Notice2023-17530
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Relating to the Options Regulatory Fee
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
August 16, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 157 (Wednesday, August 16, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Notices]
[Pages 55796-55798]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17530]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No.34-98106; File No. SR-CBOE-2023-038]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Relating to the Options Regulatory Fee
August 10, 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 August 1, 2023, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II, 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 amend its Fees Schedule relating to the Options Regulatory Fee. The
text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to increase the Options Regulatory Fee
(``ORF'') from $0.0017 per contract to $0.0030 per contract, effective
August 1, 2023.
The ORF is assessed by Cboe Options to each Trading Permit Holder
(``TPH'') for options transactions cleared by the TPH that are cleared
by the Options Clearing Corporation (``OCC'') in the customer range,
regardless of the exchange on which the transaction occurs.\3\ In other
words, the Exchange imposes the ORF on all customer-range transactions
cleared by a TPH, even if the transactions do not take place on the
Exchange. The ORF is collected by OCC on behalf of the Exchange from
the Clearing Trading Permit Holder (``CTPH'') or non-CTPH that
ultimately clears the transaction. With respect to linkage
transactions, Cboe Options reimburses its routing broker providing
Routing Services pursuant to Cboe Options Rule 5.36 for options
regulatory fees it incurs in connection with the Routing Services it
provides.
---------------------------------------------------------------------------
\3\ The Exchange notes ORF also applies to customer-range
transactions executed during Global Trading Hours.
---------------------------------------------------------------------------
Revenue generated from ORF, when combined with all of the
Exchange's other regulatory fees and fines, is designed to recover a
material portion of the regulatory costs to the Exchange of the
supervision and regulation of TPH customer options business including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. Regulatory costs include direct regulatory
expenses and certain indirect expenses for work allocated in support of
the regulatory function. The direct expenses include in-house and
third-party service provider costs to support the day-to-day regulatory
work such as surveillances, investigations and examinations. The
indirect expenses include support from such areas as human resources,
legal, compliance, information technology, facilities and accounting.
These indirect expenses are estimated to be approximately 30% of Cboe
Options' total regulatory costs for 2023. Thus, direct expenses are
estimated to be approximately 70% of total regulatory costs for 2023.
In addition, it is Cboe Options' practice that revenue generated from
ORF not exceed more than 75% of total annual regulatory costs. These
expectations are estimated, preliminary and may change. There can be no
assurance that our final costs for 2023 will not differ materially from
these expectations and prior practice; however, the Exchange believes
that revenue generated from the ORF, when combined with all of the
Exchange's other regulatory fees and fines, will cover a material
portion, but not all, of the Exchange's regulatory costs.
The Exchange monitors its regulatory costs and revenues at a
minimum on a semi-annual basis. If the Exchange determines regulatory
revenues exceed or are insufficient to cover a material portion of its
regulatory costs in a given year, the Exchange will adjust the ORF by
submitting a fee change filing to the Commission. The Exchange also
notifies TPHs of adjustments to the ORF via an Exchange Notice,
including for the
[[Page 55797]]
change being proposed herein.\4\ Based on the Exchange's most recent
semi-annual review, the Exchange is proposing to increase the amount of
ORF that will be collected by the Exchange from $0.0017 per contract
side to $0.0030 per contract side. The proposed increase is based on
the Exchange's estimated projections for its regulatory costs, which
have increased, coupled with a projected decrease in the Exchange's
other non-ORF regulatory fees.\5\ Particularly, based on the Exchange's
estimated projections for its regulatory costs, the revenue being
generated by ORF using the current rate, would result in projected
revenue that is insufficient to cover a material portion of its
regulatory costs (i.e., less than 75% of total annual regulatory
costs). Further, when combined with the Exchange's projected other non-
ORF regulatory fees and fines, the revenue being generated by ORF using
the current rate results is projected to result in combined revenue
that is less than 100% of the Exchange's estimated regulatory costs for
the year.
---------------------------------------------------------------------------
\4\ See Exchange Notice, C2023071301 ``Cboe Options Exchanges
Regulatory Fee Update Effective August 1, 2023.''
\5\ The Exchange notes that in connection with proposed ORF rate
changes, it provides the Commission confidential details regarding
the Exchange's projected regulatory revenue, including projected
revenue from ORF, along with a breakout of its projected regulatory
expenses, including both direct and indirect allocations.
---------------------------------------------------------------------------
The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs.
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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\7\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its TPHs and other persons using its facilities.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed fee change is reasonable because
it would help ensure that revenue collected from the ORF, in
combination with other regulatory fees and fines, would help offset,
but not exceed, the Exchange's total regulatory costs. As discussed,
the Exchange has designed the ORF to generate revenues that would be
less than or equal to 75% of the Exchange's regulatory costs, which is
consistent with the practice across the options industry and the view
of the Commission that regulatory fees be used for regulatory purposes
and not to support the Exchange's business side. The Exchange
determined to increase ORF after its semi-annual review of its
regulatory costs and regulatory revenues, which includes revenues from
ORF and other regulatory fees and fines. The Exchange notes that
although recent options volumes have increased, it has not increased
its ORF rate in four years. In fact, since 2019, the Exchange has
reduced its ORF rates twice.\9\ Accordingly, when taking into account
recent options volume, coupled with the anticipated regulatory fees and
anticipated reductions in other regulatory fees, the Exchange believes
it's reasonable to increase the ORF. Particularly, the proposed change
is reasonable as it would offset the anticipated increased regulatory
costs, while still not exceeding 75% of the Exchange's total regulatory
costs. Moreover, the proposed amount is still lower than the amount of
ORF assessed on other exchanges \10\ and significantly lower than the
Exchange has assessed previously.\11\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 89469 (August 4,
2020), 85 FR 48306 (August 10, 2020) (SR-CBOE-2020-069) and
Securities Exchange Act Release No. 92597 (August 6, 2021), 86 FR
44454 (August 12, 2021) (SR-CBOE-2021-044).
