Notice2022-21338
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update 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
October 3, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 190 (Monday, October 3, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 190 (Monday, October 3, 2022)]
[Notices]
[Pages 59841-59844]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21338]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95934; File No. SR-CBOE-2022-048]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Update
Its Fees Schedule
September 27, 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 September 20, 2022, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to update 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.
[[Page 59842]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule to modify fees for
certain Customer and Market-Maker orders executed in Cboe Volatility
Index (``VIX'') options.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
September 12, 2022 (SR-CBOE-2022-045). On September 20, 2022, the
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
The Exchange first proposes to reduce fees for certain complex
Customer VIX transactions. By way of background, an ``Index Combo'' is
a complex order to purchase or sell one or more index option series and
the offsetting number of Index Combinations defined by the delta.\4\ An
``Index Combination'' is a purchase (sale) of an index option call and
sale (purchase) of an index option put with the same underlying index,
expiration date and strike price.\5\ Index Combinations can trade on
their own or as part of a tied combo strategy (such as part of an Index
Combo), where similar to a tied-to-stock option, an option contact
[sic] is bought or sold in the same package as the two legs making up
the Index Combination as the synthetic underlying position as a hedge.
Currently, Customer complex orders, including Index Combo orders, in
VIX options are assessed the following fees: $0.05 per contract when
the premium price is between $0.00 and $0.10; $0.17 per contract when
the premium price is between $0.11 and $0.99; $0.30 per contract when
the premium price is between $1.00-$1.99; and $0.45 per contract when
the premium price is equal or greater than $2.00, which orders yield
fee codes CZ, DA, DB and DC, respectively.\6\ The Exchange proposes to
waive transaction fees for the Index Combination component (legs) of
Customer Index Combo orders in VIX. The Index Combination legs will
yield proposed new fee code ``CI'', and any remaining legs will
continue to yield the applicable standard Customer complex order fee
codes for VIX transactions as set forth in the Fees Schedule. The
Exchange proposes to adopt new Footnote 43 (which is currently
Reserved), to describe the fee waiver. The Exchange proposes to waive
fees for Customer Index Combinations to encourage the submission of
Index Combo orders which provide customers with a means to reduce or
hedge the risk associated with price movements in the underlying index.
---------------------------------------------------------------------------
\4\ See Cboe Options Rule 5.33, ``Index Combo''.
\5\ See Cboe Options Rule 5.33(b)(5) (subparagraph (1) of
definition of ``Index Combo'').
\6\ Transaction fees for all Customer orders executed in VIX
during GTH are currently waived through December 31, 2022. See Cboe
Options Fees Schedule, Footnote 32.
---------------------------------------------------------------------------
The Exchange next proposes to reduce fees for certain Market-Maker
orders in VIX options that execute against qualifying complex orders.
Currently, Market-Maker orders in VIX options are assessed $0.05 per
contract when the premium price is between $0.00 and $0.99 (which
orders yield fee code MV) and $0.23 per contract when the premium price
is equal to or above $1.00 (which orders yield fee code MW). The
Exchange proposes to reduce the transaction fee for certain Market-
Maker VIX orders when the premium is equal to or above $1.00 from $0.23
to $0.05 per contract. Particularly, the Exchange proposes to assess
$0.05 per contract for Market-Maker VIX orders where the order (i) is
executed by the Market-Maker in open outcry, (ii) against a complex
order that has 3 or more legs, and (iii) the total executed order
quantity of the contra order is greater than or equal to 5,000
contracts.\7\ A Market-Maker must be representing themselves on the
trading floor in order to qualify for the reduced fee. Solicited orders
where the Market-Maker is represented by a Floor Broker are not
eligible. In connection with this change the Exchange proposes to adopt
new fee code ``MI'' which will apply to such transactions \8\ and
proposes to describe the proposed criteria in new Footnote 43. The
Exchange believes the proposed reduced fee will encourage Market-Makers
to participate in additional open-outcry orders in VIX and in
particular to quote tighter spreads with greater size.
