Notice2022-13274
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the 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
June 22, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 119 (Wednesday, June 22, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 119 (Wednesday, June 22, 2022)]
[Notices]
[Pages 37368-37371]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13274]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95107; File No. SR-C2-2022-012]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend
the Fees Schedule
June 15, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 1, 2022, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') 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 C2 Exchange, Inc. (``C2'' or the ``Exchange'') is filing with
the Securities and Exchange Commission (the ``Commission'') a proposed
rule change to amend the 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 fee schedule in connection with
its discount program for Bulk BOE Logical Ports, effective June 1,
2022.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of
[[Page 37369]]
16 options venues to which market participants may direct their order
flow. Based on publicly available information, no single options
exchange has more than approximately 16% of the market share and
currently the Exchange represents approximately 4% of the market
share.\3\ Thus, in such a low-concentrated and highly competitive
market, no single options exchange, including the Exchange, possesses
significant pricing power in the execution of option order flow. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain the Exchange's transaction fees, and market participants can
readily trade on competing venues if they deem pricing levels at those
other venues to be more favorable.
---------------------------------------------------------------------------
\3\ See Cboe Global Markets U.S. Options Market Volume Summary
by Month (May 24, 2022), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
---------------------------------------------------------------------------
The Exchange currently offers BOE Bulk Logical Ports (``BOE Bulk
Ports''), which provide users with the ability to submit single and
bulk order messages to enter, modify, or cancel orders designated as
Post Only Orders with a Time-in-Force of Day or GTD with an expiration
time on that trading day. Bulk BOE Ports are assessed $1,500 per port,
per month for the first five Bulk BOE Ports and thereafter assessed
$2,500 per port, per month for each additional Bulk BOE Port. Each Bulk
BOE Port also incurs the logical port fee indicated in the table above
when used to enter up to 30,000,000 orders per trading day per logical
port as measured on average in a single month. Each incremental usage
of up to 30,000,000 orders per day per Bulk BOE Port will incur an
additional logical port fee of $2,500 per month (``incremental usage
fees''). The Exchange also offers a discount program for Bulk BOE Ports
which provides an opportunity for Market-Makers to obtain credits on
their monthly Bulk BOE Port fees (excluding incremental usage fees).\4\
Currently, under the Bulk BOE Ports discount program, Market-Makers
will receive a 30% discount on its monthly Bulk BOE Port fees
(excluding incremental usage fees) where a Market-Maker has (1) a Step-
Up ADAV \5\ equal to or greater than 0.025% of average OCV \6\ from
February 2021 and (2) a ``Make Rate'' equal to or greater than 85%.\7\
---------------------------------------------------------------------------
\4\ While BOE Bulk Ports are available to all market
participants, they are used primarily by Market Makers or firms that
conduct similar business activity.
\5\ ``ADAV'' means average daily added volume calculated as the
number of contracts added per day. ADAV is calculated on a monthly
basis, excluding contracts added or removed on any day that the
Exchange's system experiences a disruption that lasts for more than
60 minutes during regular trading hours (``Exchange System
Disruption'') and on any day with a scheduled early market close.
\6\ ``OCV'' (or ``OCC Customer Volume'' means, the total equity
and ETF options volume that clears in the Customer range at the
Options Clearing Corporation (``OCC'') for the month for which the
fees apply, excluding volume on any day that the Exchange
experiences an Exchange System Disruption and on any day with a
scheduled early market close.
\7\ The ``Make Rate'' shall be derived from a Market-Maker's
volume the previous month in all symbols using the following
formula: (i) the Market-Maker's total simple add volume divided by
(ii) the Market-Maker's total simple volume. Trades on teh open and
complex orders will be excluded from the Make Rate calculation. The
Exchange will aggregate the trading activity of separate Market-
Maker firms for purposes of the discount tier and make rate
calculation if there is at least 75% common ownership between the
firms as reflected on each firm's Form BD, Schedule A.
