Notice2023-18308
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 Select Customer Options Reduction Program, Livevol Fees, and Routing Fee Codes
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 25, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 164 (Friday, August 25, 2023)</title>
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[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Notices]
[Pages 58336-58341]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-18308]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98187; File No. SR-CBOE-2023-040]
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 Select Customer Options Reduction
Program, Livevol Fees, and Routing Fee Codes
August 21, 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 August 11, 2023, 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.
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.\3\
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\3\ The Exchange initially filed the proposed fee changes on
August 1, 2023 (SR-CBOE-2023-037). On August 2, 2023, the Exchange
withdrew that filing and submitted SR-CBOE-2023-039. On August 11,
2023 the Exchange withdrew SR-CBOE-2023-039 and submitted this
proposal.
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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 16% of the market share.\4\
Thus, in such a low-concentrated and highly competitive market, no
single options 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. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\4\ See Cboe Global Markets U.S. Options Monthly Market Volume
Summary (July 26, 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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Select Customer Options Reduction Program Changes
The Exchange first proposes to amend the Select Customer Options
Reduction program (``SCORe''). By way of background, SCORe is a
discount program for Retail, Non-FLEX Customer (``C'' origin code)
volume in the following options classes: SPX (including SPXW), VIX,
RUT, MXEA, & MXEF (``Qualifying Classes''). The SCORe program is
available to any Trading Permit Holder (``TPH'') Originating Clearing
Firm or non-TPH Originating Clearing Firm that sign up for the
program.\5\
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\5\ For this program, an ``Originating Clearing Firm'' is
defined as either (a) the executing clearing Options Clearing
Corporation (``OCC'') number on any transaction which does not also
include a Clearing Member Trading Agreement (``CMTA'') OCC clearing
number or (b) the CMTA in the case of any transaction which does
include a CMTA OCC clearing number.
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Under the program, to determine the Discount Tier, an Originating
Firm's Retail volume in the Qualifying Classes will be divided by total
Retail volume in the Qualifying Classes executed on the Exchange. The
program then provides a discount per retail contract, based on the
determined Discount Tier thereunder. The program sets forth four
discount tiers, with applicable discounts ranging from $0.00 to $0.14
per retail contract. Under the current program, and as set forth in
Footnote 48 to the Fees Schedule, ``Retail'' volume is defined as
Customer order (``C'' capacity code) for which the original order size
(in the case of a simple order) or largest leg size (in the case of a
complex order) is 100 contracts or less. The Exchange proposes amending
Footnote 48 to the Fees Schedule, to define ``Retail'' volume as
Customer order (``C'' capacity code) for which the original order size
(in the case of a simple order) or the largest leg size (in the case of
a complex order) is 20 contracts or less.
Additionally, the Exchange proposes to remove outdated language
from Footnote 48 related to the SCORe program. Effective February 1,
2023, the Exchange amended the program by eliminating the Qualifying
Tiers construct.\6\ As amended, SCORe utilizes only one measure for
participation and discount (i.e., the Discount Tiers). As such, the
Exchange proposes to remove the outdated language related to the
[[Page 58337]]
determination of an Originating Firm's Qualifying Tier.
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\6\ See Securities Exchange Act Release No. 96856 (February 9,
2023), 88 FR 9938 (February 15, 2023) (SR-CBOE-2023-011).
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Livevol Fee Changes
The Exchange proposes to amend certain fees related to its
provision of Open-Close Data. By way of background, the Exchange
currently offers End-of-Day (``EOD'') and Intraday Open-Close Data
(collectively, ``Open-Close Data''). EOD Open-Close Data is an end-of-
day volume summary of trading activity on the Exchange at the option
level by origin (customer, professional customer, broker-dealer, and
market maker), side of the market (buy or sell), price, and transaction
type (opening or closing). The customer and professional customer
volume is further broken down into trade size buckets (less than 100
contracts, 100-199 contracts, greater than 199 contracts). The Open-
Close Data is proprietary Cboe Options trade data and does not include
trade data from any other exchange. It is also a historical data
product and not a real-time data feed.
