Notice2021-25016
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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
November 17, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 219 (Wednesday, November 17, 2021)</title>
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[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64283-64290]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25016]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93552; File No. SR-CBOE-2021-065]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
November 10, 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 November 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
[[Page 64284]]
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<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 in connection
with: The Global Trading Hours (``GTH'') Executing Agent Subsidy
Program; surcharges applicable to Non-Customer orders executed in long-
term index options series (``LEAPS'') for S&P 500 Index (``SPX'')
options; a waiver applicable to transaction fees for Customer orders
executed in Cboe Volatility Index (``VIX'') options during GTH; and the
GTH VIX/VIX Weekly (``VIXW'') Lead Market-Maker (``LMM'') Incentive
Program, effective November 1, 2021.
GTH Executing Agent Subsidy Program
The proposed rule change amends the GTH Executing Agent Subsidy
Program to adopt volume-based tiers that correspond to increasingly
higher subsidies. In particular, the GTH Executing Agent Subsidy
Program offers a monthly subsidy to Trading Permit Holders (``TPHs'')
with executing agent operations \3\ during the GTH trading session.
Pursuant to the current program, a designated GTH executing agent will
receive a $5,000 monthly subsidy if it executes at least 1,000
contracts executed on behalf of customers (including public and broker-
dealer customers) during GTH in a calendar month. To become a
designated GTH executing agent, a TPH must submit a form to the
Exchange no later than 3:00 p.m. on the second to last business day of
a calendar month to be designated an GTH executing agent under the
program, and thus eligible for the subsidy, beginning the following
calendar month. The TPH must include on or with the form information
demonstrating it maintains an GTH executing agent operation: (1)
Physically staffed throughout each entire GTH trading session and (2)
willing to accept and execute orders on behalf of customers, including
customers for which the agent does not hold accounts. The designation
will be effective the first business day of the following calendar
month, subject to the Exchange's confirmation the TPH's GTH executing
agent operations satisfies these two conditions and will remain in
effect until the Exchange receives an email from the TPH terminating
its designation or the Exchange determines the TPH's GTH executing
agent operation no longer satisfies these two conditions. Within two
business days following the end of a calendar month, in order to
receive the subsidy for that month, the designated GTH executing agent
must submit to the Exchange (in a form and manner determined by the
Exchange) documentation and other evidence it executed at least 1,000
contracts on behalf of customers during GTH that month.
---------------------------------------------------------------------------
\3\ An executing agent operation is one that accepts orders from
customers (who may be public or broker-dealer customers and
including customers for which the agent does not hold accounts) and
submits the orders for execution (either directly to the Exchange or
through another TPH).
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As stated above, the Exchange now proposes to adopt volume-based
tiers that correspond to increasingly higher monthly subsidies for
designated GTH executing agents. Specifically, as proposed, a
designated GTH executing agent will receive the monthly subsidy amount
that corresponds to the number of contracts executed on behalf of
customers (including public and broker-dealer customers) during GTH in
a calendar month per the GTH Executing Agent Subsidy Program table, as
follows:
------------------------------------------------------------------------
GTH monthly customer volume Subsidy
------------------------------------------------------------------------
0-999 contracts............................................ $0.00
1,000-4,999 contracts...................................... 5,000
5,000-29,999 contracts..................................... 15,000
30,000+ contracts.......................................... 20,000
------------------------------------------------------------------------
The proposed rule change removes the language related to the
requirement that a designated GTH executing agent must submit to the
Exchange (in a form and manner determined by the Exchange)
documentation and other evidence of the number of contracts it executed
on behalf of customers in a month, as the Exchange has automated the
process for documenting this for designated GTH executing agents each
month. The current timing, process, requirements and all other
documentation applicable to designated GTH executing agent under the
GTH Executing Agent Subsidy Program will continue to apply in the same
manner.