---------------------------------------------------------------------------
\7\ The 5,000 contracts may be summed across multiple legs of
the contra order. As an example, if a contra complex order has 4
legs, and each execute for 1,250 contracts against 4 different Floor
Market-Makers, each Market-Maker will be assessed $0.05 per contract
for their respective order of 1,250 contracts.
\8\ The Exchange notes that fee code ``MI'' will also apply to
qualifying transactions where the VIX Premium is less than $1.00
(which currently yield Fee Code MV), because the proposed rate
(i.e., $0.05) is the same as the rate currently assessed to all
Market-Maker VIX orders where the premium is less than $1.00.
---------------------------------------------------------------------------
The Exchange notes that currently, any post-trade edits to floor
trades that change the symbol, price, size, or floor trader on any leg
of the trade will result in single leg fee codes being assigned by the
billing system to each leg of the trade. Additionally, the Exchange
notes that orders which contain more than the maximum number of legs
supported by the Cboe System (currently 16) must be submitted as
multiple orders. In some instances the submitted child orders on their
own may not appear to the System as qualifying for fee code CI or MI,
as applicable, and therefore instead would receive the standard
applicable fee code notwithstanding otherwise qualifying for the fee
waiver or reduced fee as part of the original order. For example, if
the contra order on a child order executes at a quantity less than
5,000 contracts, the System would not recognize that order as
qualifying for the reduced fee and the Market-Maker order trading
against it would not receive fee code MI (nor the corresponding reduced
fee). Accordingly, the Exchange proposes to also clarify in Footnote 43
that supporting documentation (e.g., documentation that includes the
original trade detail) must be submitted to the Exchange within 3
business days of the transaction in order to receive the proposed fee
waiver or reduced fee on qualifying orders for which (i) a post-trade
edit to an order executed in open outcry was made that changed the
symbol, price, size, and/or floor trader acronym on any leg of the
transaction; and/or (ii) the original order contained more than the
maximum number of legs supported by the Cboe System and was
consequently submitted as multiple orders, where the applicable child
order by itself does not meet the qualifications for the fee waiver or
reduced fee. The proposal ensures TPHs have the means to receive the
proposed fee waiver or reduced fee notwithstanding certain System
limitations that may impact billing.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members 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) \11\
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
[[Page 59843]]
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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change to waive
transaction fees for the Index Combination legs of a Customer Index
Combo order executed in VIX options is reasonable, equitable and not
unfairly discriminatory as Customers would not be subject to fees for
contracts that are executed as part of an Index Combination and the
proposed change would apply to all Customers uniformly. The Exchange
believes the proposal is reasonably designed to encourage Customer
order flow in VIX options. The Exchange wishes to promote the growth of
VIX and believes that incentivizing increased Customer Index Combo
order flow in VIX options would attract additional liquidity to the
Exchange. The Exchange believes increased Customer order flow
facilitates increased 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. The Exchange notes that it similarly waives fees for
other types of Customer orders in the Fees Schedule.\12\
---------------------------------------------------------------------------
\12\ 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.
---------------------------------------------------------------------------
Further, the Exchange believes that it is equitable and not
unfairly discriminatory to waive fees for certain Customer complex
orders because, as described above, Customer liquidity benefits all
market participants by providing more execution opportunities, in turn,
attracting Market Maker order flow, which ultimately enhances market
quality on the Exchange to the benefit of all market participants.
Additionally, the Exchange believes the proposed change is in line with
other fee programs that are designed to incentivize the sending of
complex orders, including Index Combo orders, to the Exchange. For
example, the Exchange provides higher rebates under the Volume
Incentive Program for complex orders as compared to simple orders.\13\
The Exchange also assesses lower fees for complex Customer orders in
VIX as compared to simple orders in VIX.\14\
---------------------------------------------------------------------------
\13\ See Cboe Options Fees Schedule, Volume Incentive Program.
\14\ See Cboe Options Fees Schedule, Rate Table--Underlying
Symbol List A.