\10\ See e.g., NYSE Arca Options Fees and Charges, Options
Regulatory Fee (``ORF'') and NYSE American Options Fees Schedule,
Section VII(A), which provide that ORF is assessed at a rate of
$0.0055 per contract for each respective exchange. See also Nasdaq
PHLX, Options 7 Pricing Schedule, Section 6(D), which provides for
an ORF rate of $0.0034 per contract.
\11\ See e.g., Securities Exchange Act Release No. 71007
(December 6, 2013), 78 FR 75653 (December 12, 2013) (SR-CBOE-2013-
117) (filing to increase ORF to $0.0095 per contract). See also
Securities Exchange Act Release No. 76993 (January 28, 2016), 81 FR
5800 (February 3, 2016) (SR-CBOE-2016-004) (filing to increase ORF
to $0.0081 per contract).
---------------------------------------------------------------------------
As noted above, the Exchange will also continue to monitor on at
least a semi-annual basis the amount of revenue collected from the ORF,
even as amended, to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. If the Exchange determines regulatory revenues would
exceed its regulatory costs in a given year, the Exchange will reduce
the ORF by submitting a fee change filing to the Commission.\12\
---------------------------------------------------------------------------
\12\ Consistent with Rule 2.2 (Regulatory Revenue), the Exchange
notes that should excess ORF revenue be collected prior to any
reduction in an ORF rate, such excess revenue will not be used for
nonregulatory purposes.
---------------------------------------------------------------------------
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all TPHs on all
their transactions that clear in the customer range at the OCC. The
Exchange believes the ORF ensures fairness by assessing higher fees to
those TPHs that require more Exchange regulatory services based on the
amount of customer options business they conduct. Regulating customer
trading activity is much more labor intensive and requires greater
expenditure of human and technical resources than regulating non-
customer trading activity, which tends to be more automated and less
labor-intensive. For example, there are costs associated with main
office and branch office examinations (e.g., staff and travel
expenses), as well as investigations into customer complaints and the
terminations of Registered persons. As a result, the costs associated
with administering the customer component of the Exchange's overall
regulatory program are materially higher than the costs associated with
administering the non-customer component (e.g., TPH proprietary
transactions) of its regulatory program.\13\ Moreover, the Exchange
notes that it has broad regulatory responsibilities with respect to its
TPHs' activities, irrespective of where their transactions take place.
Many of the Exchange's surveillance programs for customer trading
activity may require the Exchange to look at activity across all
markets, such as reviews related to position limit violations and
manipulation. Indeed, the Exchange cannot effectively review for such
conduct without looking at and evaluating activity regardless of where
it transpires. In addition to its own surveillance programs, the
Exchange also works with other SROs and exchanges on intermarket
surveillance related issues. Through its participation in the
Intermarket Surveillance Group (``ISG'') \14\ the Exchange shares
[[Page 55798]]
information and coordinates inquiries and investigations with other
exchanges designed to address potential intermarket manipulation and
trading abuses. Accordingly, there is a strong nexus between the ORF
and the Exchange's regulatory activities with respect to its TPHs'
customer trading activity.
---------------------------------------------------------------------------
\13\ If the Exchange changes its method of funding regulation or
if circumstances otherwise change in the future, the Exchange may
decide to modify the ORF or assess a separate regulatory fee on TPH
proprietary transactions if the Exchange deems it advisable.
\14\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
---------------------------------------------------------------------------
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 not necessary or appropriate in
furtherance of the purposes of the Act. This proposal does not create
an unnecessary or inappropriate intra-market burden on competition
because the ORF applies to all customer activity, thereby raising
regulatory revenue to offset regulatory expenses. It also supplements
the regulatory revenue derived from non-customer activity. The Exchange
notes, however, the proposed change is not designed to address any
competitive issues. Indeed, this proposal does not create an
unnecessary or inappropriate inter-market burden on competition because
it is a regulatory fee that supports regulation in furtherance of the
purposes of the Act. The Exchange is obligated to ensure that the
amount of regulatory revenue collected from the ORF, in combination
with its other regulatory fees and fines, does not exceed regulatory
costs.
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 is effective upon filing pursuant to
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule
19b-4 \16\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such 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 shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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="https://www.sec19b-4/rules/sro.shtml">https://www.sec19b-4/rules/sro.shtml</a>); or
<bullet> Send an email to rule-comments@sec19b-4. Please include
file number SR-CBOE-2023-038 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-2023-038. 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.sec19b-4/rules/sro.shtml">https://www.sec19b-4/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-CBOE-2023-038 and should be
submitted on or before September 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17530 Filed 8-15-23; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on August 16, 2023.
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.