Notice2023-00912
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
January 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 12 (Thursday, January 19, 2023)</title>
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[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3449-3451]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00912]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96646; File No. SR-C2-2023-002]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
January 12, 2023.
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 January 3, 2023, 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.
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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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') is filing with
the Securities and Exchange Commission (``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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/">http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/</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 January 3,
2023.
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 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 18% 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.
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\3\ See Cboe Global Markets U.S. Options Market Volume Summary
by Month (December 27, 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 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
[[Page 3450]]
$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 (i) 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 0.03% of average OCV \6\ from June 2021 and (2) a ``Make Rate''
equal to or greater than 97% \7\ or a (ii) 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%.
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\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 the 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.
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The Exchange proposes to amend the current criteria under the Bulk
BOE Port discount program required to receive the offered discounts.
Particularly, the proposed rule change amends the current criteria in
prong one for both the 30% and 40% discounts by changing the base
``step-up'' month from June 2021 to September 2022.
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.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed rule change to amend the Bulk
BOE Ports discount program is reasonable, equitable and not unfairly
discriminatory. The Exchange believes the proposed rule change to
update the baseline month to a month that is closer in time provides
for a more relevant measure for ``step-up'' volume. The Exchange
believes the 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. 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 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. As noted above, the Exchange also believes that the discount
program, even 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. Further, the discount
program, even as amended, 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 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 proposed change is also equitable and not unfairly
discriminatory as it applies uniformly to all Market-Makers. 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
[[Page 3451]]
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 18% 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 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 \11\ and paragraph (f) of Rule 19b-4 \12\
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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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#e694938a83cb85898b8b83889295a6958385c8818990"><span class="__cf_email__" data-cfemail="bbc9ced7de96d8d4d6d6ded5cfc8fbc8ded895dcd4cd">[email protected]</span></a>. Please include
File Number SR-C2-2023-002 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-C2-2023-002. 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-C2-2023-002
and should be submitted on or before February 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00912 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P
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