---------------------------------------------------------------------------
The Exchange next believes the proposed change to reduce certain
VIX transaction fees for Market-Makers is reasonable as Market-Makers
will be paying lower fees for such transactions. The Exchange notes the
proposed changes are designed to encourage the sending of additional
large complex VIX orders in open-outcry. Indeed, the Exchange believes
the proposed reduced fee will encourage Market-Makers to participate in
additional open-outcry orders in VIX and in particular quote tighter
spreads with greater size, which may signal additional corresponding
increase in order flow from other market participants, ultimately
incentivizing more overall order flow and improving liquidity levels
and price transparency on the Exchange to the benefit of all market
participants.
The Exchange believes the proposed fee change is equitable and not
unfairly discriminatory because it applies to all Market-Makers
uniformly. The Exchange believes that it is equitable and not unfairly
discriminatory to propose lower transaction rates for Market-Makers
because the Exchange recognizes that these market participants can
provide key and distinct sources of liquidity. Additionally, as noted
above, an increase in general market-making activity may provide more
trading opportunities, in turn, signaling additional corresponding
increase in order flow from other market participants, and, as a
result, contributing towards a robust, well-balanced market ecosystem.
The Exchange notes too that Market-Makers take on a number of
obligations that other market participants do not have. For example,
unlike other market participants, Market-Makers take on quoting
obligations and other market making requirements.
The Exchange also believes the proposed rule change is equitable
and not unfairly discriminatory because, as proposed, the proposed fee
reduction applies to all qualifying VIX orders executed by Market-
Makers on the trading floor equally and because the Exchange believes
that facilitating VIX orders submitted by Market-Makers via open outcry
encourages and supports increased liquidity and execution opportunities
in open outcry, which functions as an important price-improvement
mechanism for customers. Indeed, 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed amendments to its Fee Schedule
will not impose any burden on 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 fee changes
for Customers and Market-Makers will be assessed automatically and
uniformly to each similarly situated market participant (i.e., all
qualifying Customer VIX transactions will receive the proposed fee
waiver and all qualifying Market-Maker VIX transactions will be
assessed the proposed reduced fee amount). The Exchange notes that
there is a history in the options markets of providing preferential
treatment to Customers and Market-Makers. Also, as discussed in the
statutory basis, the Exchange believes Customer order flow may
facilitate increased trading opportunities and attract Market-Maker
activity, which can contribute towards a robust and well-balanced
market ecosystem. Market-Makers provide key and distinct sources of
liquidity, and an increase in general market-making activity may
facilitate tighter spreads, which tends to signal additional
corresponding increases in order flow from other market participants,
ultimately incentivizing more overall order flow and improving
liquidity levels and price transparency on the Exchange to the benefit
of all market participants. Further as discussed, Market-Makers take on
a number of obligations that other market participants do not, such as
quoting obligations and other market-making requirements. The Exchange
also notes that the proposed fee changes are designed to attract
additional VIX order flow to the Exchange, wherein greater liquidity
benefits all market participants by providing more trading
opportunities, tighter spreads, and added market transparency and price
discovery, and signals to other market participants to direct their
order flow to those markets, thereby contributing to robust levels of
liquidity.
The Exchange does not believe that the proposed rule change will
impose
[[Page 59844]]
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rule changes apply only to a product exclusively listed on the
Exchange. Additionally, the Exchange notes it operates in a highly
competitive market. In addition to Cboe Options, TPHs have numerous
alternative venues that they may participate on (which list products
that compete with VIX options) and direct their order flow, including
15 other options exchanges, as well as off-exchange venues, where
competitive products are available for trading. Based on publicly
available information, no single options exchange has more than 17% of
the market share of executed volume of options trades.\15\ Therefore,
no exchange possesses significant pricing power in the execution of
option order flow. Moreover, the Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
Specifically, in Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and,
also, recognized that current regulation of the market system ``has
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \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 changes to the incentive programs impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------
\15\ See Cboe Global Markets, U.S. Options Market Volume Summary
by Month (September 7, 2022), available at <a href="http://markets.cboe.com/us/options/market_share/">http://markets.cboe.com/us/options/market_share/</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)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="0f7d7a636a226c6062626a617b7c4f7c6a6c21686079">[email protected]</span></a>. Please
include File Number SR-CBOE-2022-048 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-2022-048. 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-2022-048
and should be submitted on or before October 24, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21338 Filed 9-30-22; 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 October 3, 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.