The proposed volume-based tiers are designed to encourage
designated GTH executing agents to increase their order flow executed
as agent in the symbols that trade during GTH (SPX and VIX) to meet the
proposed volume thresholds in order to receive the proposed
corresponding subsidies, as the proposed tiers present additional
opportunities for designated GTH agents to receive larger subsidies
than that which is currently offered by the program. As such, the
proposed tiers may also incentivize more TPHs to become designated GTH
executing agents that may submit customer (including public and broker-
dealer customer) order flow during GTH to meet the proposed volume
thresholds and receive the corresponding subsidies. The Exchange notes
that incentivizing TPHs to conduct executing agent operations willing
to accept orders from all customers during GTH is designed to increase
customer accessibility to the GTH trading session. The Exchange
believes that increased order flow through designated GTH executing
agents would allow the Exchange to grow participation during GTH, which
may benefit all market participants, as additional liquidity to the
Exchange during GTH would create more trading opportunities during GTH,
and in turn attract market participants to submit additional order flow
during GTH.
SPX LEAPS Surcharge
The Exchange intends to begin listing SPX LEAPS options with
expirations more than three years out on November 1, 2021. Index LEAPS
are index options series that expire from 12 to 180 months
[[Page 64285]]
from the date of issuance.\4\ In connection with the planned listing of
SPX LEAPS options, the Exchange proposes to adopt surcharge fees for
Non-Customer \5\ orders executed in SPX LEAPS options that vary
according to time-to-expiration in Rate Table--Underlying Symbol List A
of the Fees Schedule, as follows:
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\4\ See Rule 4.13(b).
\5\ 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).
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<bullet> Non-Customer orders executed in SPX LEAPS options that
expire three years to less than four years out will be assessed a
surcharge fee of $1.00 per contract;
<bullet> Non-Customer orders executed in SPX LEAPS options that
expire four years to less than five years out will be assessed a
surcharge fee of $1.50 per contract;
<bullet> Non-Customer orders executed in SPX LEAPS options that
expire five years to less than six years out will be assessed a
surcharge fee of $2.00; and
<bullet> Non-Customer orders executed in SPX LEAPS options that
expire six years out or more will be assessed a surcharge fee of $2.50.
The Exchange anticipates SPX LEAPS may attract a different
customer-base and generally sustain lower volumes than that of standard
SPX options given the relatively higher premium prices, implied
volatility, and overall risk associated with trading SPX LEAPS as a
result of their long-dated expirations. Therefore, in order to
initially and continue to list SPX LEAPS, as well as attempt to grow
liquidity in these series, the Exchange must expend a number of
resources. As such, the proposed SPX LEAPS surcharge fees are designed
to assist the Exchange in recouping the resources expended in
developing and maintaining a market for SPX LEAPS options. The Exchange
notes that other index options are also subject to surcharge fees.\6\
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\6\ See generally Cboe Options Fees Schedule, Rate Table--
Underlying Symbol List A.
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GTH VIX Transaction Fees Waiver
The Exchange proposes to waive transaction fees for Customer orders
executed in VIX options during GTH through December 31, 2022. Pursuant
to the Rate Table--Underlying Symbol List A in the Fees Schedule,
Customer simple orders and Customer complex orders executed in VIX
options are assessed a transaction fee by premium price. Such
transaction fees are applicable during Regular Trading Hours (``RTH'')
and GTH. Customer simple orders in VIX options with a premium price
between $0.00 and $0.10 are assessed a transaction fee of $0.10 per
contract and complex orders with the same premium price range are
assessed a transaction fee of $0.05 per contract. Customer simple
orders in VIX options with a premium price between $0.11 and $0.99 are
assessed a transaction fee of $0.25 per contract and complex orders
with the same premium price range are assessed a transaction fee of
$0.17 per contract. Customer simple orders in VIX options with a
premium price between $1.00 and $1.99 are assessed a transaction fee of
$0.40 per contract and complex orders with the same premium price range
are assessed a transaction fee of $0.30 per contract. Both Customer
simple and complex orders in VIX options with a premium price of $2.00
or more are assessed a transaction fee of $0.45 per contract.
Proposed footnote 32 provides that transactions fees will be waived
for Customer orders executed in VIX options during GTH through December
31, 2022 and the proposed rule change appends footnote 32 to the line
items in Rate Table--Underlying Symbol List A applicable to transaction
fees for Customer simple and complex orders in VIX options.\7\ The
proposed waiver is designed to encourage customer order flow in VIX
options during GTH. As described above, the Exchange wishes to promote
the growth of its GTH trading session. Additionally, the Exchange has
observed lower volume and participation in VIX options during GTH than
compared to volume and participation in SPX options (the other class
currently available for trading during GTH). As such, it believes that
incentivizing increased customer order flow in VIX options during GTH
would attract additional liquidity to the Exchange, providing market
participants with more trading opportunities and signaling an increase
in Market-Maker activity, which facilitates tighter spreads. This may
cause an additional corresponding increase in order flow from other
market participants, contributing overall towards a robust and well-
balanced market ecosystem, particularly in VIX options during GTH.
