMMs in that class (for a total of
$30,000 per month for meeting the standard for both SPX and SPXW) if
the LMM(s) provide continuous electronic quotes that meet or exceed the
following heightened quoting standards in at least 99% of each of SPX
and SPXW series 90% of the time in a given month during GTH:
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Premium Expiring Near term Mid term Long term
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7 days or less 8 days to 60 days 61 days to 270 days 271 days or greater
Level -----------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
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$0-$5.00................................................ $0.50 10 $0.40 25 $0.60 15 $1.00 10
$5.01-$15.00............................................ 2.00 7 1.60 18 2.40 11 4.00 7
$15.01-$50.00........................................... 5.00 5 4.00 13 6.00 8 10.00 5
$50.01-$100.00.......................................... 10.00 3 8.00 8 12.00 5 20.00 3
$100.01-$200.00......................................... 20.00 2 16.00 5 24.00 3 40.00 2
Greater Than $200.00.................................... 30.00 1 24.00 3 36.00 1 60.00 1
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A GTH LMM in SPX/SPXW is not currently obligated to satisfy the
heightened quoting standards described in the table above. Rather, an
LMM is eligible to receive the rebate if they satisfy the heightened
quoting standards above. The Exchange now proposes to amend the rebate
available to LMM(s) under the program. Specifically, the Exchange
proposes to eliminate the current compensation pool structure and
reduce a straight rebate per product per LMM. More specifically, the
Exchange proposes to provide that if a GTH SPX/SPXW LMM meets the
proposed heightened quoting standard described above, it will receive
$10,000 per product. As is the case today, SPX/SPXW GTH LMM(s) will
still not be obligated to satisfy the amended heightened quoting
standard. The Exchange believes the program, as amended, will continue
to encourage SPX/SPXW GTH LMM(s) to provide liquidity in SPX/SPXW
during GTH. Additionally, the Exchange notes that a SPX/SPXW GTH LMM
may need to undertake expenses to be able to quote at a significantly
heightened standard in SPX/SPXW, such as purchase more logical
connectivity based on its increased capacity needs.
[[Page 10763]]
The Exchange also proposes to eliminate (1) the example of how the
compensation pool works as it is no longer necessary given the
elimination of the compensation pool structure, and (2) obsolete
language regarding how the program was billed for October 2019.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\14\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \15\ requirements 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 foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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, and does not
unfairly discriminate between customers, issuers, brokers or dealers.
Additionally, the Exchange believes the proposed rule change is
consistent with Section 6(b)(4) of the Act,\16\ which requires that
Exchange rules provide for the equitable allocation of reasonable dues,
fees, and other charges among its Trading Permit Holders and other
persons using its facilities.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed increases to Customer SPX
transaction fees are reasonable as the proposed increases are modest
and modifies fees that have not been otherwise amended in well over 10
years.\17\ The Exchange notes the proposed fees are also in line with
customer transaction fees assessed in other index products.\18\
Similarly, the Exchange believes the proposed fee increase for Broker-
Dealer, Joint Back-Office, Non-TPH Market-Maker and Professional SPX/
SPX orders is reasonable as it too is a modest increase to a fee that
has not been modified in over ten years.\19\ The Exchange notes the
proposed fee is still in line with transaction fees assessed in other
index products.\20\ The Exchange believes the proposed standard
transaction fee increases are also equitable and not unfairly
discriminatory because the changes apply to similarly situated market
participants uniformly.
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\17\ See Securities Exchange Act Release No. 55193 (January 30,
2007) 72 FR 5476 (February 6, 2007) (SR-CBOE-2006-111) and
Securities Exchange Act Release No. 57191 (January 24, 2008) 73 FR
5611 (January 30, 2008) (SR-CBOE-2007-150).
\18\ See e.g., Cboe Options Fees Schedule, Rate Table--
Underlying Symbol List A, customer transaction fees.
\19\ See Securities Exchange Act Release No. 55193 (January 30,
2007) 72 FR 5476 (February 6, 2007) (SR-CBOE-2006-111).
\20\ See e.g., Cboe Options Fees Schedule, Rate Table--
Underlying Symbol List A, Broker-Dealer, Joint Back-Office, Non-TPH
Market-Maker and Professional fees for RUT.
