Notice2021-12248
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule To Adopt a New Floor Broker Incentive Program and To Make a Clarifying Change to the Definition of Facilitation Orders
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 111 (Friday, June 11, 2021)</title>
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[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Notices]
[Pages 31356-31360]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12248]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92121; File No. SR-CBOE-2021-037]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule To Adopt a New Floor Broker Incentive Program and To
Make a Clarifying Change to the Definition of Facilitation Orders
June 7, 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 June 1, 2021, 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 to adopt a new Floor Broker incentive
program and to make a clarifying change to the definition of
facilitation orders. 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 (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), 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 adopt a new
Floor Broker incentive program and to make a clarifying change to the
definition of facilitation orders in footnote 11 of the Fees Schedule,
effective June 1, 2021.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 16% of the market share.\3\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange possesses significant pricing power in the
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow, or
discontinue use of certain categories of products, in response to fee
changes. Accordingly, competitive forces constrain the Exchange's
transaction fees, and market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable. The Exchange offers specific rates and rebates in
its Fees Schedule, like that of other options exchanges' fees
schedules, which the Exchange believes provide incentive to Trading
Permit Holders (``TPHs'') to increase order flow of certain qualifying
orders.
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\3\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (May 24, 2021), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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Also, in response to the competitive environment, the Exchange
offers various tiered incentive programs which provide TPHs
opportunities to qualify for higher rebates or reduced rates where
certain volume criteria and thresholds are met. Tiered pricing provides
an incremental incentive for TPHs to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria. For example, the Exchange
currently offers, among other tiered volume programs, a
[[Page 31357]]
Liquidity Provider Sliding Scale that offers credits on Market-Maker
orders where a Market-Maker achieves certain volume thresholds based on
total national Market-Maker volume in all underlying symbols, except
products in Underlying Symbol List A \4\ and XSP, during the calendar
month.
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\4\ See Cboe Options Fees Schedule, Footnote 34, which provides
that Underlying Symbol List A includes OEX, XEO, RUT, RLG, RLV, RUI,
UKXM, SPX (includes SPXW), SPESG and VIX.
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The Exchange now proposes to adopt a new volume-based incentive
program for its Floor Brokers. Specifically, the proposed Floor Broker
Sliding Scale Rebate Program (or, the ``Program'') offers four tiers
that provide rebates on a sliding scale \5\ for qualifying orders where
a TPH meets certain liquidity thresholds. As proposed, the Program
applies to all products except for Underlying Symbol List A,\6\ Sector
Indexes,\7\ DJX, MRUT, MXEA, MXEF and XSP (``multiply-listed
options''). The Program offers two categories of rebates that
correspond to each of the proposed tiers; one that applies to Firm
Facilitated orders (i.e., orders that yield fee code FF) \8\ and
another that applies to all other non-Firm Facilitated orders (i.e.,
orders that do not yield fee code FF). The proposed rebates will apply
only to Non-Customer,\9\ Non-Strategy, Floor Broker orders. The
Exchange notes that the definition of facilitation orders is provided
in footnote 11 of the Fees Schedule (as described in further detail
below) and, therefore, the proposed rule change appends footnote 11 to
the ``Firm Facilitated Rebate'' column in the Floor Broker Incentive
Program table. Further, Strategy Orders are defined in footnote 13 of
the Fees Schedule and, therefore, the proposed rule change also appends
footnote 13 to the ``Criteria'' column in the Floor Broker Incentive
Program table.\10\ A TPH will receive the applicable rebates on its
qualifying orders if it meets the corresponding tier criteria, measured
over a month. The tiers' criteria are also based on the amount of a
TPH's Non-Customer, Non-Strategy, Floor Broker volume over a baseline
month (``Step-Up Volume''). The specific Floor Broker Sliding Scale
Rebate Program tiers and corresponding rebates, as proposed, are as
follows:
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\5\ The rebate offered under each tier is only applied to the
qualifying volume within that tier. In addition, the Exchange
calculates the average rebate for each type of rebate (Firm
Facilitated and Non-Firm Facilitated) based on the TPH's total
qualifying volume across all four tiers plus its qualifying baseline
volume (which corresponds to a rebate of $0.00). Each respective
average rebate is applied to the percentage of qualifying volume
that corresponds specifically to the type of order (Firm Facilitated
or Non-Firm Facilitated) volume and added together, which results in
a final average rebate. The final average rebate is then applied to
the TPH's total qualifying executions. This is consistent with the
manner in which the Exchange calculates rebates for other sliding
scale programs offered under the Fees Schedule.