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\7\ For clarity, the proposed rule change also appends proposed
footnote 32 to the line item containing VIX in the Customer Large
Trade Discount table in the Fees Schedule.
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GTH VIX/VIXW LMM Incentive Program
The proposed rule change also amends the GTH VIX/VIXW LMM Incentive
Program. The GTH VIX/VIXW LMM Incentive Program provides a rebate to
TPHs appointed as LMMs to the program that meet certain quoting
standards in VIX and VIXW options 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 VIX or VIXW to receive
the applicable rebate (both currently offered and as proposed;
described in further detail below) is optional for an LMM appointed to
the program. Rather, an LMM appointed to the program is eligible to
receive a rebate if it satisfies the applicable quoting standards,
which the Exchange believes encourages the LMM to provide liquidity in
VIX/VIXW options during 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 the program meets the program's
basic and heightened quoting standards each month, the Exchange
excludes from the calculation for each set of quoting standards the
business day in which the LMM missed meeting or exceeding the quoting
standards in the highest number of the applicable series that month.\8\
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\8\ The Exchange recently implemented basic and heightened
quoting standards in the program. See Securities Exchange Act
Release No. 93348 (October 15, 2021), 86 FR 58335 (October 21, 2021)
(SR-CBOE-2021-058). The proposed rule change now makes a clarifying
update to the language regarding the Exchange's exclusion of an
LMM's worst quoting day in a month to account for the separate sets
of quoting requirements. Specifically, the proposed rule change
clarifies that an LMM's worst quoting day will be excluded from the
calculation applicable to each set of quoting standards for that
month.
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Currently, the program provides that if an LMM in VIX/VIXW provides
continuous electronic quotes during GTH that meet or exceed the basic
quoting standards 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 VIX heightened
quoting standards in at least 99% of the VIX series, 90% of the time in
a given
[[Page 64286]]
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.
The proposed rule change seeks to amend the VIXW basic quoting
standards, which are currently as follows:
------------------------------------------------------------------------
Maximum allowable
Premium level width
------------------------------------------------------------------------
$0.00-$100.00........................................ $10.00
$100.01-$200.00...................................... 16.00
Greater than $200.000................................ 24.00
------------------------------------------------------------------------
The proposed rule change amends the VIXW basic quoting standards to
reflect the following:
----------------------------------------------------------------------------------------------------------------
Less than 21 days to expiration 21 days or greater to expiration
Premium level ---------------------------------------------------------------------------
Width Size Width Size
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <18
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00......................... $1.00 10 $1.50 10
$1.01-$3.00......................... 1.50 10 2.50 10
$3.01-$5.00......................... 2.50 3 4.00 3
$5.01-$10.00........................ 4.00 1 6.00 1
$10.01-$30.00....................... 6.00 1 10.00 1
Greater than 30.00.................. 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from 18-25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00......................... 1.50 5 2.00 5
$1.01-$3.00......................... 2.50 5 4.00 5
$3.01-$5.00......................... 4.00 1 5.00 1
$5.01-$10.00........................ 6.00 1 8.00 1
$10.01-$30.00....................... 10.00 1 10.00 1
Greater than $30.00................. 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from <ls-thn-eq>25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00......................... 10.00 1 10.00 1
$1.01-$3.00......................... 10.00 1 10.00 1
$3.01-$5.00......................... 10.00 1 10.00 1
$5.01-$10.00........................ 10.00 1 10.00 1
$10.01-$30.00....................... 10.00 1 10.00 1
Greater than $30.00................. 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
The Exchange believes the proposed basic quoting requirements for
VIXW 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 VIXW options during GTH. The proposed basic
quoting standards for VIXW options provide for tighter widths than the
current basic quoting standards and implement size standards based on
finer premium ranges. As such, the proposed rule change offers LMMs
appointed to the program a more challenging opportunity, thus further
incentive, to strive to meet the VIXW basic quoting standards in order
to receive the applicable rebate. The Exchange notes that the proposed
rule change also seeks to tailor the VIXW basic quoting standards to
better reflect then-current market conditions and market
characteristics the Exchange has observed in VIXW options, as the
