[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71021-71024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27733]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87799; File No. SR-CBOE-2019-124]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
December 18, 2019.
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 December 18, 2019, 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
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://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
[[Page 71022]]
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 various amendments to its Fees Schedule.\3\
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\3\ The Exchange originally filed the proposed fee changes on
December 2, 2019 (SR-CBOE-2019-114). On December 12, 2019, the
Exchange withdrew that filing and submitted SR-CBOE-2019-120. On
December 18, 2019, the Exchange withdrew that filing and submitted
this filing.
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SPX Select Market-Makers
Footnote 49 of the Fees Schedule currently provides that any
appointed SPX Select Market-Maker (``SMM'') will receive a monthly
rebate of $8,000 if the SMM provides continuous electronic quotes in at
least 99% of the SPX series 90% of the time in a given month. SMMs are
not obligated to satisfy the heightened quoting standards described in
the Fees Schedule. Rather, SMMs are eligible to receive a rebate if
they satisfy the heightened standards. SMMs must still comply with the
continuous quoting obligation and other obligations of Market-Makers
described in Cboe Options Rules.\4\ The Exchange adopted the monthly
rebate program to encourage SMMs to provide liquidity in SPX. The
Exchange now proposes to eliminate the SMM rebate program. The Exchange
no longer believes additional liquidity by an SMM is necessary and
notes the Exchange is not required to maintain such an incentive
program. The Exchange also notes that Market-Makers that were
previously appointed as SMMs will still be required to comply with the
continuous quoting obligation and other obligations of Market-Makers
described in Cboe Options Rules.
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\4\ See e.g., Cboe Options Rule 5.51.
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Linkage
The Exchange currently assesses certain fees in connection with
orders routed to other exchanges. The Exchange proposes to not pass
through or otherwise charge customer (capacity code ``C'') orders (of
any size) routed to other exchanges that were originally transmitted to
the Exchange from the trading floor through an Exchange-sponsored
terminal (e.g., PULSe Workstation). The primary objective of linkage
fees are to recoup some of the costs associated with large electronic
orders that are initially transmitted to the Exchange by parties who,
in many instances, could be seeking to avoid being assessed another
market's transaction fees. Orders that are initially transmitted from
the trading floor are not attempting to avoid fees since they incur
brokerage commission charges in connection with manual handling.
Rather, orders that are generally transmitted from the floor are large,
complex orders that are primarily executed on the Exchange, which only
are transmitted to away markets if, during their execution on the
Exchange, it is necessary to sweep some away markets. As such, the
Exchange believes it's appropriate to waive linkage fees for these
orders. The Exchange lastly notes that the proposed waiver is not
novel. Indeed, the Exchange maintained the proposed waiver prior to the
migration to a new billing system on October 7, 2019, but had
eliminated the waiver upon migration.\5\ After further evaluation, the
Exchange now wishes to re-adopt the proposed waiver. The Exchange notes
the proposed waiver is identical to the waiver in place pre-migration.
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\5\ See Securities and Exchange Act Release No. 87495 (November
8, 2019), 84 FR 63701 (November 18, 2019) (SR-CBOE-2019-106).
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Tier Appointment Fees
The Exchange currently assesses a SPX Tier Appointment Fee of
$3,000 per month to any Market-Maker holding a Market-Maker Electronic
Access Permit (``EAP'') (``MM EAP'') that trades any SPX (including
SPXW) contracts at any time during the month. The Exchange proposes to
amend the Fees Schedule to adopt a contract threshold. Particularly,
the Exchange proposes to provide that the SPX Tier Appointment Fee will
be assessed to any MM EAP that executes at least 1,000 contracts in SPX
(including SPXW) excluding contracts executed during the opening
rotation on the final settlement date of VIX options and futures with
the expiration used in the VIX settlement calculation. The Exchange
proposes to exclude SPX and SPXW volume executed during opening
rotation on the final settlement date of VIX options and futures which
have the expiration that contribute to the VIX settlement, as such
orders help to facilitate the calculation of a settlement price for VIX
options and futures and the Exchange does not wish to discourage the
sending of such orders.\6\ The Exchange notes that the SPX Tier
Appointment fee is intended to be assessed to Market-Maker TPHs who
actually act as Market-Makers in SPX and engage in trading in SPX (as
opposed to those who primarily execute volume during the opening
rotation on VIX settlement days and subsequently execute volume to
close out of such positions). The electronic Tier Appointment
Surcharges for VIX and RUT similarly have a 1,000 contract
threshold.\7\
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\6\ The Exchange notes that only electronic SPX and SPXW orders
participate in the opening rotation on the final settlement date of
VIX options and futures. As open-outcry volume does not facilitate
the calculation of the settlement price for VIX options and futures,
the Exchange does not believe it's necessary to adopt a
corresponding exception to the SPX Tier Appointment for Floor
Market-Makers.