\6\ See id.
\7\ See Cboe Options Fees Schedule, Footnote 47, which provides
that Sector Index underlying symbols include IXB, SIXC, IXE, IXI,
IXM, IXR, IXRE, IXT, IXU, IXV AND IXY, and corresponding option
symbols include SIXB, SIXC, SIXE, SIXI, SIXM, SIXR, SIXRE, SIXT,
SIXU, SIXV AND SIXY.
\8\ Orders that yield fee code FF are not assessed a charge. See
Cboe U.S. Options Fee Schedules, Fees and Associated Fee Codes,
available at: <a href="https://markets.cboe.com/us/options/membership/fee_schedule/cboe/">https://markets.cboe.com/us/options/membership/fee_schedule/cboe/</a>.
\9\ Non-Customers include all capacities except for ``C''
(Customer), specifically: ``M'' capacity (Market-Maker); ``N''
capacity (Non-TPH Market-Maker); ``F'' capacity (Clearing TPH);
``L'' capacity (Non-Clearing TPH Affiliates); ``J'' capacity (Joint
Back-Office); ``U'' capacity (Professional); and ``B'' capacity
(Broker-Dealer).
\10\ Footnote 13, in relevant part, provides that: a ``merger
strategy'' is defined as transactions done to achieve a merger
arbitrage involving the purchase, sale and exercise of options of
the same class and expiration date, each executed prior to the date
on which shareholders of record are required to elect their
respective form of consideration, i.e., cash or stock; a ``short
stock interest strategy'' is defined as transactions done to achieve
a short stock interest arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class; a ``reversal
strategy'' is established by combining a short security position
with a short put and a long call position that shares the same
strike and expiration; a ``conversion strategy'' is established by
combining a long position in the underlying security with a long put
and a short call position that shares the same strike and
expiration; and a ``jelly roll strategy'' is created by entering
into two separate positions simultaneously. One position involves
buying a put and selling a call with the same strike price and
expiration. The second position involves selling a put and buying a
call, with the same strike price, but with a different expiration
from the first position.
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<bullet> Tier 1 provides a rebate of $0.01 per contract for all
qualifying (i.e., Non-Customer, Non-Strategy, Floor Broker orders in
all products except Underlying Symbol List A, Sector Indexes, DJX,
MRUT, MXEA, MXEF and XSP) Firm Facilitated orders, and a rebate of
$0.03 per contract for all qualifying non-Firm Facilitated orders,
where a TPH has a Step-Up Volume in Non-Customer, Non-Strategy, Floor
Broker Volume (in applicable products) from April 2021 that is greater
than zero contracts;
<bullet> Tier 2 provides a rebate of $0.01 per contract for all
qualifying Firm Facilitated orders, and a rebate of $0.04 per contract
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in
applicable products) from April 2021 that is greater than or equal to
100,000 contracts;
<bullet> Tier 3 provides a rebate of $0.01 per contract for all
qualifying Firm Facilitated orders, and a rebate of $0.05 per contract
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in
applicable products) from April 2021 that is greater than or equal to
250,000 contracts; and
<bullet> Tier 4 provides a rebate of $0.015 per contract for all
qualifying Firm Facilitated orders, and a rebate of $0.06 per contract
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in
applicable products) from April 2021 that is greater than or equal to
500,000 contracts.