proposed VIXW basic quoting standards that are applicable depend on the
VIX Index value at the prior market close (i.e., at the close of the
preceding RTH session). Spreads in VIXW options generally widen when
the market experiences higher volatility (i.e., the VIX Index level is
higher in value). Therefore, to encourage LMMs to meet the proposed
basic quoting standards regardless of market volatility, the proposed
rule change adopts generally wider widths and smaller quote sizes where
the market may be experiencing higher volatility (i.e., when the value
of the VIX Index in the proposed VIX value categories becomes
relatively higher compared to the closing index value from the
preceding trading session). The proposed rule change also adopts
generally tighter widths in the nearer in term expiration category
(less than 21 days to expiration) than that of the longer in term
expiration category (21 days or greater to expiration). The Exchange
believes the proposed rule change provides a balance between providing
more challenging opportunities, thus greater quoting incentive, in the
expiration category that is nearer in term and easing the width
requirements in the expiration category that is longer in term, as the
Exchange understands that demand and participation is generally lower
for options that expire farther out, which may make it more difficult
for LMMs to quote within tighter widths. The Exchange notes that the
basic quoting standards currently in place for VIX options under the
program are tailored in a similar manner.
[[Page 64287]]
The Exchange also proposes to update the rebate amount received for
meeting the VIXW basic quoting standards, as proposed, in a given
month, by slightly increasing the rebate amount from $5,000 to $10,000.
The proposed increase is designed to further incentivize LMMs appointed
to the program to provide significant liquidity in VIXW options in
order to meet the proposed basic quoting standards. Finally, the
proposed rule change marginally decreases the amount of the additional
rebate that applies to VIX/VIXW contracts executed in RTH where an
appointed LMM meets the VIX heightened quoting standards from $0.03 to
$0.02. The Exchange notes that it is not required to maintain this
additional incentive at any amount and that an LMM will continue to
have the opportunity to receive the additional rebate on its VIX/VIXW
orders executed in RTH, albeit at a marginally lower rate.
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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ 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,\11\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its TPHs and other persons using its facilities.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(4).
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First, the Exchange believes that the proposed rule changes are
reasonable. In particular, the Exchange believes that the proposed rule
change to adopt a volume-based tier structure for the GTH Executing
Agent Subsidy Program is reasonably designed to encourage designated
GTH executing agents to increase their customer order flow in the
symbols that trade during GTH and to incentivize more TPHs to become
designated GTH executing agents that may submit order flow during GTH,
to meet the proposed volume thresholds and receive the corresponding
subsidies. By incentivizing TPHs to conduct executing agent operations
willing to accept orders from all customers during GTH, the proposed
rule change is reasonably designed to increase customer accessibility
and increase order flow to the GTH trading session. The Exchange
believes that increased order flow would allow the Exchange to grow
participation in the GTH trading session to the benefit of all market
participants that trade during GTH, by providing greater trading
opportunities as a result of increased liquidity, thereby attracting
additional order flow from market participants during GTH. The Exchange
notes that the Fees Schedule currently offers many other programs with
similar volume-based incentive tier structures.\12\
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\12\ See e.g., Cboe Options Fees Schedule, Liquidity Provider
Sliding Scale and Floor Broker Sliding Scale Rebate Program.
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The Exchange believes that the proposed rule change to adopt
surcharge fees based on the time to expiration for SPX LEAPS (which the
Exchange intends to begin listing on November 1, 2021) is reasonable
because the surcharge fees will assist the Exchange in recouping some
of the resources it expends developing and maintaining a market for SPX
LEAPS, which the Exchange anticipates will have a different customer
base and sustain relatively lower volume than that of standard SPX
options. The Exchange notes that it also assesses other surcharge fees
on proprietary index options pursuant to Rate Table--Underlying Symbol
List A in the Fees Schedule for similar reasons. While the proposed
surcharge fees for SPX LEAPS are generally higher than the other
surcharges fees in Rate Table--Underlying Symbol List A, the Exchange
believes the proposed amounts are reasonably commensurate with the
market characteristics of SPX LEAPS, where relatively lower volumes
generally result in liquidity providers quoting wider spreads, which
may absorb higher premiums and costs.
