Notice2022-26864
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 12, 2022
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 87 Issue 237 (Monday, December 12, 2022)</title>
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[Federal Register Volume 87, Number 237 (Monday, December 12, 2022)]
[Notices]
[Pages 76091-76094]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26864]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96450; File No. SR-CBOE-2022-060]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
December 6, 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 November 23, 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.
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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.
[[Page 76092]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule to modify the fee
for the SPX (and SPXW) Floor Market-Maker Tier Appointment Fee.\3\
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\3\ The Exchange initially filed the proposed fee change, among
other changes, on June 1, 2022 (SR-CBOE-2022-026). On June 10, 2022,
the Exchange withdrew that filing and submitted SR-CBOE-2022-029. On
August 5, 2022, the Exchange withdrew that filing and submitted SR-
CBOE-2022-042. On September 26, 2022, the Exchange withdrew that
filing and submitted SR-CBOE-2022-050 to address the proposed fee
change relating to the SPX/SPXW Floor Market-Maker Tier Appointment
Fee. On November 23, 2022, the Exchange withdrew that filing and
submitted this filing.
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By way of background, Exchange Rule 5.50(g)(2) provides that the
Exchange may establish one or more types of tier appointments and
Exchange Rule 5.50(g)(2)(B) provides such tier appointments are subject
to such fees and charges the Exchange may establish. In 2010, the
Exchange established the SPX Tier Appointment and adopted an initial
fee of $3,000 per Market-Maker trading permit, per month.\4\ The SPX
(and SPXW) Tier Appointment fee for Floor Market-Makers currently
applies to any Market-Maker that executes any contracts in SPX and/or
SPXW on the trading floor.\5\ The Exchange now seeks to increase the
fee for the SPX/SPXW Floor Market-Maker Tier Appointment from $3,000
per Market-Maker Floor Trading Permit to $5,000 per Market-Maker Floor
Trading Permit.
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\4\ See Securities Exchange Act Release No. 62386 (June 25,
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
\5\ The Exchange notes that the fee is not assessed to a Market-
Maker Floor Permit Holder who only executes SPX (including SPXW)
options transactions as part of multi-class broad-based index spread
transactions. See Cboe Options Fees Schedule, Market-Maker Tier
Appointment Fees, Notes.
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In connection with the proposed change, the Exchange also proposes
to update Footnote 24 in the Fees Schedule, as well as remove the
reference to Footnote 24 in the Market-Maker Tier Appointment Fee
Table. By way of background, in June 2020, the Exchange adopted
Footnote 24 to describe pricing changes that would apply for the
duration of time the Exchange trading floor was being operated in a
modified manner in connection with the COVID-19 pandemic.\6\ Among
other changes, Footnote 24 provided that the monthly fee for the SPX/
SPXW Floor Market-Maker Tier Appointment Fee was to be increased to
$5,000 per Trading Permit from $3,000 per Trading Permit. As the
Exchange now proposes to maintain the $5,000 rate on a permanent basis
(i.e., regardless of whether the Exchange is operating in a modified
state due to COVID-19 pandemic), the Exchange proposes to eliminate the
reference to the SPX/SPXW Floor Market-Maker Tier Appointment Fee in
Footnote 24.\7\
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\6\ See Securities Exchange Act Release No. 89189 (June 30,
2020), 85 FR 40344 (July 6, 2020) (SR-CBOE-2020-058).
\7\ The Exchange notes that since its transition to a new
trading floor facility on June 6, 2022, it has not been operating in
a modified manner. As such Footnote 24 (i.e., the modified fee
changes it describes) does not currently apply.
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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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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 the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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The Exchange believes its proposal to increase the SPX (and SPXW)
Floor Market-Maker Tier Appointment fee is reasonable because the
proposed amount is not significantly higher than was previously
assessed (and is the same amount that has been assessed under Footnote
24 for the last two years). Additionally, the Exchange believes its
proposal to increase the fee is reasonable as the fee amount has not
been increased since it was adopted over 12 years ago in July 2010.\11\
For example, since its adoption 12 years ago, there has been notable
inflation. Indeed, the dollar has had an average inflation rate of 2.6%
per year between 2010 and today, producing a cumulative price increase
of approximately 37% inflation since 2010, when the SPX and SPXW Floor
Market-Maker Tier Appointment was first adopted.\12\ Additionally, for
nearly ten years, Market-Makers were only subject to the original rate
that was adopted in 2010 (i.e., $3,000) notwithstanding an average
inflation rate of 2.64% per year. The Exchange believes the proposed
increase is also reasonable in light of increased costs of services
since 2010, including those relating to facility and technology
upgrades associated with the new trading floor, which new floor
provides a state-of-the-art environment and technology. Although the
Exchange recently adopted new, and/or updated current, fees associated
with the new trading floor, it did not pass-through other costs
incurred in connection with the new trading floor, including design,
construction and other on-going maintenance costs. Further, the
Exchange has not modified many of its facilities fees in several years.