The proposed rule change also makes clear in the proposed Program
table that the Exchange will aggregate a TPH's volume with the volume
of its affiliates (``affiliate'' defined as having at least 75% common
ownership between the two entities as reflected on each entity's Form
BD, Schedule A) for the purposes of calculating Step-Up Volume each
month.\11\ The proposed Program is designed to encourage Floor Brokers
to increase their order flow in all multiply-listed equity and ETP
options to the Exchange's trading floor to meet the proposed tier
criteria in order to receive the proposed corresponding rebate for
their qualifying orders. The Exchange believes that incentivizing
increased liquidity to its trading floor allows the Exchange to
maintain a robust hybrid trading environment that serves to support
price discovery and increased execution opportunities in open outcry,
to the benefit of all market participants.
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\11\ The proposed rule change also appends: Footnote 39 to the
Program, which provides that each Trading Permit Holder is
responsible for notifying the Exchange of all of its affiliates and
is required to inform the Exchange immediately of any event that
causes an entity to cease to be an affiliate in a form and manner to
be determined by the Exchange. An ``affiliate'' is defined as having
at least 75% common ownership between two entities as reflected on
each entity's Form BD, Schedule A; and footnote 41 to the Program,
which provides, in relevant part, that Position Compression Cross
(``PCC'') transactions will not count towards any volume thresholds.
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The proposed rule change also makes a clarifying amendment to
footnote 11 of the Fees Schedule, which provides, in relevant part, for
the definition of facilitation orders for the purposes of the Fees
Schedule. Specifically, footnote 11 currently provides that
``facilitation orders'' for this purpose are \12\ defined as any order
in which a Clearing Trading Permit Holder (``F'' capacity code) \13\ or
Non-Trading Permit Holder Affiliate (``L'' capacity code) is contra to
any other origin code, provided the same
[[Page 31358]]
executing broker and clearing firm are on both sides of the transaction
for open outcry. The Exchange notes that TPHs are permitted to make
post-trade updates to their transactions, which may include changes to
the executing or contra broker, the executing or contra clearing firm,
and capacity. Such post-trade updates may potentially alter whether an
order qualifies as a facilitation order for the purposes of the Fees
Schedule. As such, the proposed rule change updates the definition of
facilitation order to clarify that the executing broker and clearing
firm must be the same on both sides of the trade following any post-
trade changes made on the trade date.
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\12\ The proposed rule change corrects an inadvertent grammar
error by changing ``to be'' to ``are''.
\13\ The proposed rule change updates the format of this
parenthetical to be consistent with similar parentheticals
throughout footnote 11.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\14\ in general, and furthers the
requirements of Section 6(b)(4),\15\ in particular, as it is designed
to provide for the equitable allocation of reasonable dues, fees and
other charges among its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers. As stated above, the
Exchange operates in a highly competitive market in which market
participants can readily direct order flow to competing venues if they
deem fee levels at a particular venue to be excessive or incentives to
be insufficient. The proposed fee changes reflect a competitive pricing
structure designed to incentivize market participants to direct their
order flow to the Exchange's trading floor, which the Exchange believes
would enhance market quality to the benefit of all TPHs. The Exchange
notes that volume-based incentives and discounts have been widely
adopted by exchanges,\16\ including the Exchange,\17\ and are
reasonable, equitable and non-discriminatory because they are open to
all TPHs on an equal basis and provide additional benefits or discounts
that are reasonably related to (i) the value to an exchange's market
quality and (ii) associated higher levels of market activity, such as
higher levels of liquidity provision and/or growth patterns.