---------------------------------------------------------------------------
The Exchange proposes to amend the current criteria under the Bulk
BOE Port discount program and add another tier of criteria the discount
program. The proposed rule change amends the current criteria in prong
one by slightly increasing the Step-Up ADAV over the average OCV from
0.025% to 0.03%, changing the base ``step-up'' month from February 2021
to June 2021, and increasing the percentage of ``Make Rate'' from 85%
to 97%. The 30% discount remains the same. The proposed rule change
also adopts a new tier of criteria under the Bulk BOE Port discount
program, which provides that a Market-Maker will receive a 40% discount
on its monthly Bulk BOE Logical Port fees, excluding incremental usage
fees, where the Market-Maker (1) has a Step-Up ADAV equal to or greater
than 0.05% of OCV from June 2021 and (2) has a ``Make Rate'' equal to
or greater than 97%.
The proposed Bulk BOE Port discount program, currently and as
amended, is designed to attract liquidity from traditional Market-
Makers and encourage Market-Makers to grow their volume. The discount
program mitigates costs incurred by traditional Market-Makers that
focus on adding liquidity to the Exchange (as opposed to those that
provide and take, or just take). The proposed increase in percentage of
ADAV over OCV (0.03%) to receive the current 30% discount on monthly
Bulk BOE Port fees in the existing tier and proposed new tier offering
a 40% discount for reaching an even higher percentage of ADAV over OCV
(0.05%) will encourage Market Makers to strive to provide increased
levels of liquidity. The proposed increase in the percentage of ``Make
Rate'' to 97%, and addition of the same ``Make Rate'' prong of criteria
in the proposed new tier, is intended to encourage Market Makers with
significant Make Rates to continue to participate on the Exchange and
add liquidity, or otherwise increase their Make Rates by streaming more
quotes. Increased liquidity and enhanced quote streaming from Market
Makers generally provide greater trading opportunities and tighter
spreads, which tends to signal additional corresponding increase in
order flow from other market participants. This, in turn, 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.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\8\ in general, and
furthers the objectives of Section 6(b)(4),\9\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Trading Permit Holders and issuers and
other persons using its facilities. The Exchange also believes that the
proposed rule change is consistent with the objectives of Section
6(b)(5) \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, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change to amend the Bulk
BOE Ports discount program is reasonable, equitable and not unfairly
discriminatory. The proposed rule changes to increase the percentage of
ADAV over OCV (0.03%) to receive the current 30% discount on monthly
Bulk BOE Port fees in the existing tier and to adopt a new tier
offering a 40%
[[Page 37370]]
discount for reaching an even higher percentage of ADAV over OCV
(0.05%) are reasonably designed to encourage Market Makers to strive to
provide increased levels of liquidity. Similarly, the proposed rule
changes to increase the percentage of ``Make Rate'' to 97% and to add
the same ``Make Rate'' prong of criteria in the proposed new tier are
reasonably designed to encourage Market Makers with significant Make
Rates to continue to participate on the Exchange and add liquidity, or
otherwise increase their Make Rates by streaming more quotes. As
described above, increased liquidity and enhanced quote streaming from
Market Makers generally provide greater trading opportunities and
tighter spreads, signaling an additional corresponding increase in
order flow from other market participants. This potentially deepens the
Exchange's liquidity pool, provides increased execution incentives and
opportunities, offers additional flexibility for all investors to enjoy
cost savings, supports the quality of price discovery, promotes market
transparency and improves investor protection. The Exchange believes
the proposed discount of 40% included in the proposed new tier is
reasonable in that it is an incremental increase over the discount rate
of 30% offered in the existing tier, which is reasonably commensurate
with the incremental increase in percentage of ADAV over OCV that a
Market Maker must achieve to receive the proposed 40% discount as
compared to the percentage of ADAV over OCV that a Market Maker must
achieve to receive the existing 30% discount. The Exchange notes that
the proposed discount under the proposed new tier is in line with the
discount offered to Market Makers on its affiliate exchange, Cboe
Exchange, Inc. (``Cboe Options'').\11\ Additionally, the Exchange
believes it is reasonable to update the baseline month to a month that
is closer in time, therefore a more relevant measure for ``step-up''
volume.