The Exchange notes in particular that the trading pit for SPX is the
largest trading pit on the new trading floor and represents a
significant amount of space on the new trading floor. Accordingly, the
Exchange believes the proposed change is reasonable because it allows
the Exchange to recoup additional fees associated with the costs of
operating a modern and cutting-edge trading floor from market
participants that utilize the most space and resources on said trading
floor.
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\11\ See Securities Exchange Act Release No. 62386 (June 25,
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
\12\ See <a href="https://www.officialdata.org/us/inflation/2010?amount=1">https://www.officialdata.org/us/inflation/2010?amount=1</a>.
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Additionally, over the last decade the Exchange has made, and
continues to make, further investments to encourage growth trends in
SPX volume, including investments in marketing, sales teams, global
coverage teams, and new product
[[Page 76093]]
innovations (such as adding additional weekly expirations and LEAPS).
The Exchange notes that the SPX (and SPXW) Tier Appointment fee helps
fund these efforts. Moreover, although the SPX (and SPXW) Tier
Appointment fee has not increased since 2010, SPX volume, including
volume on the trading floor, has increased significantly since that
time. The Exchange therefore believes the proposed fee increase is
reasonable because it allows the Exchange to recoup fees associated
with the costs of maintaining and growing SPX and SPXW, which products
can help market participants achieve broad market protection.
The Exchange next notes that it operates in a highly competitive
environment. The SEC Division of Trading and Markets' Fee Guidance
provides that in determining whether a proposed fee is constrained by
significant competitive forces, the Commission will consider whether
there are reasonable substitutes for the product or service that is the
subject of a proposed fee.\13\ As described in further detail below,
the Exchange believes substitutable products are in fact available to
market participants, including in the Over-the-Counter (OTC) markets.
Indeed, there are currently 16 registered options exchanges that trade
options. Based on publicly available information, no single options
exchange has more than 17% of the market share as of November 21,
2022.\14\ Further, low barriers to entry mean that new exchanges may
rapidly and inexpensively enter the market and offer additional
substitute platforms to further compete with the Exchange and the
products it offers. For example, there are 3 exchanges that have been
added in the U.S. options markets in the last 5 years (i.e., Nasdaq
MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one additional
options exchange that is expected to launch in 2023 (i.e., MEMX LLC).
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\13\ See Chairman Jay Clayton, Statement on Division of Trading
and Markets Staff Fee Guidance, June 12, 2019.
\14\ See Cboe Global Markets U.S. Options Market Volume Summary
(November 21, 2022), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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The Exchange believes that competition in the marketplace
constrains the ability of exchanges to charge supracompetitive fees for
access to its products exclusive to that market (``proprietary
products''). Notably, just as there is no regulatory requirement to
become a member of any one options exchange, there is also no
regulatory requirement for any market participant to trade any
particular product, nor is there any requirement that any Exchange
create or indefinitely maintain any particular product.\15\ The
Exchange also highlights that market participants may trade an
exchange's proprietary products through a third-party without directly
or indirectly connecting to the exchange. Further, market participants,
including Market-Makers, may trade the Exchange's products, including
proprietary products, on or off the Exchange's trading floor (i.e., all
products are available both electronically and via open outcry on the
Exchange's trading floor). Indeed, market participants are not
obligated to trade on the Exchange's trading floor and therefore a
market participant, including Market-Makers, can choose to trade a
product electronically instead of on the Exchange's trading floor at
any time and for any reason, including due to an assessment of the
reasonableness of fees charged.
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\15\ If an option class is open for trading on another national
securities exchange, the Exchange may delist such option class
immediately. For proprietary products, the Exchange may determine to
not open for trading any additional series in that option class; may
restrict series with open interest to closing transactions, provided
that, opening transactions by Market-Makers executed to accommodate
closing transactions of other market participants and opening
transactions by TPH organizations to facilitate the closing
transactions of public customers executed as crosses pursuant to and
in accordance with Rule 6.74(b) or (d) may be permitted; and may
delist the option class when all series within that class have
expired. See Cboe Rule 4.4, Interpretations and Policies .11.