Additionally, as noted above, the Exchange operates in a highly
competitive market. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer similar tiered pricing structures to that of the
Exchange, including incentive programs that offer rebates or rates that
apply based upon TPHs achieving certain volume thresholds.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
\16\ See NYSE Arca Options Fee Schedule, FB Professional
Customer Manual Program, which provides a credit of $013 per
contract to floor brokers that increase their monthly ADV (in
certain capacities) by a certain percentage over a baseline, and
excludes strategy executions from the program; and NYSE American
Options Fee Schedule, E.1, [sic] Floor Broker Fixed Cost Prepayment
Incentive Program (the ``FB Prepay Program''), which offers
participating floor brokers annual rebates for achieving growth in
manual volume by a certain percentage as measured against certain
benchmarks, and does not apply to volume executed as part of
Strategy Execution Fee Cap (that is, strategy orders).
\17\ See Cboe Options Fees Schedule, Liquidity Provider Sliding
Scale, Liquidity Provider Sliding Scale Adjustment Table, Volume
Incentive Program, and Cboe Options Clearing Trading Permit Holder
Proprietary Products Sliding Scale, each of which provides for a
scale of rebates or reduced fees applicable to certain orders for
various types of TPHs that meet certain volume thresholds under
each.
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In particular, the Exchange believes that the proposed Floor Broker
Sliding Scale Rebate Program is reasonable and equitable because it is
designed to incentivize increased order flow in multiply-listed options
to the Exchange's trading floor. The Exchange believes that it is
reasonable to apply the proposed Program to Non-Customer order flow as
the Exchange recognizes that market participants that submit Non-
Customer order flow provide different, yet key, liquidity to the
Exchange's trading floor. For instance, Market-Maker activity,
including Non-TPH Market-Makers (``M'' and ``N'' capacities),
facilitates tighter spreads and signals additional corresponding
increase in order flow from other market participants. Increased
overall order flow benefits all investors by deepening the Exchange's
liquidity pool, potentially providing even greater execution incentives
and opportunities. Clearing TPHs (``F'' capacity), Non-Clearing TPH
Affiliates (``L'' capacity), Broker-Dealers (``B'' capacity), and Joint
Back-Offices (``J'' capacity) can be an important source of liquidity
as they specifically facilitate the execution of customer orders,
which, in turn, adds transparency, promotes price discovery and serves
to attract other participants, thus providing continuous liquidity to
the Exchange. Also, Professionals (``U'' capacity) generally provide a
greater competitive stream of order flow (by definition, more than 390
orders in listed options per day on average during a calendar month),
thus, providing increased competitive execution and improved pricing
opportunities for all market participants. The Exchange further
believes that applying the proposed Program to Non-Strategy, multiply-
listed order flow is reasonable as it is designed to compete with other
option exchanges' for floor broker non-strategy order flow as other
options exchanges' have fee schedules in place that offer similar
incentives to their floor brokers that submit non-strategy orders for
execution in open outcry.\18\
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\18\ See supra note 15 [sic]; and BOX Options Fee Schedule,
Section II.C, Qualified Open Outcry (``QOO'') Order Rebate, which
offers a rebate for floor broker orders $0.075 or $0.05 per contract
(depending on the capacity) and does not apply to Strategy QOO
Orders.
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The Exchange believes that the proposed rebate amounts are
reasonable as they are comparable to the rebates or reduced rates
offered under similar volume-based incentive programs offered in the
Fees Schedule.\19\ For example, the Liquidity Provider Sliding Scale
provides a reduced fee of between $0.17 to $0.03 per contract for
Market-Maker orders (which are assessed a standard rate of $0.23 per
contract) where a Market-Maker meets certain volume thresholds, a
reduction of which the Exchange believes is comparable to the proposed
rebates that range from $0.01 to $0.06. The Exchange also believes that
it is reasonable to offer higher rebates for Non-Firm Facilitated order
flow than for Firm Facilitated order flow (i.e., where the same
executing broker and clearing firm are on both sides of the
transaction) because it wishes to further incentivize order flow that
attracts contra-side interest from a wider variety of market
participants, which may further contribute towards a robust, well-
balance market ecosystem. Further, Firm Facilitated orders (i.e.,
orders yielding fee code FF) are not currently charged any fees, as
compared to Non-Firm Facilitated orders, which are assessed fees. The
Exchange also notes that excluding Underlying Symbol List A, Sector
Indexes, DJX, MRUT, MXEA, MXEF and XSP from the proposed program (thus,
incentivizing increased order flow in multiply-listed options), as well
as aggregating a TPH's volume with the volume of its affiliates for the
purposes of calculating Step-Up Volume each month, is consistent with
the manner in which other incentive programs under the Fees Schedule
exclude the same products \20\ and/or aggregate volume and credits.\21\
Additionally, the Exchange notes that Floor Brokers already have an
[[Page 31359]]
opportunity to receive discounts on their fees for certain proprietary
products under the Floor Brokerage Fees Discount Scale.\22\
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\19\ See supra note 16.
