Notice2021-27073
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
December 15, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 238 (Wednesday, December 15, 2021)</title>
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[Federal Register Volume 86, Number 238 (Wednesday, December 15, 2021)]
[Notices]
[Pages 71310-71313]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27073]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93744; File No. SR-CBOE-2021-072]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
December 9, 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 December 1, 2021, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule. 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
its strategy order fee cap and the installation fee for the tethering
of new equipment in connection with Market-Maker handheld terminals for
indexes, effective December 1, 2021.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More
[[Page 71311]]
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 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 the competitive environment, the
Exchange offers specific rates and credits in its fees schedule, like
that of other options exchanges' fees schedules, which the Exchange
believes provide incentive to Trading Permit Holders (``TPHs'') to
increase order flow of certain qualifying orders.
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\3\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (November 22, 2021), available at <a href="https://www.cboe.com/us/options/market_statistics/">https://www.cboe.com/us/options/market_statistics/</a>.
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The Exchange proposes to amend footnote 13 of the Fees Schedule in
connection with its strategy fee cap. Currently, footnote 13 provides
that Market-Maker, Clearing TPH, JBO participant, broker-dealer and
non-TPH market-maker transaction fees are capped at $0.00 for all
merger, short stock interest, reversal, conversion and jelly roll
strategies executed in open outcry on the same trading day in the same
option class across all symbols in equities, ETFs and ETNs.\4\
Strategies tied to QCC orders are not eligible to receive a strategy
rebate and strategies defined in footnote 13 \5\ are not eligible for
an ORS/CORS subsidy. Specifically, the proposed rule change amends
footnote 13 so that the strategy fee cap also applies to Professional
transaction fees. The proposed change is designed to incentivize an
increase in the number of strategy orders executed in a Professional
capacity in equity, ETF and ETN options (i.e., multiply-listed options)
in open outcry. Professionals generally provide a greater competitive
stream of order flow (by definition, more than 390 orders in listed
options per day on average during a calendar month), thus, applying the
strategy cap to Professional strategies executed in multiply-listed
options in open outcry is designed to incentivize increased competitive
execution and improved pricing opportunities in such options to the
benefit of all market participants.
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\4\ A ``merger strategy'' is defined as transactions done to
achieve a merger arbitrage involving the purchase, sale and exercise
of options of the same class and expiration date, each executed
prior to the date on which shareholders of record are required to
elect their respective form of consideration, i.e., cash or stock. A
``short stock interest strategy'' is defined as transactions done to
achieve a short stock interest arbitrage involving the purchase,
sale and exercise of in-the-money options of the same class. A
``reversal strategy'' is established by combining a short security
position with a short put and a long call position that shares the
same strike and expiration. A ``conversion strategy'' is established
by combining a long position in the underlying security with a long
put and a short call position that shares the same strike and
expiration. A ``jelly roll strategy'' is created by entering into
two separate positions simultaneously. One position involves buying
a put and selling a call with the same strike price and expiration.
The second position involves selling a put and buying a call, with
the same strike price, but with a different expiration from the
first position.
\5\ See id.
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The Exchange also proposes to waive the installation fee for Cloud9
handheld tethering services. The Exchange is currently working to
relocate its trading floor and anticipates its opening at the new
location in mid-2022. Currently, pursuant to the Facility Fees table of
the Fees Schedule, the Exchange assesses a $900 fee for the electrician
services in connection with the installation of the infrastructure
related to the tethering of Market-Maker handheld terminals for
indexes. The Exchange plans to implement a new voice communication
service, Cloud9, for the new trading floor, and all index trading pits
will support Market-Maker handheld terminals using Cloud9 equipment
once on the new trading floor. The Exchange wishes to encourage TPHs to
install the Cloud9 equipment for their handheld terminals on the
current trading floor prior to the move to the new trading floor in
order to make the transition to Cloud9 services on the new trading
floor as seamless as possible. As such, the Exchange proposes to waive
the installation fee for the tethering of Cloud9 equipment for Market-
Maker handheld terminals for indexes on the Exchange's current trading
floor. Specifically, the proposed rule change adopts footnote 38, which
provides that the Exchange will waive the installation fee for
installation services in connection with the tethering of Cloud9
equipment for Market-Maker handheld terminals for indexes on the Cboe
Options trading floor located at 400 S LaSalle Street, and appends
footnote 38 to the line item in the Facility Fees table for Market-
Maker handheld terminal tethering services for indexes.
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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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,\8\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that proposed rule change to apply the
strategy order fee cap to Professional transactions in multiply-listed
options in open outcry is consistent with Section 6(b)(4) of the Act in
that the proposal is reasonable, equitable and not unfairly
discriminatory. As noted above, the Exchange operates in highly
competitive market. The Exchange is only one of several options venues
to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The Exchange
believes that the proposed fees are reasonable, equitable, and not
unfairly discriminatory in that the Exchange and competing options
exchanges currently offer reduced fees or credits in connection with
strategy orders executed in open outcry.\9\ 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 or reduce use of certain categories of products, in
response to fee changes. Accordingly, competitive
[[Page 71312]]
forces constrain options exchange transaction fees. Stated otherwise,
changes to exchange transaction fees can have a direct effect on the
ability of an exchange to compete for order flow. To respond to this
competitive marketplace, the Exchange has established incentives to
facilitate the execution of orders via open outcry, which promotes
price discovery on the public markets. To the extent that these
incentives succeed, the increased liquidity on the Exchange would
result in enhanced market quality for all participants.