The Exchange believes that the proposed rule change to waive
transaction fees for Customer orders executed in VIX options during GTH
is reasonably designed to encourage customer order flow in VIX options
during GTH. The Exchange wishes to promote the growth of its GTH
trading session, and, as the Exchange has observed comparatively lower
volume and participation in VIX options during GTH, it believes that
incentivizing increased customer order flow in VIX options during GTH
would attract additional liquidity to the Exchange. As described above,
increased customer order flow facilitates increase trading
opportunities and attracts Market-Maker activity, which facilitates
tighter spreads and may ultimately signal an additional corresponding
increase in order flow from other market participants, contributing
overall towards a robust and well-balanced market ecosystem,
particularly in VIX options during GTH. The Exchange notes that it
similarly waives fees for other types of Customer orders in the Fees
Schedule.\13\
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\13\ See Cboe Options Fees Schedule, footnote 8, which waives
the transaction fee for customer orders in ETF and ETN options
executed in open outcry or in AIM or as a QCC or as a FLEX Options
transaction, and footnote 9, which waives transaction fees for
customer orders that provide or remove liquidity that are 99
contracts or less in ETF and ETN options.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change to amend the
GTH VIX/VIXW LMM Incentive Program is reasonable. Particularly, the
Exchange believes the proposed basic quoting requirements are
reasonably designed to continue to encourage LMMs appointed to the
program to provide significant liquidity in VIXW options during GTH.
Additionally, the Exchange believes that it is reasonable to adopt
tighter widths and implement sizes based on finer premium categories in
the basic quoting standards for VIXW options in order to provide more
challenging opportunities, thus greater quoting incentive, for LMMs to
strive to meet the basic quoting standards and receive the
corresponding rebate, as proposed. As such, the Exchange believes the
proposed rule change is reasonably designed to encourage LMMs appointed
to the program to meet the VIXW basic quoting standards (and receive
the rebate, as amended) by increasing their quoting activity and
posting tighter spreads and more aggressive quotes in VIXW options. 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
[[Page 64288]]
protection. The Exchange also believes that the proposed basic quoting
standards are reasonably tailored to reflect then-current market
conditions and market characteristics in VIXW options, as they relate
to volatility in the market (i.e., VIX Index level) as well as time-to-
expiration. The Exchange notes that the basic quoting standards
currently in place for VIX options under the program are tailored in a
similar manner.
In addition to this, the Exchange believes that it is reasonable to
amend the monthly rebate amounts applicable to VIXW options under the
GTH VIX/VIXW LMM Incentive Program. The Exchange believes that the
proposed increased rebate amount (from $5,000 to $10,000) for VIXW
options is reasonably designed to continue to incentivize an appointed
LMM to meet the applicable quoting standards for VIXW 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
the proposed increase is reasonably commensurate with the proposed
basic quoting standards for VIXW, which, as described above, present
more challenging opportunities for LMMs. The Exchange also believes
that the proposed rule change to reduce the additional rebate
applicable to an LMM's VIX/VIXW orders executed in RTH where an LMM
meets the VIX heightened quoting requirements in a month is reasonable
because an LMM will still be able to meet the heightened quoting
requirements and receive the additional rebate, albeit at a marginally
reduced rate (from $0.03 to $0.02). The Exchange notes that it is not
required to maintain this additional incentive at any amount.
The Exchange also believes that the proposed rule changes are
equitable and not unfairly discriminatory. In particular, the Exchange
believes that offering volume-based incentives that correspond to
higher subsidies to designated GTH executing agents is equitable and
not unfairly discriminatory because TPHs that conduct executing agent
operations willing to accept orders from all customers take on
additional risks and potential costs (including those related to
staffing and clearing) associated with this type of business. Such TPHs
also provide benefits to investors during GTH, including increased
customer accessibility to the GTH trading session and increased order
flow. All TPHs that conduct this type of operation during GTH will
continue to have the opportunity to become a designated GTH executing
agent and thus eligible for the monthly subsidy.