\20\ See e.g., Cboe Options Fees Schedule, Liquidity Provider
Sliding Scale, Break-Up Credits table, Order Routing Subsidy
Program, and Complex Order Routing Subsidy Program.
\21\ See e.g., Cboe Options Fees Schedule, Volume Incentive
Program (VIP), Affiliate Volume Plan, QCC Rate Table, and Market-
Maker EAP Appointments Sliding Scale.
\22\ See Cboe Options Fees Schedule, Floor Brokerage Fees
Discount Scale.
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In addition to this, the Exchange believes that the proposed update
to the definition of facilitation orders in footnote 11 of the Fees
Schedule is reasonable because it is designed to ensure and make clear
that post-trade edits to orders will be considered in determining
whether an order qualifies as a facilitation order and is appended fee
code FF and the appropriate corresponding fees or fee waiver. The
Exchange believes that it is appropriate to determine, for the purposes
of the Fees Schedule, whether a transaction is considered a
facilitation order following any same day post-trade updates made to
the transaction because such post-trade edits may potentially alter
whether the same executing broker and clearing firm are on both sides
of a transaction, which is required in order for a transaction to
qualify as a facilitation order. The proposed rule change is reasonable
as it does not alter the definition of a facilitation order but merely
clarifies the point at which the System will evaluate whether a
transaction qualifies as such.
The Exchange believes that the proposed Floor Broker Sliding Scale
Rebate Program represents an equitable allocation of fees and is not
unfairly discriminatory because the Program, as proposed, will apply
uniformly to all qualifying TPHs, in that all TPHs that submit the
requisite order flow (i.e., Non-Customer, Non-Strategy, Floor Broker
Volume in multiply-listed options) have the opportunity to compete for
and achieve the proposed tiers. The proposed rebates will apply
automatically and uniformly to all TPHs that achieve the proposed
corresponding criteria. The Exchange believes that the application of
the proposed Program to TPHs that submit Non-Customer order flow is
equitable and not unfairly discriminatory because such market
participants provide unique and important liquidity to the Exchange's
trading floor. Such order flow, as described above, may result in
overall tighter spreads, attracting order flow from other market
participants, more execution opportunities at improved prices, and/or
deeper levels of liquidity, which may ultimately improve price
transparency, provide continuous trading opportunities and enhance
market quality on the Exchange, to the benefit of all market
participants. The Exchange also notes that the Fees Schedule currently
provides for many other incentive opportunities and rebate or reduced
fee opportunities for Customer orders.\23\
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\23\ See generally Cboe Options Fee Schedule, which generally
assesses lower transaction fees for Customer orders as compared to
other capacities; see also Cboe Options Fee Schedule, Customer Large
Trade Discount, Break-Up Credits table, Select Customer Options
Reduction (``SCORe'') Program, and QCC Rate Table.
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In addition to this, while the Exchange has no way of knowing
whether this proposed rule change would definitively result in any
particular TPH qualifying for the proposed tiers, the Exchange believes
that at least five TPHs will reasonably be able to compete for and
achieve the proposed criteria across the four proposed tiers by
submitting the requisite volume. The Exchange notes, however, that the
proposed tiers are open to any TPH that submits the requisite order
flow to satisfy the tiers' criteria. The Exchange also does not believe
the proposed tiers will adversely impact any TPH's pricing or ability
to qualify for other fee programs. Rather, should a TPH not meet the
criteria in any of the proposed tiers, the TPH will merely not receive
the corresponding rebate.
