Notice2021-22927
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule With Respect to Its Lead Market-Maker Incentive Programs
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
October 21, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 201 (Thursday, October 21, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 201 (Thursday, October 21, 2021)]
[Notices]
[Pages 58335-58341]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22927]
[[Page 58335]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93348; File No. SR-CBOE-2021-058]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule With Respect to Its Lead Market-Maker Incentive
Programs
October 15, 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 October 7, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 with respect to its Lead Market-Maker
(``LMM'') Incentive Programs. 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 amend the
Global Trading Hours (``GTH'') Cboe Volatility Index (``VIX'') options
and VIX Weekly (VIXW) options LMM Incentive Program and the GTH S&P 500
Index (``SPX'') options and SPX Weekly (``SPXW'') options LMM Incentive
Program.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
September 30, 2021 (SR-CBOE-2021-056). On October 7, 2021, the
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
Both LMM Incentive Programs provide a rebate to Trading Permit
Holders (``TPHs'') with LMM appointments to the respective incentive
program that meet certain quoting standards in the applicable series in
a month. The Exchange notes that meeting or exceeding the quoting
standards (both current and as proposed; described in further detail
below) in each of the LMM Incentive Program products to receive the
applicable rebate (both currently offered and as proposed; described in
further detail below) is optional for an LMM appointed to a program.
Rather, an LMM appointed to an incentive program is eligible to receive
the corresponding rebate if it satisfies the applicable quoting
standards, which the Exchange believes encourages the LMM to provide
liquidity in the applicable class and trading session (i.e., GTH). The
Exchange may consider other exceptions to the programs' quoting
standards based on demonstrated legal or regulatory requirements or
other mitigating circumstances. In calculating whether an LMM appointed
to an incentive program meets the applicable program's quoting
standards each month, the Exchange excludes from the calculation in
that month the business day in which the LMM missed meeting or
exceeding the quoting standards in the highest number of the applicable
series.
GTH VIX/VIXW LMM Program
The Exchange first proposes to amend its GTH VIX/VIXW LMM Incentive
Program. Currently, the program provides that if an LMM in VIX/VIXW
provides continuous electronic quotes during GTH that meet or exceed
the heightened quoting standards (below) in at least 99% of each of the
VIX and VIXW series, 90% of the time in a given month, the LMM will
receive a rebate for that month in the amount of $15,000 for VIX and
$5,000 for VIXW (or pro-rated amount if an appointment begins after the
first trading day of the month or ends prior to the last trading day of
the month) for that month. Additionally, if the appointed LMM provides
continuous electronic quotes during GTH that meet or exceed the above
VIX heightened quoting standards in at least 99% of the VIX series, 90%
of the time in a given month, the LMM will receive a rebate for that
month of $0.03 per VIX/VIXW contract executed in its Market-Maker
capacity during RTH.
------------------------------------------------------------------------
Maximum
Premium level allowable
width
------------------------------------------------------------------------
VIXW:
$0.00-$100.00....................................... $10.00
$100.01-$200.00..................................... 16.00
Greater than $200.000............................... 24.00
------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level 15 days or less 15 days to 60 days 61 days to 270 days 271 days or greater
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX:
$0.00-$1.00................................. $0.75 25 $0.50 50 $0.50 50 $1.00 10
$1.01-$3.00................................. 1.00 15 0.75 25 0.75 25 1.00 10
$3.01-$5.00................................. 1.00 15 0.75 25 0.75 25 1.20 7
$5.01-$10.00................................ 1.50 10 1.00 10 1.00 10 2.00 5
$10.01-$30.00............................... 2.50 5 1.50 5 2.50 5 4.00 3
Greater than $30.00......................... 5.00 3 3.00 5 5.00 3 7.00 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 58336]]
The Exchange proposes to restructure the GTH VIX/VIXW LMM Incentive
Program by adopting a two sets of quoting standards for VIX options; a
set of basic quoting standards and a set of heightened quoting
standards. The Exchange notes that the current quoting standards for
VIXW will remain the same but will be considered basic quoting
standards for VIXW. As proposed, the program provides that, if the
appointed LMM provides continuous electronic quotes during GTH that
meet or exceed the basic quoting standards in the same percentage of