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\9\ See e.g., BOX Options Market LLC (``BOX'') Fee Schedule,
Section II.D, Strategy Qualified Open Outcry ``QOO'' Order Fee Cap
and Rebate; and NYSE American Options Fee Schedule, Section I(J),
Strategy Execution Fee Cap.
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Particularly, the Exchange believes that applying the strategy fee
cap to Professional transactions in multiply-listed options in open
outcry is reasonable because it is designed to incentivize
Professionals to increase their strategy orders in multiply-listed
options submitted to and executed on the Exchange's trading floor. As
stated above, Professionals generally provide a greater competitive
stream of order flow, thus, incentivizing an increase in Professional
strategies executed in multiply-listed options in open outcry may
encourage competitive execution and improved pricing opportunities in
such options to the benefit of all market participants. The Exchange
offers a hybrid market system and aims to balance incentives for its
TPHs to continue to contribute to deep liquid markets for investors on
both its electronic and open outcry platforms. As such, the Exchange
believes the proposed applications of the strategy fee cap to
Professional transactions in open outcry is a reasonable means to
further encourage open outcry liquidity. The Exchange provides other
opportunities in its Fees Schedule for TPHs, including those that
submit order flow to the Exchange in a Professional capacity, to
receive reduced fees or enhanced rebates for orders executed
electronically.\10\ The Exchange notes that all market participants
stand to benefit from any increase in volume transacted on the trading
floor, which promotes market depth, facilitates tighter spreads and
enhances price discovery, and may lead to a corresponding increase in
order flow from other market participants.
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\10\ See e.g., Cboe Options Fees Schedule, ``Volume Incentive
Program'' and footnote 36, which credits each qualifying TPH
(including in a Professional capacity) the per contract amount
resulting from each public customer (``C'' capacity code) order
transmitted by that TPH which is executed electronically on the
Exchange (with some exceptions).
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In addition, the Exchange believes that the proposed rule change to
waive the installation fees in connection with the tethering of Cloud9
equipment for Market-Maker handheld terminals is reasonably designed to
encourage TPHs to install the new Cloud9 equipment for their handheld
terminals on the current trading floor prior to the move to the new
trading floor in order to make TPHs' transition to Cloud9 services on
the new trading floor as seamless as possible.
The Exchange believes the proposed rule change is equitable and not
unfairly discriminatory because, as proposed, the strategy fee cap
applies to all strategy orders executed by Professionals on the trading
floor equally and because the Exchange believes that facilitating
strategy orders submitted by Professionals via open outcry encourages
and supports increased liquidity and execution opportunities in open
outcry, which functions as an important price-improvement mechanism.
Also, the proposed strategy fee cap already applies in the same manner
to other market participants that execute strategies in multiply-listed
options in open outcry.
The Exchange also believes that the proposed waiver of the
installation fees in connection with the installation of Cloud9
equipment is equitable and not unfairly discriminatory because the
proposed waiver will apply uniformly to all TPHs that require the
Exchange to provide installation services for the new Cloud9 equipment
on the Exchange's current trading floor in anticipation of the
transition to the new trading floor.
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.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed change regarding the application of the strategy fee cap will
apply uniformly to all Professionals that execute strategy orders in
multiply-listed options in open outcry, in the same way the cap applies
today to such orders submitted by Market-Makers, Clearing TPHs, JBO
participants, broker-dealers and non-TPH market-makers. By applying the
strategy fee cap to Professionals, which generally provide a greater
competitive stream of order flow, the proposed fee change is designed
to enhance order flow directed to open outcry for execution and
increase volume transacted on the trading floor, thus promoting market
depth, facilitating tighter spreads and enhancing price discovery to
the benefit of all market participants. Additionally, the proposed
waiver of the installation fees in connection with the installation of
Cloud9 equipment will apply uniformly to all TPHs that require the
Exchange to provide installation services for the new Cloud9 equipment
on the Exchange's current trading floor in anticipation of the
transition to the Exchange's new trading floor.
The Exchange also does not believe that the proposed rule change in
connection with the strategy fee cap will impose any burden on
intermarket competition that is not necessary or appropriate in
furtherance of the Act because, as noted above, competing options
exchanges, as well as the Exchange, currently have similar fee programs
in place in connection with strategy orders executed in open
outcry.\11\ The Exchange also does not believe that the proposed rule
change in connection with the waiver of the installation fee will
impose any burden on intermarket competition because it is not
competitive in nature, but merely relates to installation services
provided by the Exchange in connection with the relocation of its
trading floor. Additionally, and as previously discussed, the Exchange
operates in a highly competitive market. TPHs have numerous alternative
venues that they may participate on and direct their order flow,
including 15 other options exchanges. Based on publicly available
information, no single options exchange has more than 16% of the market
share.\12\ 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
[[Page 71313]]
investors and listed companies.'' \13\ 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'. . . .''.\14\ 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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\11\ See supra note 10.
\12\ See supra note 3.
\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\
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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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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> Send an email to <a href="/cdn-cgi/l/email-protection#ff8d8a939ad29c9092929a918b8cbf8c9a9cd1989089"><span class="__cf_email__" data-cfemail="542621383179373b3939313a2027142731377a333b22">[email protected]</span></a>. Please include
File Number SR-CBOE-2021-072 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-2021-072. 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-2021-072 and should be submitted on
or before January 5, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27073 Filed 12-14-21; 8:45 am]
BILLING CODE 8011-01-P
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