The Exchange also offers Intraday Open-Close Data, which provides
similar information to that of Open-Close Data but is produced and
updated every 10 minutes during the trading day. Data is captured in
``snapshots'' taken every 10 minutes throughout the trading day and is
available to subscribers within five minutes of the conclusion of each
10-minute period.\7\ The Intraday Open-Close Data provides a volume
summary of trading activity on the Exchange at the option level by
origin (customer, professional customer, broker-dealer, and market
maker), side of the market (buy or sell), and transaction type (opening
or closing). The customer and professional customer volume are further
broken down into trade size buckets (less than 100 contracts, 100-199
contracts, greater than 199 contracts). The Intraday Open-Close Data is
also proprietary Cboe Options trade data and does not include trade
data from any other exchange.
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\7\ For example, subscribers to the intraday product will
receive the first calculation of intraday data by approximately 9:42
a.m. ET, which represents data captured from 9:30 a.m. to 9:40 a.m.
Subscribers will receive the next update at 9:52 a.m., representing
the data previously provided together with data captured from 9:40
a.m. through 9:50 a.m., and so forth. Each update will represent the
aggregate data captured from the current ``snapshot'' and all
previous ``snapshots.''
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Cboe LiveVol, LLC (``LiveVol''), a wholly owned subsidiary of the
Exchange's parent company, Cboe Global Markets, Inc., makes the Open-
Close Data available for purchase to TPHs and non-TPHs on the LiveVol
DataShop website (<a href="http://datashop.cboe.com">datashop.cboe.com</a>). Customers may currently purchase
Open-Close Data on a subscription basis (monthly or annually) or by ad
hoc request for a specified month (e.g., request for Intraday Open-
Close Data for month of August 2023).
Open-Close Data is subject to direct competition from similar end-
of-day and intraday options trading summaries offered by several other
options exchanges.\8\ All of these exchanges offer essentially the same
end-of-day and intraday options trading summary information.
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\8\ These substitute products are: Nasdaq PHLX Options Trade
Outline, Nasdaq Options Trade Outline, ISE Trade Profile, GEMX Trade
Profile data; open-close data from C2, BZX, and EDGX; and Open Close
Reports from MIAX Options, Pearl, and Emerald.
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End-of-Day Open-Close Data
Currently, End-of-Day Open-Close Data is available to purchase and
download in three formats. Customers may (1) download data on a per
Cboe Security basis, (2) download data for all Cboe Securities
(equities, indexes and ETFs), and/or (3) download daily updates for all
Cboe Securities (equities, indexes and ETFs). Cboe is proposing to
eliminate the End-of-Day Open-Close Data offering to download data on a
per Cboe Security basis. The End-of-Day Open-Close Data offerings will
remain available on an all Cboe Securities basis.
The Exchange notes that removing the offering to download data on a
per Cboe Security basis and offering such data for all Cboe Securities
only is consistent with the offering of Open-Close Data at the
Exchange's affiliates,\9\ as well as another exchange with a similar
data product.\10\ The Exchange further notes that the purchase of Open-
Close historical data is discretionary and not compulsory.
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\9\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, Cboe
LiveVol, LLC Market Data Fees.
\10\ See Nasdaq ISE, Options 7 Pricing Schedule, Section 10A.,
Nasdaq ISE Open/Close Trade Profile End of Day.
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The Exchange also proposes a technical amendment to its Livevol
fees, correcting a spelling error of ``Intrday'' to ``Intraday.''
Options Institute Research Grant Program 2023
Through its educational division, the Options Institute, the
Exchange has established the Options Institute Research Grant Program
2023 (``Grant Program''). Under the Grant Program, selected grant
recipients will conduct a research project in an eligible topic(s),
including Derivatives Products and Performance, Market Performance,
Operations and Risk Management, and Decision Theory. The Exchange seeks
to provide historical data sets to selected grant recipients for use as
part of the research project. As such, the Exchange proposes to amend
its Fee Schedule to add Footnote 51, applicable to the Livevol Fees
table of the Fee Schedule, stating that fees for Open-Close Data will
be waived for grant recipients of the Grant Program.
In order to qualify for the Grant Program, an applicant must be a
faculty member or student of a qualifying, accredited educational
institution that will use the data solely for their completion of the
research project (i.e., academic use). The data must be used solely for
the purposes of the research project, and any commercial or profit-
seeking usage is excluded. Researchers interested in qualifying for the
Grant Program are required to submit an application, which describes
the proposed research project. The Options Institute has the discretion
to review such applications and select grant recipients.