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The Exchange believes the proposed amendment to the discounted
Market-Maker fees in Tiers 4 and 5 of the SPX Liquidity Provider
Sliding Scale is reasonable because Market-Makers are still eligible to
receive discounted fees for satisfying the corresponding criteria
(albeit less of a discount). The Exchange believes that notwithstanding
the proposed transaction fee increase under Tiers 4 and 5, the SPX
Liquidity Provider Sliding Scale will continue to provide incremental
incentives for Market-Makers to reach the highest tier level and
encourage trading of SPX options, as it continues to provide
progressively lower rates if increased volume thresholds in SPX
(including SPXW) options are attained during a month. The Exchange also
believes the rebates, as amended, are still commensurate with the
difficultly level of satisfying the respective tier's criteria. The
Exchange believes the proposed fee change is equitable and not unfairly
discriminatory as it applies uniformly to all Market-Makers.
The Exchange believes amending the Execution Surcharge for SPXW
Surcharge is reasonable as such fee is still lower than the Execution
Surcharge for SPX transactions.\21\ Additionally, the proposed increase
helps to ensure that there is reasonable cost equivalence between the
primary execution channels for SPXW. More specifically, the SPXW
Surcharge was adopted to minimize the cost differentials between manual
and electronic executions, which is in the interest of the Exchange as
it must both maintain robust electronic systems as well as provide for
economic opportunity for floor brokers to continue to conduct business,
as they serve an important function in achieving price discovery and
customer executions.\22\ The Exchange believes the proposed change is
also equitable and not unfairly discriminatory as it applies uniformly
to all similarly situated market participants.
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\21\ See Cboe Options Fees Schedule, Rate Table, Underlying
Symbol List A, which provides for a $0.21 per contract Execution
Surcharge for SPX orders.
\22\ See Securities Exchange Act Release No. 71295 (January 14,
2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
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Increasing the SPX Surcharge is reasonable because the Exchange
still pays more for the SPX license than the amount of the proposed SPX
Surcharge (meaning that the Exchange is, and will still be, subsidizing
the costs associated with the SPX license). This increase is equitable
and not unfairly discriminatory because the increased amount will be
assessed to all market participants to whom the SPX Surcharge applies.
The Exchange believes the proposed increase to the standard Firm
transaction fee in Underlying Symbol List A (excluding VIX) orders is
reasonable as the proposed increase is modest and modifies a fee that
has not been amended in over 9 years.\23\ The Exchange notes the
proposed fees are also in line with customer transaction fees assessed
in other index products.\24\ The Exchange also notes that Firms
continue to have an opportunity to earn a discounted fee via the
Clearing Trading Permit Holder Proprietary Products Sliding Scale. The
Exchange believes the proposed fee increase is also equitable and not
unfairly discriminatory because the change applies to Firms uniformly.
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\23\ See Securities Exchange Act Release No. 63701 (January 11,
2011) 76 FR 2934 (January 18, 2011) (SR-CBOE-2010-116).
\24\ See, e.g., Cboe Options Fees Schedule, Rate Table--
Underlying Symbol List A, customer transaction fees.
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The Exchange next believes its proposed change to reduce certain
VIX transaction fees is reasonable as Customers will be paying lower
fees for such transactions. The Exchange notes the proposed changes to
VIX Customer transaction fees are designed to encourage the sending of
additional VIX orders, including complex orders. The Exchange notes the
proposed change is also in line with other fee programs that are
designed to incentivize the sending of complex orders to the Exchange.
For example, the Exchange provides higher rebates under the Volume
Incentive Program for complex orders as compared to simple orders.\25\
The Exchange believes the proposed fee changes are also equitable and
not unfairly discriminatory because they apply to all Customers
uniformly.
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\25\ See Cboe Options Fees Schedule, Volume Incentive Program.
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The Exchange believes adopting fee codes for waived linkage
transactions is reasonable and equitable because the Exchange believes
such fee codes provide further clarity in the Fees
[[Page 10764]]
Schedule and the fee codes do not amend the current linkage fees or fee
waiver. Rather, the Exchange is merely adopting fee codes in light of
the transition from manual processing of the current linkage waiver to
automated processing. Additionally, the Exchange believes the proposed
fee codes allow TPHs to more easily validate the bills they receive
from the Exchange, thus alleviating potential confusion.
The Exchange believes it is reasonable to offer a rebate when a
Clearing Trading Permit Holder re-assigns a position, as the Clearing
Trading Permit Holder may not have elected to take that position in the
first place (and may just have been erroneously listed as a party to
the transaction). The Exchange believes that this change is equitable
and not unfairly discriminatory for the same reason; it is equitable to
rebate fees to a Clearing Trading Permit Holder that was assessed fees
for taking a position from a transaction to which that Clearing Trading
Permit Holder was not a party. Otherwise, the Exchange believes it is
equitable for a party that made an error reporting a transaction to be
responsible for paying the fees associated with making that error.
