Notice2023-15480
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees
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
July 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 139 (Friday, July 21, 2023)</title>
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[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Notices]
[Pages 47196-47199]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15480]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97927; File No. SR-C2-2023-014]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Related to Physical Port Fees
July 17, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 3, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'')
filed with the Securities and Exchange Commission (``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
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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 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://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 relating to
physical connectivity fees, effective July 3, 2023.
By way of background, a physical port is utilized by a Member or
non-Member to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently assesses the
following physical connectivity fees for Trading Permit Holders
(``TPHs'') and non-TPHs on a monthly basis: $2,500 per physical port
for a 1 gigabit (``Gbps'') circuit and $7,500 per physical port for a
10 Gbps circuit. The Exchange proposes to increase the monthly fee for
10 Gbps physical ports from $7,500 to $8,500 per port. The Exchange
notes the proposed fee change better enables it to continue to maintain
and improve its market technology and services and also notes that the
proposed fee amount, even as amended, continues to be in line with, or
even lower than, amounts assessed by other exchanges for similar
connections.\3\ The physical ports may also be used to access the
Systems for the following affiliate exchanges and only one monthly fee
currently (and will continue) to apply per port: Cboe BZX Exchange,
Inc. (options and equities platforms), Cboe EDGX Exchange, Inc.
(options and equities platforms), Cboe BYX Exchange, Inc., and Cboe
EDGA Exchange, Inc., (``Affiliate Exchanges'').\4\
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\3\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10 Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
\4\ The Affiliate Exchanges are also submitting contemporaneous
identical rule filings.
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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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with section 6(b)(4) \8\ of the Act, which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its TPHs and other
persons using its facilities.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed fee change is reasonable as it
reflects a moderate increase in physical connectivity fees for 10Gbps
physical ports. Further, the current 10 Gbps physical port fee has
remained unchanged since June 2018.\9\ Since its last increase 5 years
ago however, there has been notable inflation. Particularly, the dollar
has had an average inflation rate of 3.9% per year between 2018 and
today, producing a cumulative price increase of approximately 21.1%
inflation since the fee for the 10 Gbps physical port was last
modified.\10\ Accordingly, the Exchange believes the proposed fee is
reasonable as it represents only an approximate 13% increase from the
rates adopted five years ago, notwithstanding the cumulative rate of
21.1%.
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\9\ See Securities and Exchange Release No. 83455 (June 15,
2018), 83 FR 28892 (June 21, 2018) (SR-C2-2018-014).
\10\ 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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The Exchange also believes the proposed fee is reasonable as it is
still in line with, or even lower than, amounts assessed by other
exchanges for similar connections.\11\ As noted above, the proposed fee
is also the same as is concurrently being proposed for its Affiliate
Exchanges. Further, TPHs are able to utilize a single port to connect
to any of the Affiliate Exchanges with no additional fee assessed for
that same physical port. Particularly, the Exchange believes the
proposed monthly per port fee is reasonable, equitable and not unfairly
discriminatory as it is assessed only once, even if it connects with
another affiliate exchange since only one port is being used and the
Exchange does not wish to charge multiple fees for the same port.
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\11\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
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The Exchange also believes that the proposed fee change is not
unfairly discriminatory because it would be assessed uniformly across
all market participants that purchase the physical ports. Further, TPHs
and non-TPHs will continue to choose the method of connectivity based
on their specific needs and no broker-dealer is required to become a
TPH of, let alone connect directly to, the Exchange. There is also no
regulatory requirement that any market participant connect to any one
particular exchange. Moreover, direct
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connectivity is not a requirement to participate on the Exchange. The
Exchange also believes substitutable products and services are
available to market participants, including, among other things, other
options exchanges that a market participant may connect to in lieu of
the Exchange, indirect connectivity to the Exchange via a third-party
reseller of connectivity, and/or trading of any options product, such
as within the Over-the-Counter (OTC) markets. Indeed, there are
currently 16 registered options exchanges that trade options, some of
which have similar or lower connectivity fees.\12\ Based on publicly
available information, no single options exchange has more than
approximately 19% of the market share.\13\ Further, low barriers to
entry mean that new exchanges may rapidly 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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\12\ Id.