\7\ See Cboe Options Fees Schedule, Market-Maker Tier
Appointment Fees.
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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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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,\10\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f(b)(4).
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The Exchange believes eliminating the SPX SMM Program is
reasonable, equitable and not unfairly discriminatory because the
Exchange is not required to maintain such a rebate program and no
longer desires to do so. The Exchange believes that there is sufficient
liquidity in SPX and does not believe a rebate program is necessary to
further incentivize liquidity. The Exchange believes the proposed
change is not unfairly discriminatory because it will apply equally to
all SMMs.
The Exchange believes it's reasonable to waive linkage fees for
customer
[[Page 71023]]
orders that were transmitted from the trading floor through an Exchange
sponsored terminal (currently only PULSe workstation) as customers
would not be subject to linkage fees. The proposed waiver would apply
to all similarly situated market participants. The Exchange believes
limiting the exception to customer orders that were originally
transmitted from the trading floor through an exchange-sponsored
terminal is equitable, reasonable and not unfairly discriminatory as
the primary objective of linkage fees are to recoup some of the costs
associated with large electronic orders that are initially transmitted
to the Exchange by parties who, in many instances, could be seeking to
avoid being assessed another market's transaction fees. As discussed
above, orders that are generally transmitted from the floor are large,
complex orders that are primarily executed on the Exchange and
transmitted to away markets if, during their execution on the Exchange,
it is necessary to sweep some away markets. The Exchange also believes
limiting the exception from Linkage Fees to customer orders is
equitable, reasonable and not unfairly discriminatory because non-
customer (e.g., broker-dealer proprietary) orders originate from
broker-dealers who are by and large more sophisticated than public
customers (i.e., orders yielding capacity code ``C'') and can readily
control the exchange to which their orders are routed. While there may
be some customers who direct the exchange to which their orders are
routed, generally, customers submit orders to their brokerages but do
not or cannot specify the exchange to which its order is sent.
Therefore, non-customer order flow can, in most cases, more easily
route directly to other markets if desired and thus avoid Linkage Fees.
This includes the ability of broker-dealers to sweep better-priced away
markets in connection with routing large orders to the Exchange's floor
for handling by floor brokers. Moreover, the Commission has a long
history of permitting differential treatment of customers and non-
customer investors.
Finally, as noted above, the proposed waiver is not novel. Indeed,
the Exchange maintained the proposed waiver prior to the migration to a
new billing system on October 7, 2019, but had eliminated the waiver
upon migration.\11\ After further evaluation, the Exchange has
determined to re-adopt the proposed waiver, which waiver is identical
to the waiver in place pre-migration.
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\11\ See Securities and Exchange Act Release No. 87495 (November
8, 2019), 84 FR 63701 (November 18, 2019) (SR-CBOE-2019-106).
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The Exchange believes the proposed change to adopt a contract
threshold to trigger the electronic SPX Tier Appointment Surcharge is
reasonable as MM EAPs that trade below such threshold will not be
subject to the MM EAP SPX Tier Appointment Fee. The Exchange believes
the proposed change is reasonable as the SPX Tier Appointment surcharge
was intended to apply to TPHs who act as Market-Makers in SPX, not
those that do not regularly trade SPX electronically. Additionally,
while liquidity is important to open all series on the Exchange, given
the potential impact on the exercise settlement value determined for
expiring volatility index derivatives, it is very important to
encourage a fair and orderly opening of the series that are used to
calculate the final settlement value of expiring VIX derivatives.