The Exchange believes that the proposed surcharge fees for SPX
LEAPS are equitable and not unfairly discriminatory because each
proposed surcharge will apply equally to all Non-Customer orders SPX
LEAPS in the corresponding expiry category. Likewise, the Exchange
believes that the proposed waiver for Customer orders executed in VIX
options in GTH is equitable and not unfairly discriminatory because the
waiver will apply equally to all Customer transactions in VIX options
during GTH. The Exchange also notes that, regarding the application of
the proposed surcharge fees to Non-Customer orders and the transaction
fee waiver to Customer orders, there is a history in the options
markets of providing preferential treatment to customers and, as
described herein, customer order flow tends to attract key liquidity
from other market participants.
Regarding the VIX/VIXW LMM Incentive Program, the Exchange believes
that it is equitable and not unfairly discriminatory generally to
continue to offer this financial incentive, including as amended, to
LMMs appointed to the program, because it benefits all market
participants trading in the corresponding products during GTH. As
described above, the program encourages the appointed LMMs to satisfy
the 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 options, which
can lead to increased volume, providing for robust markets. The
Exchange ultimately offers the GTH VIX/VIXW LMM Incentive Program, as
amended, to sufficiently incentivize the appointed LMMs to provide key
liquidity and active markets in VIX/VIXW options during GTH, and
believes that the program, as amended, will continue to encourage
increased quoting to add liquidity in VIX/VIXW options to the benefit
of investors. The Exchange also notes that an LMM appointed to the
program may undertake added costs each month to satisfy that heightened
quoting standards (e.g., having to purchase additional logical
connectivity).
In particular, the Exchange believes it is equitable and not
unfairly discriminatory to adopt new VIXW quoting standards because
such quoting standards will equally apply to any and all TPHs with LMM
appointments to the GTH VIX/VIXW LMM Incentive Program that seek to
meet the program's quoting standards in order to receive the rebates
offered. The Exchange believes the amended rebate for VIXW options and
the amended additional rebate applicable during RTH are equitable and
not unfairly discriminatory because they, too, will equally apply to
any TPH that is appointed as an LMM to the GTH VIX/VIXW LMM Incentive
Program. Additionally, if an LMM appointed to the GTH VIX/VIXW LMM
Incentive Program does not satisfy the quoting standards for any given
month, then it simply will not receive the corresponding rebate offered
by the 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 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.'' \14\
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\14\ 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. As stated, all
TPHs that conduct executing agent operations willing to accept orders
from all customers will continue to have an opportunity to be eligible
for the GTH Executing Agent Subsidy program. Also, such TPHs that
conduct this type of operation take on additional risks and potential
costs (including those related to staffing and clearing) associated
with this type of business, and may provide benefits to investors
during GTH, including increased customer accessibility to, and
liquidity and trading opportunities during, the GTH trading session.
Additionally, the proposed surcharge
[[Page 64289]]
fees and fee waiver will apply equally to the applicable orders for all
similarly situated market participants (i.e., all Non-Customer orders
in SPX LEAPS in the corresponding expiry categories and all Customer
transactions in VIX options during GTH). The Exchange again notes that
there is a history in the options markets of providing preferential
treatment to customers and customer order flow tends to attract key
liquidity from other market participants. Further, the proposed changes
to the GTH VIXW/VIX LMM Incentive Program will apply to all LMMs
appointed to the program in a uniform manner. To the extent the LMMs
appointed to the program receive a benefit that other market
participants do not, as stated, these LMMs in their role as Market-
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. An LMM appointed to
the program may undertake added costs each month that it needs to
satisfy the quoting standards (e.g., having to purchase additional
logical connectivity). The program is ultimately designed to attract
additional order flow in VIX/VIXW options 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 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 each of the proposed
changes applies only to fees and programs applicable to transactions in
products exclusively listed on the Exchange. Additionally, the Exchange
notes that it 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.\15\ 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.'' \16\ 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'. . . .''.\17\ 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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\15\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (October 25, 2021), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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#453730292068262a2828202b3136053620266b222a33"><span class="__cf_email__" data-cfemail="7e0c0b121b531d1113131b100a0d3e0d1b1d50191108">[email protected]</span></a>. Please
include File Number SR-CBOE-2021-065 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-2021-065. 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
[[Page 64290]]
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-2021-065 and should be submitted on
or before December 8, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25016 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P
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