Notice2021-15193
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule With Respect to Certain Fees Related to Qualified Contingent Cross Orders and the Clearing Trading Permit Holder Fee Cap
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
July 19, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 135 (Monday, July 19, 2021)</title>
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[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38137-38139]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15193]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92389; File No. SR-CBOE-2021-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fees Schedule With Respect to Certain Fees Related to Qualified
Contingent Cross Orders and the Clearing Trading Permit Holder Fee Cap
July 13, 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 July 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 the Fees Schedule with respect to certain fees related to
Qualified Contingent Cross orders and the Clearing Trading Permit
Holder (``TPH'') Fee Cap. 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
[[Page 38138]]
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 with respect to
Qualified Contingent Cross (``QCC'') transaction fees and the Clearing
TPH fee cap.
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 15% 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 to reduce 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. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\3\ See Cboe Global Markets U.S. Options Monthly Market Volume
Summary (June 29, 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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By way of background, a QCC order is comprised of an `initiating
order' to buy (sell) at least 1,000 contracts, coupled with a contra-
side order to sell (buy) an equal number of contracts and that for
complex QCC transactions, the 1,000 contracts minimum is applied per
leg. Currently, the Exchange assesses no fee for Customer (``C''
capacity), and Professional (``U'' capacity), and collectively referred
to as ``customer transactions'' which are identified by fee code
``QC'') QCC transactions and $0.17 per contract side for non-Customer
transactions and non-Professional transactions (collectively referred
to as ``non-customer transactions'' which are identified by fee code
``QN''). In addition, the Exchange provides a $0.10 per contract credit
for the initiating order side, regardless of origin code. Now, the
Exchange proposes to increase the per contract credit for the
initiating QCC order from $0.10 to $0.11 per contract. The proposed
change is intended to incentivize TPHs to direct QCC order flow to the
Exchange. Additionally, to offset the cost associated with the credit
increase, the Exchange proposes to increase the transaction fee for QCC
trades applied to non-customer transactions from $0.17 to $0.18 per
contract. The proposed credit \4\ and fee \5\ change are in line with,
yet also competitive with, rates assessed by other options exchanges.
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\4\ See e.g., Cboe EDGX Options Fees Schedule, footnote 7, which
offers rebates ranging from $0.14 up to $0.26 based on QCC volume
thresholds.
\5\ See e.g., NYSE American Options Fee Schedule, Section I,
paragraph F ``QCC Fees & Credits'', which provides that non-customer
participants excluding specialists and e-specialists, are assessed a
fee of $0.20 per contract to volume executed as part of a QCC trade.
See also MIAX Options Exchange Fee Schedule, Transaction Fees, QCC
Fees, which assesses fees ranging from $0.00 up to $0.17 per
contract for QCC trades depending on the type of market participant
and initiator of the order.
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The Exchange also applies a transaction fee cap of $55,000 per
month per Clearing TPH for non-facilitation transactions executed in
AIM, open outcry, or as a QCC or FLEX transaction in all products
except Sector Indexes and products in Underlying Symbol List A as
provided in footnote 34 of the Fees Schedule. The Exchange proposes to
increase such fee cap to $65,000 per month per Clearing TPH. The
proposed fee cap is in line with, albeit lower than, similar fee caps
applied by other Exchanges.\6\
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\6\ See e.g., NYSE American Options Fee Schedule, Section I.
paragraph I ``Firm Monthly Fee Cap'', which provides a fee cap
ranging from $65,000 up to $100,000 per month per firm for manual
transactions. See also PHLX Options Pricing Schedule, Section 4, Fee
per contract, which provides a monthly fee cap of $75,000.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Exchange Act of 1934 (the
``Act''),\7\ in general, and furthers the objectives of Section
6(b)(4),\8\ in particular, as it is designed to provide for the
equitable allocation of reasonable dues, fees and other charges among
its Trading Permit Holders (``TPHs'') and issuers and other persons
using its facilities. The Exchange also believes that the proposed rule
change is consistent with the objectives of 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, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f.(b)(5).
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As described 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 rule change
reflects a competitive pricing structure designed to incentivize market
participants to direct their order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
TPHs.
The Exchange believes that the proposed amendments to the Fees
Schedule are reasonable, equitable and not unfairly discriminatory. In
particular, the Exchange believes the proposal to increase the fee
assessed to non-customer QCC trades is reasonable because the proposed
fee is less than fees assessed for similar transactions on other
exchanges.\10\ Furthermore, the proposed fee increase is intended to
offset the cost associated with the proposed credit increase applied to
the initiating order of a QCC trade. The Exchange believes the proposed
fee increase is equitable and not unfairly discriminatory because it
will apply equally to all non-customer transactions and the proposed
change reflects a competitive pricing structure designed to compete
with other exchanges that similarly assess fees to these market
participants.
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\10\ Supra note 5.
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The Exchange also believes the proposed credit increase applied to
the initiating order of a QCC trade is reasonable because it is
intended to incentivize market participants to direct their QCC order
flow to the Exchange, which the Exchange believes would enhance market
quality to the benefit of all TPHs. Additionally, the Exchange believes
the proposed increase to the Clearing TPH transaction fee cap is
[[Page 38139]]
reasonable because it is in line with similar fee caps offered on
another exchange.\11\ The Exchange believes the proposed credit
increase and fee cap increase are equitable and not unfairly
discriminatory because they will each apply to all market participants
equally.
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\11\ Supra note 6.
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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. First, the Exchange notes
that the proposed changes apply uniformly to similarly-situated TPHs.
The Exchange believes the proposed rule change serves to increase
intramarket competition by incentivizing TPHs to direct their QCC
orders to the Exchange, which will bring greater volume and liquidity,
thereby benefitting all market participants by providing more trading
opportunities and tighter spreads. Further, the Exchange notes that
other Exchanges provide similar fees and credits as it relates to QCC
transactions, and also provide similar fee caps.
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. As previously
discussed, the Exchange operates in a highly competitive market. TPHs
have numerous alternative venues they may participate on and direct
their order flow, including 15 other options exchanges. Additionally,
the Exchange represents a small percentage of the overall market. Based
on publicly available information, no single options exchange has more
than 15% of the market share. Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other exchanges
if they deem fee levels at those other venues to be more favorable. As
noted above, the Exchange believes that the proposed fee changes are
comparable to that of other exchanges offering similar functionality.
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.'' 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'. . . .''. 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from TPHs or other interested parties.
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 \12\ and paragraph (f) of Rule 19b-4 \13\
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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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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#3d4f485158105e5250505853494e7d4e585e135a524b"><span class="__cf_email__" data-cfemail="285a5d444d054b4745454d465c5b685b4d4b064f475e">[email protected]</span></a>. Please
include File Number SR-CBOE-2021-039 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-2021-039. 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-2021-039 and should be submitted on
or before August 9, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15193 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P
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