series in the same percentage of time (i.e., 99% of each VIX/VIXW
series, 90% of the time per month), the LMM will receive the same
rebate ($15,000 for VIX and $5,000 for VIXW) for that month. The new
basic quoting standards proposed for VIX options are as follows in the
table below:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level Less than 15 days 15 days to 60 days 61 days to 180 days 181 days or greater
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <18
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... $0.35 50 $0.25 75 $0.35 50 $0.80 10
$1.01-$3.00..................................... 0.50 30 0.35 50 0.50 30 0.90 10
$3.01-$5.00..................................... 0.60 25 0.35 25 0.60 20 1.00 10
$5.01-$10.00.................................... 1.00 10 0.80 20 1.30 10 2.00 5
$10.01-$30.00................................... 2.00 5 1.50 5 2.00 5 3.00 3
Greater than $30.00............................. 5.00 3 3.00 3 5.00 3 5.00 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from 18-25
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... $0.50 25 $0.35 50 $0.50 40 $1.00 10
$1.01-$3.00..................................... 0.50 20 0.50 30 0.70 20 1.00 10
$3.01-$5.00..................................... 0.80 20 0.50 20 0.80 10 1.30 5
$5.01-$10.00.................................... 1.50 10 1.00 10 2.00 5 2.20 5
$10.01-$30.00................................... 3.00 1 2.50 1 3.00 1 5.00 1
Greater than $30.00............................. 5.00 1 5.00 1 5.00 1 10.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from <ls-thn-eq>25
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... 0.80 15 0.50 20 0.60 20 1.20 10
$1.01-$3.00..................................... 1.00 10 0.75 20 1.00 10 1.20 10
$3.01-$5.00..................................... 1.20 10 0.90 10 1.20 5 1.80 5
$5.01-$10.00.................................... 2.00 5 1.50 5 2.50 5 3.00 3
$10.01-$30.00................................... 5.00 1 5.00 1 5.00 1 7.00 1
Greater than $30.00............................. 10.00 1 10.00 1 10.00 1 10.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Additionally, if the appointed LMM provides continuous electronic
quotes during GTH that meet or exceed the new VIX heighted quoting
standards (as proposed below) in the same percentage of VIX series
(99%) for the same percentage of time (90%) of the time in a given
month, the LMM will receive the same rebate currently offered ($0.03)
for that month per VIX/VIXW contract executed in its Market-Maker
capacity during Regular Trading Hours.
----------------------------------------------------------------------------------------------------------------
Expiring Near term
---------------------------------------------------------------
Premium level Less than 15 days 15 days to 60 days
---------------------------------------------------------------
Width Size Width Size
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <18
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... $0.20 100 $0.20 100
$1.01-$3.00..................................... .............. .............. 0.25 50
$3.01-$5.00..................................... .............. .............. 0.35 25
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from 18-25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... 0.25 50 0.20 50
$1.01-$3.00..................................... .............. .............. 0.30 30
$3.01-$5.00..................................... .............. .............. 0.40 30
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from <ls-thn-eq>25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... 0.30 30 0.25 30
$1.01-$3.00..................................... .............. .............. 0.40 20
$3.01-$5.00..................................... .............. .............. 0.60 20
----------------------------------------------------------------------------------------------------------------
[[Page 58337]]
The Exchange believes the proposed basic and heightened quoting
requirements for VIX options under the GTH VIX/VIXW LMM Incentive
Program are designed to continue to encourage LMMs appointed to the
program to provide significant liquidity in VIX options during GTH.
Particularly, by adopting different sets of quoting standards that are
applicable depending on the VIX Index value at the prior close (i.e.,
at the close of the preceding RTH session) the proposed rule change
will encourage LMMs appointed to the program to meet the quoting
standards by making it easier for them to satisfy such standards.
Spreads in VIX options generally widen when the VIX experiences higher
volatility (i.e., is higher in value). As a result, the Exchange
understands that, when the VIX Index experiences higher volatility,
LMMs appointed to the program find it increasingly challenging to meet
the program's current quoting standards. Therefore, to better enable
and encourage LMMs to meet the quoting standards, the proposed rule
change adopts generally wider widths and smaller quote sizes where the
VIX Index may be experiencing higher volatility (i.e., as the value of
the VIX in the proposed VIX value categories becomes relatively higher
based on the closing index value from the preceding trading session).