The Exchange believes that researchers at academic institutions
provide a valuable service for the Exchange in studying and promoting
the options market. Though academic institutions and researchers have a
need for granular options data sets, they do not trade upon the data
for which they subscribe. The Exchange believes the waiver of these
Open-Close Data fees for any grant recipient under the Grant Program
will encourage and promote research directed at increasing
understanding and advancement of derivatives usage and financial
exchange marketplace structures.
The Exchange notes other exchanges offer academic discounts or
credit for similar data feeds.\11\ The Exchange recognizes the high
value of academic research and educational instruction and
publications, and believes that the proposed waiver of historical Open-
Close Data fees will encourage academic research of the options
industry, which will serve to benefit all market
[[Page 58338]]
participants while also opening up a new potential user base among
students.
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\11\ See e.g., Nasdaq ISE, Options 7 Pricing Schedule, Section
10A., Market Data. See also Securities Exchange Act Release No.
67955 (October 1, 2012) 77 FR 61037 (October 5, 2012) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Reduced Fees for Historical ISE Open/Close Trade Profile Intraday
Market Data Offering) (SR-ISE-2012-76); Securities and Exchange Act
Release 34-60654 (September 11, 2009) 74 FR 47848 (September 17,
2009) (Notice of Filing of Proposed Rule Change Relating to
Historical ISE Open/Close Trade Profile Fees) (SR-ISE-2009-64);
Securities Exchange Act Release No. 53770 (May 8, 2006) 71 FR 27762
(May 12, 2006) (Notice of Filing of Proposed Rule Change and
Amendment No. 1 Thereto To Establish an Annual Administrative Fee
for Market Data Distributors That Are Recipients of Nasdaq
Proprietary Data Products) (SR-NASD-2006-030).
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Routing Fee Codes Changes
Finally, the Exchange proposes to modify fees associated with
certain routing fee codes. The Fees Schedule currently lists fee codes
and their corresponding transaction fee for routed Customer orders to
other options exchanges specifically in Exchange Traded Funds (``ETF'')
and equity options, and for non-Customer orders routed in Penny and
Non-Penny options classes.
The Exchange notes that its current approach to routing fees is to
set forth in a simple manner certain sub-categories of fees that
approximate the cost of routing to other options exchanges based on the
cost of transaction fees assessed by each venue as well as a flat $0.15
assessment that covers costs to the Exchange for routing (i.e.,
clearing fees, connectivity and other infrastructure costs, membership
fees, etc.) (collectively, ``Routing Costs''). The Exchange then
monitors the fees charged as compared to the costs of its routing
services and adjusts its routing fees and/or sub-categories to ensure
that the Exchange's fees do indeed result in a rough approximation of
overall Routing Costs, and are not significantly higher or lower in any
area. The Exchange notes that other options exchanges currently assess
routing fees in a similar manner as the Exchange's current approach to
assessing approximate routing fees.\12\
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\12\ See e.g., MIAX Options Exchange Fee Schedule, Section 1(c),
``Fees for Customer Orders Routed to Another Options Exchange.''
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The Exchange assesses fees in connection with orders routed away to
various exchanges. Currently, under the Routing Fees table of the Fee
Schedule, fee codes RD, RF, RI, TD, TE, TF, TG, TH, and TI are appended
to certain Customer orders in ETF and Equity options, as follows:
<bullet> fee code RD is appended to Customer orders in ETF/Equity
options routed to NYSE American (``AMEX''), BOX Options Exchange
(``BOX''), Nasdaq BX Options (``BX''), Cboe EDGX Exchange, Inc.
