Notice2023-20519
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule Related 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
September 22, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 183 (Friday, September 22, 2023)</title>
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[Federal Register Volume 88, Number 183 (Friday, September 22, 2023)]
[Notices]
[Pages 65412-65414]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20519]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98420; File No. SR-CboeBZX-2023-071]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule Related to the Options Regulatory Fee
September 18, 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 September 12, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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.
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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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend its Fee Schedule related 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</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 $0.0001 per contract to $0.0003 per contract.\3\
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\3\ The Exchange initially filed the proposed fee change on
September 1, 2023 (SR-CboeBZX-2023-066). On September 12, 2023, the
Exchange withdrew that filing and submitted this filing.
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The ORF is assessed by BZX Options to each Member for options
transactions cleared by the Member that are cleared by the Options
Clearing Corporation (``OCC'') in the customer range, regardless of the
exchange on which the transaction occurs. In other words, the Exchange
imposes the ORF on all customer-range transactions cleared by a Member,
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 Member or
non-Member that ultimately clears the transaction. With respect to
linkage transactions, BZX Options reimburses its routing broker
providing Routing Services (pursuant to BZX Options Rule 21.9) for
options regulatory fees it incurs in connection with the Routing
Services it provides.
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 Member customer options business
including performing routine surveillances, investigations,
[[Page 65413]]
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 50.5% of BZX Options' total regulatory costs for 2023.
Thus, direct expenses are estimated to be approximately 49.5% of total
regulatory costs for 2023. In addition, it is BZX 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 Members of adjustments to the ORF via an Exchange Notice,
including for the 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
$0.0001 per contract side to $0.0003 per contract side. The proposed
increase is based on the Exchange's estimated projections for its
regulatory costs, which have increased.\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.
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\4\ See Exchange Notice, C2023080104 ``Cboe BZX Options Exchange
Regulatory Fee Update Effective September 1, 2023.'' The Exchange
endeavors to provide at least 30 calendar days notice prior to any
effective change to ORF.
\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.
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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 Members 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 15 U.S.C. 78f(b)(5).
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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 since it was adopted in 2015. In fact, the Exchange has
been steadily decreasing the rate over the last several years.\9\
Accordingly, the Exchange believes it's reasonable to increase the ORF.
Additionally, 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 significantly lower than the amount of ORF assessed on other
exchanges \10\ and lower than the Exchange has assessed previously.\11\
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\9\ See Securities Exchange Act Release No. 89471 (August 4,
2020), 85 FR 49405 (August 13, 2020) (SR-CboeBZX-2020-057) and
Securities Exchange Act Release No. 83879 (August 17, 2018), 83 FR
42739 (August 23, 2018) (SR-CboeBZX-2018-063). See also Securities
Exchange Act Release No. 82660 (February 8, 2018), 83 FR 6664
(February 14, 2018) (SR-CboeBZX-2018-008), Securities Exchange Act
Release No. 80050 (February 16, 2017), 82 FR 11491 (February 23,
2017) (SR-CboeBZX-2017-013) and Securities Exchange Act Release No.
74214 (February 5, 2015), 80 FR 7665 (February 11, 2011) (SR-BATS-
2015-08).
\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 Securities Exchange Act Release No. 89471 (August 4,
2020), 85 FR 49405 (August 13, 2020) (SR-CboeBZX-2020-005) and
Securities Exchange Act Release No. 83879 (August 17, 2018), 83 FR
42739 (August 23, 2018) (SR-CboeBZX-2018-063). See also Securities
Exchange Act Release No. 82660 (February 8, 2018), 83 FR 6664
(February 14, 2018) (SR-CboeBZX-2018-008), Securities Exchange Act
Release No. 80050 (February 16, 2017), 82 FR 11491 (February 23,
2017) (SR-CboeBZX-2017-013) and Securities Exchange Act Release No.
74214 (February 5, 2015), 80 FR 7665 (February 11, 2011) (SR-BATS-
2015-08).
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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\
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\12\ Consistent with Rule 15.2 (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.
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The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all Members on all
their transactions that clear in the customer range at the OCC. The
Exchange believes the ORF ensures fairness by
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assessing higher fees to those Members 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. 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., Member
proprietary transactions) of its regulatory program.\13\ Moreover, the
Exchange notes that it has broad regulatory responsibilities with
respect to its Members' 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
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 Members'
customer trading activity.
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\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
Member 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.
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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 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.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
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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.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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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#8cfef9e0e9a1efe3e1e1e9e2f8ffccffe9efa2ebe3fa"><span class="__cf_email__" data-cfemail="84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-071 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-CboeBZX-2023-071. 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-CboeBZX-2023-071 and should
be submitted on or before October 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20519 Filed 9-21-23; 8:45 am]
BILLING CODE 8011-01-P
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