The proposed rule change also adopts generally tighter widths and
larger quote sizes in the expiration categories that are nearer in term
and gradually widens the widths and reduces the quote sizes as the
expiration categories become longer in term. The Exchange believes the
proposed rule change provides a balance between providing more
challenging opportunities, thus greater quoting incentive, in the
expiration categories that are nearer in term and easing the width and
size requirements as the expiration categories become longer in term,
wherein the Exchange understands that demand and participation becomes
less significant and thus more difficult for LMMs to quote within
tighter widths and larger sizes. Also, by providing a set of heightened
quoting standards that provide for tighter width and large size
standards than the set of basic quoting standards, the proposed rule
change offers LMMs appointed to the program a more challenging
opportunity, thus further incentive, to strive to meet the heightened
quoting standards in order to receive the additional rebate on their
VIX/VIXW orders in RTH.
In addition to this, the Exchange proposes to update the time to
expiration in the mid-term expiration category for the VIX basic
quoting standards (as proposed) from a range of 61 to 270 days to a
range of 61 to 180 days, and in the long-term expiration category from
271 days or greater to 181 days or greater. The Exchange notes that it
has recently begun listing more VIX options that expire more than 180
days out and that the Exchange understands that it is more difficult
for LMMs to meet the narrower pricing standards current under the
current mid-term expiration category for VIX options that expire in 181
days or more. As such, the Exchange wishes to align the long-term
expiration category in a manner that makes it easier for LMMs to
achieve the quoting standards thereunder, particularly as the Exchange
has increased the number of VIX options listed that expire more than
180 days out.
GTH SPX/SPXW LMM Program
The Exchange proposes to amend the GTH SPX/SPXW LMM Incentive
Program. Currently, under the GTH SPX/SPXW LMM Incentive Program, if an
LMM in SPX/SPXW provides continuous electronic quotes during GTH that
meet or exceed the heightened quoting standards (below) in at least 85%
of each of the SPX and SPXW series, 90% of the time in a given month,
the LMM will receive a rebate for that month in the amount of $20,000
for SPX and $30,000 for SPXW (or pro-rated amount if an appointment
begins after the first trading day of the month or ends prior to the
last trading day of the month) for that month.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level 7 days or less 8 days to 60 days 61 days to 270 days 271 days or greater
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$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
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange proposes to adopt a new set of heightened quoting
standards (below) under the GTH SPX/SPXW LMM Incentive Program, similar
to the proposed new basic quoting standards under the GTH VIX/VIXW LMM
Incentive Program, as described above.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level 7 days or less 8 days to 60 days 61 days to 270 days 271 days to 500 days
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <20
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$5.00..................................... $0.35 25 $0.40 15 $0.60 5 $1.20 5
$5.01-$15.00.................................... 0.60 20 0.60 20 1.50 10 2.00 5
$15.01-$50.00................................... 1.20 15 2.00 15 2.00 10 4.00 5
$50.01-$100.00.................................. 6.00 10 4.00 10 3.00 10 5.00 5
$100.01-$200.00................................. 15.00 1 5.00 5 4.00 5 6.00 5
Greater than $200.00............................ 20.00 1 8.00 1 12.00 1 50.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 58338]]
VIX Value at Prior Close from 20-30
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$5.00..................................... 0.60 15 0.80 10 0.75 5 2.00 5
$5.01-$15.00.................................... 1.00 15 1.00 15 2.20 5 3.00 5
$15.01-$50.00................................... 2.50 10 3.50 10 3.0 5 5.00 5
$50.01-$100.00.................................. 10.00 10 7.00 10 3.50 5 7.00 5
$100.01-$200.00................................. 18.00 1 8.00 5 6.00 5 10.00 5
Greater than $200.00............................ 25.00 1 12.00 1 2.00 [sic] 1 60.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <ls-thn-eq>30
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$5.00..................................... 0.90 10 1.00 10 1.00 5 3.00 5
$5.01-$15.00.................................... 2.50 10 2.50 10 3.00 5 4.00 5
$15.01-$50.00................................... 4.00 10 5.00 10 5.00 5 8.00 5
$50.01-$100.00.................................. 12.00 5 10.00 5 4.50 3 10.00 1