\13\ See Cboe Global Markets U.S. Options Market Volume Summary
(June 27, 2023), 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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As noted above, there is no regulatory requirement that any market
participant connect to any one options exchange, nor that any market
participant connect at a particular connection speed or act in a
particular capacity on the Exchange, or trade any particular product
offered on an exchange. Moreover, membership is not a requirement to
participate on the Exchange. A market participant may submit orders to
the Exchange via a Member broker or a third-party reseller of
connectivity. Indeed, the Exchange is unaware of any one options
exchange whose membership includes every registered broker-dealer. By
way of example, while the Exchange currently has 52 TPHs, Cboe BZX has
61 members that trade options, and Cboe EDGX has 51 members that trade
options. There is also no firm that is a Member of C2 Options only.
Further, based on publicly available information regarding a sample of
the Exchange's competitors, NYSE American Options has 71 members,\14\
and NYSE Arca Options has 69 members,\15\ MIAX Options has 46 members
\16\ and MIAX Pearl Options has 40 members.\17\
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\14\ See <a href="https://www.nyse.com/markets/american-options/membership#directory">https://www.nyse.com/markets/american-options/membership#directory</a>.
\15\ See <a href="https://www.nyse.com/markets/arca-options/membership#directory">https://www.nyse.com/markets/arca-options/membership#directory</a>.
\16\ See <a href="https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf">https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf</a>.
\17\ See <a href="https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf">https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf</a>.
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Additionally, the Exchange notes that non-TPHs such as Service
Bureaus and Extranets resell exchange connectivity. This indirect
connectivity is another viable alternative for market participants to
trade on the Exchange without connecting directly to the Exchange (and
thus not pay the Exchange's connectivity fees), which alternative is
already being used by non-TPHs and further constrains the price that
the Exchange is able to charge for connectivity to its Exchange. The
Exchange notes that it could, but chooses not to, preclude market
participants from reselling its connectivity. The Exchange also chooses
not to adopt fees that would be assessed to third-party resellers on a
per customer basis (i.e., fee based on number of TPHs that connect to
the Exchange indirectly via the third-party). Indeed, the Exchange does
not receive any connectivity revenue when connectivity is resold by a
third-party, which often is resold to multiple customers, some of whom
are agency broker-dealers that have numerous customers of their own.
Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether direct connectivity to the Exchange is appropriate and
worthwhile, and as noted above, no broker-dealer is required to become
a Member of the Exchange, let alone connect directly to it. In the
event that a market participant views the Exchange's proposed fee
change as more or less attractive than the competition, that market
participant can choose to connect to the Exchange indirectly or may
choose not to connect to that exchange and connect instead to one or
more of the other 15 options markets. Notwithstanding the foregoing,
the Exchange still believes that the proposed fee increase is
reasonable, equitably allocated and not unfairly discriminatory, even
for market participants that determine to connect directly to the
Exchange for business purposes, as those business reasons should
presumably result in revenue capable of covering the proposed fee.
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 proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated TPHs equally (i.e., all market participants that
choose to purchase the 10 Gbps physical port).
The Exchange's proposed fee is still lower than some fees for
similar connectivity on other exchanges and therefore may stimulate
intermarket competition by attracting additional firms to connect to
the Exchange or at least should not deter interested participants from
connecting directly to the Exchange. Further, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in connectivity via 10 Gbps physical ports
as a result. The Exchange operates in a highly competitive market in
which market participants can determine whether or not to connect
directly to the Exchange based on the value received compared to the
cost of doing so.
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 \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.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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:
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Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4735322b226a24282a2a222933340734222469202831"><span class="__cf_email__" data-cfemail="1163647d743c727e7c7c747f6562516274723f767e67">[email protected]</span></a>. Please include
file number SR-C2-2023-014 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-C2-2023-014. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-C2-2023-014 and should be
submitted on or before August 11, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15480 Filed 7-20-23; 8:45 am]
BILLING CODE 8011-01-P
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