Further, the proposed changes will apply equally to all market
participants. The Exchange also notes that the proposed rebate is not
novel. Indeed, the Exchange's Fees Schedule had included the proposed
rebate prior to the migration to a new billing system on October 7,
2019, but had eliminated the rebate upon migration.\26\ After further
evaluation, the Exchange now wishes to re-adopt the proposed rebate.
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\26\ See Securities and Exchange Act Release No. 87303 (October
15, 2019), 84 FR 56276 (October 21, 2019) (SR-CBOE-2019-080).
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The Exchange believes the proposal to allow TPHs to continue to
utilize legacy Network Access Ports through February 29, 2020 is
reasonable as a few TPHs have not yet been able to transition from the
Network Access Ports to the new Physical Ports with respect to their
connection to PULSe. Any remaining Network Access ports would be
configured to only allow routing of orders to PULSe, The Exchange
believes updating the notes section for Network Access Ports provides
further clarity in the rules as to the availability of such ports. The
Exchange believes its proposal to eliminate obsolete language in the
notes section of the Network Access Ports also alleviates potential
confusion.
The Exchange believes the amount of the amended rebate for SPX/SPXW
GTH LMMs ($10,000 per product) is reasonable because it continues to
provide a rebate (albeit a reduced rebate) for meeting the heightened
quoting standard and takes into consideration additional costs an LMM
may incur. Particularly, the Exchange believes the proposed amount is
such that it will still incentivize an appointed LMM to meet the GTH
quoting standards for SPX and SPXW, thereby protecting investors and
the public interest. Additionally, if an LMM does not satisfy the
heightened quoting standard, then it will simply not receive the
rebate. The Exchange believes it is equitable and not unfairly
discriminatory to only offer the rebate to SPX/SPXW LMMs because GTH
LMMs provide a crucial role in providing quotes and the opportunity for
market participants to trade during GTH, which can lead to increased
volume, thereby providing a robust market. The Exchange also notes that
the GTH LMM may have added costs each month that it needs to undertake
in order to satisfy that heightened quoting standard (e.g., having to
purchase additional logical connectivity).
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
First, the Exchange believes the proposed rule change does impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes as described above apply to all similarly situated TPHs in a
uniform manner. Additionally, while different fees and rebates are
assessed to different market participants in some circumstances, these
different market participants have different obligations and different
circumstances. For example, Market-Makers, including Lead Market-Makers
play a crucial role in providing active and liquid markets in their
appointed products, thereby providing a robust market which benefits
all market participants. Such Market-Makers also have obligations and
regulatory requirements that other participants do not have. There is
also a history in the options markets of providing preferential
treatment to customers, as they often do not have as sophisticated
trading operations and systems as other market participants, which
often makes other market participants prefer to trade with customers.
Further, the Exchange fees and rebates, both current and those proposed
to be changed, are intended to encourage market participants to bring
increased volume to the Exchange (which benefits all market
participants), while still covering Exchange costs (including those
associated with the upgrading and maintenance of Exchange systems).
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. First, changes
relating to the Exchange's proprietary products only affect trading on
Cboe Options, as such products are exclusively listed on Cboe Options.
Next, the Exchange notes it operates in a highly competitive market. In
addition to Cboe Options, TPHs have numerous alternative venues that
they may participate on and director their order flow, including 15
options exchanges, as well as off-exchange venues. Based on publicly
available information, no single options exchange has more than 22% of
the market share of executed volume of options trades.\27\ Therefore,
no exchange possesses significant pricing power in the execution of
option order flow. Moreover, the Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
Specifically, in Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and,
also, recognized that current regulation of the market system ``has
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \28\ The fact that this market is competitive has also
long been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
[[Page 10765]]
dealers'. . . .''.\29\ Accordingly, the Exchange does not believe its
proposed changes to extend the above-mentioned fee waivers and
incentive programs impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\27\ See Cboe Global Markets, U.S. Options Market Volume Summary
by Month (February 3, 2020) available at http://markets.cboe.com/us/options/market_share/.
\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\29\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \30\ and paragraph (f) of Rule 19b-4 \31\
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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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2020-011 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-CBOE-2020-011. 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-CBOE-2020-011 and should be submitted on
or before March 17, 2020.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03646 Filed 2-24-20; 8:45 am]
BILLING CODE 8011-01-P