$100.01-$200.00................................. 20.00 1 12.00 5 15.00 1 18.00 1
Greater than $200.00............................ 30.00 1 25.00 1 30.00 1 70.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
For the same reasons described above regarding the new quoting
standards for the GTH VIX/VIXW the LMM Incentive Program, the Exchange
believes that, by adopting generally wider widths and smaller quote
sizes as the value of the VIX in the proposed VIX value categories
becomes relatively higher based on the closing VIX Index value from the
preceding trading session, the proposed rule change is designed to
better reflect market characteristics in SPX and SPXW options where the
VIX Index may be experiencing higher volatility (i.e., in the proposed
categories in which the value of the VIX is relatively higher based on
the closing VIX Index value from the preceding trading session), and
thus encourage LMMs appointed to the program to meet the quoting
standards by making it easier for them to satisfy such standards. The
Exchange also believes that by adopting generally tighter widths and
larger quote sizes in the expiration categories that are nearer in term
and gradually widening the widths and reducing the quote sizes as the
expiration categories become longer in term, the proposed rule change
provides more challenging opportunities, thus greater quoting
incentive, in the expiration categories that are nearer in term while
easing the width and size requirements as the expiration categories
become longer in term, wherein the Exchange understands that demand and
participation becomes less significant and thus more difficult for LMMs
to quote within tighter widths and larger sizes.
In addition to this, the Exchange proposes to update the time to
expiration in the long-term expiration category from 271 days or
greater to a range of 271 days to 500 days. The Exchange notes that it
has recently begun listing more SPX/SPXW options with expirations
greater than 271 days. The Exchange understands that it is difficult
for LMMs to price options that generally expire more than 500 days out;
therefore, the Exchange wishes to narrow the long-term expiration
category in a manner that makes it easier for LMMs to achieve the
quoting standards thereunder, particularly as the Exchange has
increased the number of options listed within this expiry category.
The Exchange also proposes to update the rebate amount received for
meeting the heightened quoting standards, as proposed, in a given month
in SPX, by slightly decreasing the rebate amount from $20,000 to
$15,000 and in SPXW, by slightly increasing the rebate amount from
$30,000 to $35,000. The Exchange has observed a recent increase in
demand in SPWX options and therefore wishes to further incentive LMM
appointed to the program to provide significant liquidity in SPXW
options by meeting the heightened quoting standards, while continuing
to allocate the same total rebate amount ($50,000) across SPX and SPXW.
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.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \5\ 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. Additionally,
the Exchange believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\6\ 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.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Regarding both the GTH SPX/SPXW and VIX/VIXW LMM Incentive Programs
generally, the Exchange believes it is reasonable, equitable and not
unfairly discriminatory to continue to offer these financial
incentives, including as amended, to LMMs appointed to the programs,
because it benefits all market participants trading in the
corresponding products during GTH. These incentive programs encourage
the LMMs appointed to such programs to satisfy the heightened quoting
standards, which may increase liquidity and provide more trading
opportunities and tighter spreads. Indeed, the Exchange notes that
these LMMs serve a crucial role in providing quotes and the opportunity
for market participants to trade VIX/VIXW and SPX/SPXW options, as
applicable, which can lead to increased volume, providing for robust
markets. The
[[Page 58339]]
Exchange ultimately offers the LMM Incentive Programs, as amended, to
sufficiently incentivize LMMs appointed to each incentive program to
provide key liquidity and active markets in the corresponding program
products during the corresponding trading sessions, and believes that
these incentive programs, as amended, will continue to encourage
increased quoting to add liquidity in each of the corresponding program
products, thereby protecting investors and the public interest. The
Exchange also notes that an LMM appointed to an incentive program may
undertake added costs each month to satisfy that heightened quoting
standards (e.g., having to purchase additional logical connectivity).