(``EDGX''), ISE Mercury, LLC (``MERC''), MIAX Options Exchange
(``MIAX'') or Nasdaq PHLX LLC (``PHLX'') (excluding orders in SPY
options), and assesses a charge of $0.25 per contract;
<bullet> fee code RF is appended to Customer orders in ETF/Equity,
Penny options routed to NYSE Arca, Inc (``ARCA''), Cboe BZX Exchange,
Inc. (``BZX''), Cboe C2 Exchange, Inc. (``C2''), Nasdaq ISE (``ISE''),
ISE Gemini, LLC (``GMNI''), MIAX Emerald Exchange (``EMLD''), MIAX
Pearl Exchange (``PERL''), Nasdaq Options Market LLC (``NOM''), or PHLX
(for orders in SPY options only) and assesses a charge of $0.75 per
contract;
<bullet> fee code RI is appended to Customer orders in ETF/Equity,
Non-Penny options routed to ARCA, BZX, C2, ISE, GMNI, EMLD, PERL or
NOMX, and assesses a charge of $1.25 per contract.
<bullet> fee code TD is appended to Customer orders in ETF options
originating on an Exchange-sponsored terminal for greater than or equal
to 100 contracts routed to AMEX, BOX, BX, EDGX, MERC, MIAX, or PHLX,
and assesses a charge of $0.18 per contract;
<bullet> fee code TE is appended to Customer orders in ETF/Equity
options originating on an Exchange-sponsored terminal for less than 100
contracts routed to AMEX, BOX, BX, EDGX, MERC, MIAX, PHLX, and assesses
no charge per contract;
<bullet> fee code TF is appended to Customer orders in ETF, Penny
options originating on an Exchange-sponsored terminal for greater than
or equal to 100 contracts routed to ARCA, BZX, C2, ISE, GMNI, EMLD,
PERL, or NOM, and assesses a charge of $0.18 per contract;
<bullet> fee code TG is appended to Customer orders in ETF, Non-
Penny options originating on an Exchange-sponsored terminal for greater
than or equal to 100 contracts routed to ARCA, BZX, C2, ISE, GMNI,
EMLD, PERL, or NOM, and assesses $0.18 per contract;
<bullet> fee code TH is appended to Customer orders in ETF/Equity,
Penny options originating on an Exchange-sponsored terminal for less
than 100 contracts routed to ARCA, BZX, C2, ISE, GMNI, EMLD, PERL, or
NOM, and assesses no charge per contract; and
<bullet> fee code TI is appended to Customer orders in ETF/Equity,
Non-Penny options originating on an Exchange-sponsored terminal for
less than 100 contracts routed to ARCA, BZX, C2, ISE, GMNI, EMLD, PERL,
or NOM, and assesses no charge per contract.
The Exchange proposes to amend fee codes RD, TD, and TE to exclude
applicable Customer orders routed to ISE Mercury, LLC (MERC) and to
amend fee codes RF, RI, TF, TG, TH, and TI to add applicable Customer
orders routed to MERC. The Exchange further proposes to amend fee codes
RF, RI, TF, TG, TH, and TI to add applicable Customer orders routed to
MEMX LLC (``MEMX''), in anticipation of the launch of the new options
exchange. The charges assessed per contract for each fee code remain
the same under the proposed rule change.
The proposed changes result in an assessment of fees that,
following fee changes by an away options exchanges and in anticipation
of the launch of another options exchange, is more in line with the
Exchange's current approach to routing fees, that is, in a manner that
approximates the cost of routing Customer orders to other away options
exchanges, based on the general cost of transaction fees assessed by
the sub-category of away options exchanges for such orders (as well as
the Exchange's Routing Costs).\13\ The Exchange notes that routing
through the Exchange is optional and that TPHs will continue to be able
to choose where to route their Customer orders in ETF and equity
options.
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\13\ See Securities Exchange Act Release No. 97800 (June 26,
2023), 88 FR 42409 (June 30, 2023) (SR-MRX-2023-11).
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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.\14\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \15\ 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) \16\ 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) of the Act,\17\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Trading Permit
Holders and other persons using its facilities.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ Id.
\17\ 15 U.S.C. 78f(b)(4).
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First, the Exchange believes the proposal to amend the SCORe
program
[[Page 58339]]
to define ``Retail'' volume as Customer order (``C'' capacity code) for
which the original order size (in the case of a simple order) or the
largest leg size (in the case of a complex order) is 20 contracts or
less (changing from 100) is reasonable as Members are still eligible to
receive discounts under the program, albeit at a smaller scale.