Accordingly, the Exchange does not wish to assess the SPX Tier
Appointment fee to MM EAPs who do not conduct significant electronic
volume in SPX (or SPXW) other than volume executed during opening
rotation on the final settlement date of VIX options and futures which
have the expiration that are used in the VIX settlement calculation and
subsequent volume executed to close out of such positions. The Exchange
believes it's equitable and not unfairly discriminatory to adopt a
threshold for off-floor Markets-Markets and not on-floor Market-Makers
as only electronic SPX and SPXW orders participate in the opening
rotation on the final settlement date of VIX options and futures. As
open-outcry volume does not facilitate the calculation of the
settlement price for VIX options and futures, the Exchange does not
believe it's necessary to adopt a corresponding exception to the SPX
Tier Appointment for on-floor Market-Makers. The Exchange notes that
any TPH that electronically executes more than 1 contract but less than
1,000 contracts in SPX (including SPXW), excluding volume executed
during opening rotation on the final settlement date of VIX options and
futures which have the expiration that are used in the VIX settlement
calculation will no longer have to pay the Tier Appointment Fee. As
noted above, the Exchange is not proposing to change the amount
assessed for the electronic SPX Tier Appointment Fee. The proposed
change is equitable and not unfairly discriminatory because it will
apply uniformly to all TPHs. The Exchange lastly notes that a similar
1,000 contract threshold also applies to MM EAP Tier Appointment Fees
in RUT and VIX.\12\
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\12\ See Cboe Options Fees Schedule, Market-Maker Tier
Appointment Fees.
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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 competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
does not believe that the proposed change will impose any burden on
intramarket competitions that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed changes
will be applied equally to all similarly situated market participants.
For example, although the proposed routing exception only applies to
Customers, as discussed, above, the Exchange believes limiting the
exception to customer orders is not unfairly discriminatory because
non-customer (e.g., broker-dealer proprietary) orders originate from
broker-dealers who are by and large more sophisticated than public
customers and can readily control the exchange to which their orders
are routed. Moreover, as discussed, the Commission has a long history
of permitting differential treatment of customers and non-customer
investors.
The Exchange does not believe that the proposed rule change
regarding the SMM Program or the SPX Tier Appointment Fee will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed waiver applies to a product traded exclusively on the
Exchange. Additionally, the Exchange believes the proposed rule change
relating to linkage does not impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Particularly, the Exchange operates in a highly
competitive market. Members have numerous alternative venues that they
may participate on and director their order flow, including 15 other
options exchanges and off-exchange venues. The Exchange represents a
small percentage of the overall market. Based on publicly available
information, no single options exchange has more than 24% of the market
share.\13\ Therefore, no exchange possesses significant pricing power
in the execution of option order flow. Indeed, participants can choose
to send their
[[Page 71024]]
orders to other exchanges and off-exchange venues if they deem fee
levels at those other venues to be more favorable. Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. Specifically, in Regulation NMS, the
Commission highlighted the importance of market forces in determining
prices and SRO revenues and, also, recognized that current regulation
of the market system ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \14\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''.\15\ Accordingly, the Exchange
does not believe its proposed fee changes imposes any burden on
competition that are not necessary or appropriate in furtherance of the
purposes of the Act.
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\13\ See Cboe Global Markets U.S. Options Market Volume Summary
(December 2, 2019), available at https://markets.cboe.com/us/options/market_statistics/.
\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\15\ 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 \16\ and paragraph (f) of Rule 19b-4 \17\
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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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-2019-124 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-2019-124. 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-2019-124 and should be submitted on
or before January 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27733 Filed 12-23-19; 8:45 am]
BILLING CODE 8011-01-P