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Additionally, market participants may trade any options product,
including proprietary products, in the unregulated Over-the-Counter
(OTC) markets for which there is no requirement for fees related to
those markets to be public. Given the benefits offered by trading
options on a listed exchange, such as increased market transparency and
heightened contra-party creditworthiness due to the role of the Options
Clearing Corporation as issuer and guarantor, the Exchange generally
seeks to incentivize market participants to trade options on an
exchange, which further constrains fees that an Exchange may assess.
Market participants may also access other exchanges to trade other
similar or competing proprietary or multi-listed products. Alternative
products to the Exchange's proprietary products may include other
options products, including options on ETFs or options futures, as well
as particular ETFs or futures. Particularly, exclusively listed SPX
options (i.e., a proprietary product) may compete with the following
products traded on other markets: multiply-listed SPY options (options
on the ETF), E-mini S&P 500 Options (options on futures), and E-Mini
S&P 500 futures (futures on index). Accordingly, if a market
participant views the Exchange's proprietary product as more or less
attractive than the competition they can switch between similar
products. As such, the Exchange is subject to competition and does not
possess anti-competitive pricing power, even with its offering of
proprietary products such as SPX.
In connection with a previous proposed amendment to the National
Market System Plan Governing the Consolidated Audit Trail (``CAT NMS
Plan'') \16\, the Commission discussed the existence of competition in
the marketplace generally, and particularly for exchanges with unique
business models. The Commission recognized for example that while some
exchanges may have a unique business model that is not currently
offered by competitors, a competitor could create similar business
models if demand were adequate, and if a competitor did not do so, the
Commission believes it would be likely that new entrants would do so if
the exchange with that unique business model was otherwise
profitable.\17\ Similarly, although the Exchange may have proprietary
products not offered by other competitors, not unlike unique business
models, a competitor could create similar products to an existing
proprietary product if demand were adequate.
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\16\ See Securities Exchange Act Release No. 86901 (September 9,
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
\17\ Id.
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The proposed change is also equitable and not unfairly
discriminatory as it applies to all Market-Makers that trade SPX on the
trading floor uniformly. The Exchange believes it's reasonable
equitable and not unfairly discriminatory to increase the SPX/SPXW
floor Market-Maker Tier Appointment fee and not the SPX/SPXW electronic
Market-Maker Tier Appointment fee, as Floor Market-Makers are not
subject to other costs that electronic Market-Makers are subject to.
For example, while all Floor Market-Makers automatically have an
appointment to trade open outcry in all classes traded on the Exchange
and at no additional cost per appointment, electronic Market-Makers
must select an appointment in a class (such as SPX) to make markets
electronically and such appointments are subject to fees under the
Market-Maker Electronic Appointments Sliding Scale.\18\
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\18\ See Cboe Options Rules 5.50(a) and (e). See also Cboe
Options Fees Schedule, Market-Maker EAP Appointments Sliding Scale.
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[[Page 76094]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule changes will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed changes
would be applied in the same manner to all Floor Market-Makers that
trade SPX (and/or SPXW). As noted above, the Exchange believes it's
reasonable to increase the SPX/SPWX Tier Appointment Fee for only Floor
Market-Makers only as opposed to electronic Market-Makers, because
electronic Market-Makers are subject to costs Floor Market-Makers are
not, such as the fees under Market-Maker EAP Appointments Sliding
Scale.
The Exchange does not believe that the proposed rule change will
impose 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 fee relating to a product
exclusively listed on the Exchange. Additionally, the Exchange operates
in a highly competitive market. In addition to Cboe Options, TPHs have
numerous alternative venues that they may participate on (which, as
described above, list products that compete with SPX options) and
direct their order flow, including 15 other options exchanges (four of
which also maintain physical trading floors), 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.\19\
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.'' \20\ 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'. . . .''.\21\ 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.
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\19\ See Cboe Global Markets, U.S. Options Market Volume Summary
by Month (November 21, 2022), available at <a href="http://markets.cboe.com/us/options/market_share/">http://markets.cboe.com/us/options/market_share/</a>.
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\21\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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 \22\ and paragraph (f) of Rule 19b-4 \23\
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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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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#e597908980c8868a8888808b9196a5968086cb828a93"><span class="__cf_email__" data-cfemail="6f1d1a030a420c0002020a011b1c2f1c0a0c41080019">[email protected]</span></a>. Please
include File Number SR-CBOE-2022-060 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-2022-060. 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-2022-060 and should be submitted on
or before January 3, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26864 Filed 12-9-22; 8:45 am]
BILLING CODE 8011-01-P
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