Moreover, the Exchange is not required to maintain this program nor
provide such discounts as are provided under the program. Further, the
Exchange believes the program remains equitable and reasonable, as the
proposed change to the number of contracts in the ``Retail'' definition
does not substantively change the program, but rather adjusts a
considered metric of the program. The Exchange believes the proposed
change is also equitable and not unfairly discriminatory because it
applies uniformly to any TPH Originating Clearing Firm or non-TPH
Originating Firm who participates in the program. The Exchange believes
SCORe, currently and as amended, continues to provide an incremental
incentive for Originating Firms to strive for the highest tier level,
which provides increasingly higher discounts. As such, the changes are
designed to encourage increased Retail volume in the Qualifying
Classes, which provides increased volume and greater trading
opportunities for all market participants. Finally, the Exchange
believes eliminating outdated language from Footnote 48 related to the
SCORe program is reasonable as the Exchange no longer utilizes
Qualifying Tiers under the program. The proposed deletions reduce
potential confusion and maintain clarity in the Fees Schedule.
The Exchange also believes the proposed changes to amend its End-
of-Day Open-Close Data offering to remove the offering to download data
on a per Cboe Security basis and to offer such data on an all Cboe
Securities basis only are reasonable. In adopting Regulation NMS, the
Commission granted self-regulatory organizations (``SROs'') and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes the proposed change will continue to broaden the
availability of U.S. option market data to investors consistent with
the principles of Regulation NMS. Open-Close Data is designed to help
investors understand underlying market trends to improve the quality of
investment decisions. Indeed, subscribers to the data will still be
able to enhance their ability to analyze option trade and volume data
and create and test trading models and analytical strategies. The
Exchange believes Open-Close Data continues to provide a valuable tool
that subscribers can use to gain comprehensive insight into the trading
activity in a particular series, but also emphasizes such data is not
necessary for trading and as noted above, is entirely optional.
Moreover, several other exchanges offer a similar data product which
offer the same type of data content through end-of-day or intraday
reports.\18\
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\18\ See supra note 8.
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The Exchange also operates in a highly competitive environment.
Indeed, there are currently 16 registered options exchanges that trade
options. Based on publicly available information, no single options
exchange has more than 16% of the market share.\19\ The Commission has
repeatedly expressed its preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. Particularly, 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\ Making similar data products available to
market participants fosters competition in the marketplace, and
constrains the ability of exchanges to charge supracompetitive fees. In
the event that a market participant views one exchange's data product
as more or less attractive than the competition they can and do switch
between similar products. The Exchange notes the proposed change merely
aligns the Exchange's offering of End-of-Day Open-Close Data with the
data products of the Exchange's affiliates,\21\ as well as another
exchange with a similar data product, in that such offerings do not
include the ability to purchase the End-of-Day Open-Close Data on a per
securities basis.\22\ The Exchange believes that the proposed changes
to the Exchange's End-of-Day Open-Close Data offering are equitable and
not unfairly discriminatory because the change to the offering applies
to all current and potential subscribers of the product uniformly, in
that no subscriber will be able to purchase the End-of-Day Open-Close
Data on a per Cboe Securities basis. Further, End-of-Day the Open-Close
Data will continue to be available for purchase to all subscribers on
an all Cboe Securities basis.
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\19\ See supra note 4
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\21\ See supra note 9.
\22\ See supra note 10.
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The Exchange also believes that the waiver of Open-Close data fees
for recipients of the Grant Program is reasonable because such data is
utilized for a strict, limited purpose under the terms of the Grant
Program and selected grant recipients are not able to monetize access
to the data as they do not trade on the data set. The Exchange believes
the waiver of fees for grant recipients will promote research and
studies of the options industry to the benefit of all market
participants. The Exchange believes that the proposed waiver is
equitable and not unfairly discriminatory because it will apply equally
to all selected grant recipients and in exchange, the Exchange will be
granted certain usage rights with respect to the recipients' final
research papers. Further, as noted above, other exchanges offer
academic discounts or credit for similar data feeds.\23\
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\23\ See supra note 11.