The Exchange believes that the proposed changes to the LMM
Incentive Programs are reasonable. Particularly, the Exchange believes
that it is reasonable to adopt new quoting requirements in the GTH VIX/
VIXW and SPX/SPXW LMM Incentive Programs, as these proposed new quoting
requirements are reasonably designed to continue to encourage LMMs
appointed to the respective incentive programs to provide significant
liquidity in VIX options and SPX/SPXW options during GTH. In
particular, the Exchange believes that it is reasonable to adopt new
widths and sizes in the quoting standards under the GTH VIX/VIXW and
SPX/SPXW LMM Incentive Programs, as applicable, as the proposed rule
change is generally designed to further align the quote widths and size
standards for VIX options and SPX/SPXW options with the market
characteristics in each applicable class. As such, the Exchange
believes the new quote widths and size are reasonably designed to
facilitate LMMs appointed to the GTH VIX/VIXW and SPX/SPXW LMM
Incentive Programs in meeting the heightened quoting standards (in
order to receive the rebate offered under the respective incentive
program) by increasing their quoting activity and posting tighter
spreads and more aggressive quotes in VIX options and SPX/SPXW options,
as applicable. An increase in quoting activity and tighter quotes tends
to signal additional corresponding increase in order flow from other
market participants, which benefits all investors by deepening the
Exchange's liquidity pool, potentially providing even greater execution
incentives and opportunities, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection.
The Exchange believes that by adopting different sets of quoting
standards that are applicable depending on the VIX Index value at the
prior close (i.e., at the close of the preceding RTH session) the
proposed rule change will encourage LMMs appointed to the program to
meet the quoting standards by making it easier for them to satisfy such
standards. In particular, the Exchange believes that the proposed rule
change to adopt generally wider widths and smaller quote sizes as the
value of the VIX in the proposed VIX value categories becomes
relatively higher based on the closing VIX Index value from the
preceding trading session is reasonably designed to better reflect
market characteristics in VIX options and SPX/SPXW options where the
VIX Index may be experiencing higher volatility (based on the closing
VIX Index value from the preceding trading session), and thus encourage
LMMs appointed to the programs to meet the quoting standards by making
it easier for them to satisfy such standards.
Additionally, and as described above, the Exchange believes that
the proposed rule change to adopt generally tighter widths and larger
quote sizes for VIX options and SPX/SPXW options in the expiration
categories that are nearer in term and widen the widths and reduce the
quote sizes as the expiration categories become longer in term is
reasonably designed to provide more challenging opportunities, thus
greater quoting incentive, in the expiration categories that are nearer
in term while easing the width and size requirements as the expiration
categories become longer in term. In addition to this, the Exchange
believes that by providing a set of heightened quoting standards for
VIX options that provide for tighter width and large size standards
than the proposed set of basic quoting standards for VIX options, the
proposed rule change offers LMMs appointed to the GTH VIX/VIXW LMM
Incentive Program a more challenging opportunity, thus further
incentive, to strive to meet the heightened quoting standards in VIX
options in order to receive the current additional rebate on their VIX/
VIXW orders in RTH. The Exchange also notes that the proposed basic
quoting standards for VIX options and proposed heightened quoting
standards for VIX and for SPX/SPXW options do not represent a
significant departure from each of the program's current quote width
and size standards and remain generally aligned with the current range
of widths and sizes; they are merely being tailored to better reflect
market characteristics in VIX options and in SPX/SPX options as they
each relate to volatility in the VIX Index. The Exchange further notes
that quote widths and sizes typical in VIX options differ from that in
SPX/SPXW options, therefore, the proposed heightened quoting
requirements reflect quote widths and sizes that the Exchange believes
aligns with the market characteristics specific to each.
In addition to this, the Exchange believes that it is reasonable to
amend the number of days to expiration that comprise certain expiry
categories in the GTH VIX/VIXW and SPX/SPXW LMM Incentive Programs as
these updates are reasonably designed to make it easier for the LMMs
appointed to the respective incentive programs to satisfy the
heightened quoting standards for options expiring a certain number of
days out, by better aligning the applicable category of heightened
quoting standards with the market characteristics and level of demand
for options that expire a certain number of days out.