---------------------------------------------------------------------------
\11\ See Cboe Options Fees Schedule, Market-Maker Access Credit.
---------------------------------------------------------------------------
The proposed rule change to amend the Bulk BOE Port discount
program, which is offered only to Market Makers, is equitable and not
unfairly discriminatory because Market Makers are valuable market
participants that provide liquidity in the marketplace and incur costs
that other market participants do not incur. For example, Market Makers
have a number of obligations, including quoting obligations and fees
associated with appointments that other market participants do not
have. The Exchange also believes that the discount program, currently
and as amended, provides an incentive for Market Makers to provide more
liquidity to the Exchange. Generally, greater liquidity benefits all
market participants by providing more trading opportunities and tighter
spreads. The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to provide credits to those Market Makers that
primarily provide and post liquidity to the Exchange, as the Exchange
wants to continue to encourage Market Makers with significant Make
Rates to continue to participate on the Exchange and add liquidity.
Moreover, the Exchange notes that Market Makers with high Make Rate
percentages generally require higher amounts of capacity than other
Market Makers. Particularly, Market Makers with high Make Rates are
generally streaming significantly more quotes than those with lower
Make Rates. As such, Market Makers with high Make Rates may incur more
costs than other Market Makers as they may need to purchase multiple
Bulk BOE Ports in order to accommodate their capacity needs. The
Exchange believes the proposed credits for Bulk BOE Ports encourages
Market Makers to continue to provide liquidity for the Exchange,
notwithstanding the costs incurred by purchasing multiple ports.
Particularly, the discount program, currently and as proposed, is
intended to mitigate the costs incurred by traditional Market Makers
that focus on adding liquidity to the Exchange (as opposed to those
that provide and take, or just take). Additionally, while the Exchange
has no way of predicting with certainty how many and which Market
Makers will satisfy the proposed criteria to receive the discount, the
Exchange anticipates at least two Market Makers will satisfy the
criteria across the two tiers to receive the applicable discounts. The
Exchange does not believe the proposed discount will adversely impact
any Market Maker's pricing. Rather, should a Market Maker not meet the
proposed criteria, the Market Maker will merely not receive the
proposed discount.
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 the proposed rule change to amend the Bulk
BOE Port discount program offered to Market Makers will impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because Market Makers are
valuable market participants that provide liquidity in the marketplace
and incur costs that other market participants do not incur. As
described above, Market Makers have a number of obligations, including
quoting obligations and fees associated with appointments that other
market participants do not have. The Exchange does not believe the
proposed rule change does will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. As previously discussed, the Exchange operates in
a highly competitive market. Trading Permit Holders have numerous
alternative venues that they may participate on and director their
order flow, including 15 other options exchanges and off-exchange
venues. Additionally, the Exchange represents a small percentage of the
overall market. Based on publicly available information, no single
options exchange has more than 16% of the market share. 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 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.'' The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''. Accordingly, the
[[Page 37371]]
Exchange does not believe its proposed fee change imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange 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 \12\ and paragraph (f) of Rule 19b-4 \13\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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> Send an email to <a href="/cdn-cgi/l/email-protection#a0d2d5ccc58dc3cfcdcdc5ced4d3e0d3c5c38ec7cfd6"><span class="__cf_email__" data-cfemail="82f0f7eee7afe1edefefe7ecf6f1c2f1e7e1ace5edf4">[email protected]</span></a>. Please include
File Number SR-C2-2022-012 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-C2-2022-012. 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-C2-2022-012 and should be submitted on
or before July 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13274 Filed 6-21-22; 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 June 22, 2022.
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.