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The Exchange also believes the proposed rule change to amend fee
codes RD, RF, RI, TD, TE, TF, TG, TH, and TI to account for MERC's
current assessment of fees for Customer orders and MEMX's expected
assessment of fees for Customer orders is reasonable because it is
reasonably designed to assess routing fees in line with the Exchange's
current approach to routing fees. That is, the proposed rule change is
intended to include Customer orders in ETF and equity options routed to
MERC and MEMX in the most appropriate sub-category of fees that
approximates the cost of routing to a group of away options exchanges
based on the cost of transaction fees assessed by each venue as well as
Routing Costs to the Exchange. As noted above, the Exchange 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. The
Exchange notes that routing through the Exchange is optional and that
TPHs will continue to be able to choose where to route their Customer
orders in ETF and equity options in the same sub-category group of away
exchanges as they currently may choose to route. The proposed rule
[[Page 58340]]
change reflects a competitive pricing structure designed to incentivize
market participants to direct their order flow to the Exchange, which
the Exchange believes would enhance market quality to the benefit of
all Members. The Exchange further notes that other options exchanges
currently approximate routing fees in a similar manner as the
Exchange's current approach.\24\ The Exchange believes that the
proposed rule change is equitable and not unfairly discriminatory
because all Members' applicable Customer orders in ETF and equity
options routed to MERC and MEMX will be automatically and uniformly
assessed the applicable routing charges.
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\24\ See supra note 12.
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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 changes to the SCORe program 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
apply to all registered Originating Firms uniformly, in that the
updated definition of ``Retail'' volume will, for purposes of
calculating discounts under the program, be applied to all Originating
Firms.
Further, the Exchange does not believe that the proposed changes to
its offering of End-of-Day Open-Close Data will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act. As noted above, the proposed
amendments align the Exchange's offering of End-of-Day Open-Close Data
with the data products of the Exchange's affiliates,\25\ as well as
another exchange with a similar data product.\26\ The changes to the
offering apply to all current and potential subscribers of the product
uniformly, in that no subscriber will be able to purchase the End-of-
Day Open-Close Data on a per Cboe Securities basis. Further, End-of-Day
the Open-Close Data will continue to be available for purchase to all
subscribers on an all Cboe Securities basis.
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\25\ See supra note 9.
\26\ See supra note 10.
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Additionally, the Exchange does not believe that the proposed
waiver of Open-Close data fees for recipients of the Grant Program will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. All qualifying
researchers are eligible to apply to the Grant Program, and the waiver
of Open-Close data fees for recipients of the Grant Program will apply
equally to all selected grant recipients. In exchange, the Exchange
will be granted certain usage rights with respect to the recipients'
final research papers. Further, while the waiver applies only to grant
recipients, academic institutions' research and publications as a
result of access to historical market data benefits all market
participants.
Finally, the Exchange does not believe the proposed rule change to
amend fee codes RD, RF, RI, TD, TE, TF, TG, TH, and TI will impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. All Members' Customer orders
routing to MERC and currently yielding fee code RD, TD, or TE will
yield fee code RF, RI, RF, TG, TH, or TI (depending on the order) and
will automatically and uniformly be assessed the current fees already
in place for such routed orders, as applicable. Likewise, all Members'
Customer orders routed to MEMX will automatically yield fee code RF,
RI, RF, TG, TH, or TI (depending on the order) and uniformly be
assessed the corresponding fee. The Exchange notes that other options
exchange approximate routing costs in a similar manner as the
Exchange's current approach.\27\
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\27\ See supra note 12.
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The Exchange also does not believe that the proposed rule changes
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 operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and direct 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 16% of the market
share.\28\ 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.'' \29\ 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'. . . .''.\30\
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.
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\28\ See supra note 4.
\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\30\ 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)).
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Additionally, the Exchange also does not believe that the proposed
rule change to waive Open-Close data fees for recipients of the Grant
Program will impose any burden on intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act as
other options exchanges offer academic discounts or credit for similar
data feeds.\31\ Offering a discount for qualifying academic
institutions that purchase the Exchange's historical Open-Close Data
may make that data more attractive to such academic institutions and
further increase competition with exchanges that offer similar
historical data products.
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\31\ See supra note 11.
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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.
[[Page 58341]]
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 \32\ and paragraph (f) of Rule 19b-4 \33\
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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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 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="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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
file number SR-CBOE-2023-040 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-2023-040. 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-CBOE-2023-040 and should be
submitted on or before September 15, 2023.
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\34\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18308 Filed 8-24-23; 8:45 am]
BILLING CODE 8011-01-P
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