The Exchange believes that it is reasonable to amend the monthly
rebate amounts applicable to the GTH SPX/SPXW Incentive Program. The
Exchange believes that the proposed increased rebate amount (from
$30,000 to $35,000) for SPXW options is reasonably designed to continue
to incentivize an appointed LMM to meet the applicable quoting
standards for SPXW options, thereby providing liquid and active
markets, which facilitates tighter spreads, increased trading
opportunities, and overall enhanced market quality to the benefit of
all market participants. The Exchange also believes that it is
reasonable to shift the total rebate amount ($50,000) allocated across
SPX and SPXW options under the program by offsetting the slightly
increased rebate amount for SPXW ($35,000) options with a slightly
decreased rebated amount for SPX options ($15,000) because the Exchange
has observed a recent increase in demand in SPWX options and therefore
wishes to further incentive LMM appointed to the program to provide
significant liquidity in SPXW options by meeting the heightened quoting
standards, while continuing to allocate the same total rebate amount
across SPX and SPXW.
The Exchange believes that the proposed changes to the LMM
Incentive Programs are equitable and not unfairly discriminatory. The
Exchange believes that it is equitable and not unfairly discriminatory
to adopt new quoting standards and to update the number of days to
expiration for certain expiry
[[Page 58340]]
categories in the GTH VIX/VIXW and SPX/SPXW LMM Incentive Programs
because such overall quoting standards and expiry categories will
equally apply to any and all TPHs with LMM appointments to the GTH VIX/
VIXW and SPX/SPXW LMM Incentive Programs, as applicable, that seek to
meet the programs' heightened quoting standards in order to receive the
rebate offered (both current and proposed, as applicable) under the
respective programs. The Exchange believes the proposed rebates
applicable to the GTH SPX/SPXW Incentive Program are equitable and not
unfairly discriminatory because they, too, will equally apply to any
TPH that is appointed as an LMM to the GTH SPX/SPXW LMM Incentive
Program. Additionally, if an LMM appointed to either the GTH SPX/SPXW
or the GTH VIX/VIXW LMM Incentive Programs does not satisfy the
corresponding heightened quoting standard for any given month, then it
simply will not receive the rebate offered by the respective program
for that month.
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.
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 to existing LMM Incentive Programs will apply to all LMMs
appointed to the applicable program classes (i.e., VIX/VIXW and SPX/
SPXW) in a uniform manner. To the extent these LMMs appointed to an
incentive program receive a benefit that other market participants do
not, as stated, these LMMs in their role as Mark-Makers on the Exchange
have different obligations and are held to different standards. For
example, 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. The Exchange also notes that an LMM appointed to an incentive
program may undertake added costs each month that it needs to satisfy
that heightened quoting standards (e.g., having to purchase additional
logical connectivity). The Exchange also notes that the incentive
programs are designed to attract additional order flow to the Exchange,
wherein greater liquidity benefits all market participants by providing
more trading opportunities, tighter spreads, and added market
transparency and price discovery, and signals to other market
participants to direct their order flow to those markets, thereby
contributing to robust levels of liquidity.
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 the LMM Incentive Programs
apply only to transactions in products exclusively listed on Cboe
Options. Additionally, as noted above, the incentive programs are
designed to attract additional order flow to the Exchange, wherein
greater liquidity benefits all market participants by providing more
trading opportunities, tighter spreads, and added market transparency
and price discovery, and signals to other market participants to direct
their order flow to those markets, thereby contributing to robust
levels of liquidity. 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 other options exchanges, as well as off-
exchange venues, where competitive products are available for trading.
Based on publicly available information, no single options exchange has
more than 16% of the market share of executed volume of options
trades.\7\ 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.'' \8\ 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'. . . .''.\9\ Accordingly, the Exchange does not believe its
proposed changes to the incentive programs impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------
\7\ See Cboe Global Markets, U.S. Options Market Volume Summary
by Month (September 22, 2021), available at <a href="http://markets.cboe.com/us/options/market_share/">http://markets.cboe.com/us/options/market_share/</a>.
\8\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\9\ 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)).
---------------------------------------------------------------------------
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 \10\ and paragraph (f) of Rule 19b-4 \11\
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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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#ff8d8a939ad29c9092929a918b8cbf8c9a9cd1989089"><span class="__cf_email__" data-cfemail="fa888f969fd7999597979f948e89ba899f99d49d958c">[email protected]</span></a>. Please
include File Number SR-CBOE-2021-058 on the subject line.
[[Page 58341]]
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-2021-058. 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-2021-058 and should be submitted on
or before November 12, 2021.
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22927 Filed 10-20-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 21, 2021.
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.