Finally, the Exchange believes that the proposed update to the
definition of a facilitation order in footnote 11 of the Fees Schedule
is equitable and not unfairly discriminatory because it will continue
to apply the fee code FF (Facilitation Firm) automatically and
uniformly to all orders that qualify as facilitation orders. The
proposed update just clarifies that a transaction will be evaluated as
to whether it qualifies as a facilitation order for the purposes of the
Fees Schedule after any same day, post-trade edits are made to that
transaction. The Exchange believes that considering potential post-
trade edits made on the same trade date will more appropriately capture
whether a transaction has the same executing broker and clear firm on
both sides of the trade.
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.
Rather, as discussed above, the Exchange believes that the proposed
change would encourage the submission of additional liquidity to the
floor of a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution and price
improvement opportunities for all TPHs. As a result, the Exchange
believes that the proposed change furthers the Commission's goal in
adopting Regulation NMS of fostering competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \24\
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\24\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed Floor Broker Sliding Scale Rebate Program will apply equally
to all similarly situated TPHs that submit the requisite order flow.
That is, the proposed fees will apply equally to all Non-Customer, Non-
Strategy, Floor Broker orders in multiply-listed options. The Exchange
does not believe that the application of the proposed Program to Non-
Customer orders will impose any significant burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the Exchange recognizes that Non-Customer
participation in the markets is essential to a robust hybrid market
ecosystem as each contributes unique and important liquidity to the
Exchange's trading floor, as described above. Such Non-Customer order
flow may result in overall tighter spreads, attracting order flow from
other market participants, more execution opportunities at improved
prices, and/or deeper levels of liquidity, which may ultimately improve
price transparency, provide continuous trading opportunities and
enhance market quality on the Exchange, to the benefit of all market
participants. The Exchange again notes that the Fees Schedule currently
provides for many other incentive opportunities and rebate or reduced
fee opportunities for Customer orders.\25\ The Exchange also does not
believe that the update to the definition of facilitation orders will
impose any significant burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act
because it will continue to apply the fee code FF (Facilitation Firm)
automatically and uniformly to all orders that qualify as facilitation
orders. As stated above, the proposed update merely clarifies that a
transaction will be evaluated as to whether it qualifies as a
facilitation order following any same day, post-
[[Page 31360]]
trade edits, which will more appropriately capture whether a
transaction has the same executing broker and clear firm on both sides
of the trade.
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\25\ See supra note 21.
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The Exchange also does not believe that the proposed changes will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act because, as noted above,
competing options exchanges have similar incentive programs and
discount opportunities in place in connection with floor broker order
flow.\26\ The Exchange notes that the proposed update in connection
with facilitation orders is not competitive in nature and merely
clarifies a step in the billing process for qualifying facilitation
orders. Additionally, and as previously discussed, the Exchange
operates in a highly competitive market. TPHs have numerous alternative
venues that they may participate on and direct their order flow,
including 15 other options exchanges, many of which offer substantially
similar price improvement auctions. Based on publicly available
information, no single options exchange has more than 16% of the market
share.\27\ Therefore, no exchange possesses significant pricing power
in the execution of option order flow. Indeed, participants can readily
choose to send their orders to other exchange, and, additionally 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.'' \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 dealers'. . . .''.\29\
Accordingly, the Exchange does not believe its proposed fee change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\26\ See supra notes 15 [sic] and 17.
\27\ See supra note 3.
\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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="6113140d044c020e0c0c040f1512211204024f060e17">[email protected]</span></a>. Please
include File Number SR-CBOE-2021-037 on the subject line.
Paper Comments
<bullet> 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-2021-037. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-037 and should be submitted on
or before July 2, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12248 Filed 6-10-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.