Notice2023-21943
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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
October 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68700-68705]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21943]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98601; File No. SR-CBOE-2023-056]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
September 28, 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 September 25, 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.
---------------------------------------------------------------------------
\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. 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\ 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 19% 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 or 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 the
competitive environment, the Exchange offers tiered pricing in its Fees
Schedule, like that of other options exchanges fees schedules,\5\ which
provides Trading Permit Holders (``TPHs'') opportunities to qualify for
higher rebates or reduced fees where certain volume criteria and
thresholds are met. Tiered pricing provides an incremental incentive
for TPHs to strive for higher tier levels, which provides increasingly
higher benefits or discounts for satisfying increasingly more stringent
criteria.
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
September 1, 2023 (SR-CBOE-2023-045). On September 25, 2023, the
Exchange withdrew that filing and submitted this proposal.
\4\ See Cboe Global Markets U.S. Options Market Volume Summary
(August 30, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\5\ See e.g., NASDAQ Stock Market Rules, Options Rules, Options
7 Pricing Schedule, Sec. 2 Options Market--Fees and Rebates, Tiers
1-6; see also NYSE Arca Options, Fees and Charges, Customer Posting
Credit Tiers in Non-Penny Issues.
---------------------------------------------------------------------------
Customer Volume Incentive Program and Affiliated Volume Plan
The Exchange proposes to amend the Customer Volume Incentive
Program (``VIP'') and the Affiliated Volume Plan (``AVP''). Under the
VIP, the Exchange credits each TPH the per contract amount set forth in
the VIP table for Public Customer (origin code ``C'') orders
transmitted by TPHs (with certain exceptions) \6\ and executed
electronically on the Exchange, provided the TPH meets certain volume
thresholds in a month; volume for Professional Customers (origin code
``U''), Broker-Dealers (origin code ``B''), and Joint Back-Offices
(``JBO'') (origin code ``J'') orders are counted toward reaching such
thresholds.\7\ Specifically, the percentage thresholds are calculated
based on the percentage of national customer volume in all underlying
symbols excluding Underlying Symbol List A,\8\ Sector Indexes,\9\ the
Dow Jones Industrial Average Index (``DJX''), the Mini Russell 2000
Index (``MRUT''), the MSCI EAFE Index (``MXEA''), the MSCI Emerging
Market Index (``MXEF''), the Mini S&P 500 Index (``NANOS''), Mini-SPX
Index (``XSP'') and FLEX Micros entered and executed over the course of
the month. VIP offers rates for both
[[Page 68701]]
Complex and Simple orders (both in AIM and Non-AIM orders).
---------------------------------------------------------------------------
\6\ See Cboe Options Fees Schedule, Footnote 36.
\7\ See Cboe Options Fees Schedule, Volume Incentive Program.
\8\ See Cboe Options Fees Schedule, Footnote 34.
\9\ See Cboe Options Fees Schedule, Footnote 47.
---------------------------------------------------------------------------
Currently, VIP offers 5 tiers. Particularly, a TPH may meet the
criteria under Tier 1 if its qualifying volume in the qualifying
classes is above 0% and up to 0.75% of national customer volume, under
Tier 2 if its qualifying volume in qualifying classes is above 0.75%
and up to 2.00% of national customer volume, under Tier 3 if its
qualifying volume in the qualifying classes is above 2.00% and up to
3.00% of national customer volume, under Tier 4 if its qualifying
volume in the qualifying classes is above 3.00% and up to 4.00% of
national customer volume, and under Tier 5 if its qualifying volume in
the qualifying classes is above 4.00% of national customer volume.
The Exchange proposes to eliminate Tier 4 and to amend the volume
threshold for Tier 3 to be above 2.00% and up to 4.00% of national
customer volume. The Exchange also proposes a corresponding non-
substantive amendment to update current Tier 5 to become Tier 4.\10\
The VIP credit rates for Simple and Complex orders remain unchanged
under the proposed change.
---------------------------------------------------------------------------
\10\ As part of the proposed change, the Exchange also proposes
to eliminate reference to Tier 5 in the Fee Schedule table. Under
the proposed change, a TPH will only receive the Complex credit
rates for Complex volume if at least 32% for Tiers 1, 2, and 3 or
38% for Tier 4 of that TPH's qualifying VIP volume in the previous
month was comprised of Simple volume.
---------------------------------------------------------------------------
The proposed changes are designed to incentivize more volume to
earn the same credits while also maintaining an incremental incentive
for TPHs to strive for the highest tier level. The Exchange expects the
impact of the change to be minimal, as currently, no TPHs qualify for
Tier 4. Further, under current Tiers 4 and 5, the VIP credit rates for
Simple and Complex Non-AIM contracts are the same (i.e., $0.15 for
Simple Non-AIM contracts and $0.25 for Complex Non-AIM contracts), and
the difference between VIP credit rates for Simple and Complex AIM
contracts are $0.01 (i.e., $0.13 for Tier 4 Simple AIM contracts and
$0.14 for Tier 5 Simple AIM contracts; $0.23 for Tier 4 Complex AIM
contracts and $0.24 for Complex AIM contracts). The proposed changes
are also designed to increase the amount of volume TPHs provide on the
Exchange and further encourage them to contribute to a deeper, more
liquid market, as well as to increase transactions and take such
execution opportunities provided by such increased liquidity. The
Exchange believes that this, in turn, benefits all market participants
by contributing towards a robust and well-balanced market ecosystem.
The Exchange notes the proposed tiers are competitively achievable for
all TPHs that submit significant customer order flow, in that all firms
that submit the requisite significant customer order flow could compete
to meet the tiers.
The Exchange proposes to make corresponding amendments to the
Affiliated Volume Plan (``AVP''). Under AVP, if a Market-Maker
Affiliate \11\ (``Affiliate OFP'') or Appointed OFP \12\ receives a
credit under the VIP, the Market-Maker will receive an access credit on
its BOE Bulk Ports corresponding to the VIP tier reached as well as a
transaction fee credit on its sliding scale Market-Maker transaction
fees (not including any additional surcharges or fees assessed as part
of the Liquidity Provider Sliding Scale Adjustment Table). In
connection with the proposed changes to the VIP, the Exchange proposes
to make a corresponding change to the AVP and eliminate VIP Tier 4 (and
corresponding MM Affiliate Access Credits and Liquidity Provider
Sliding Scale Credits). The Exchange proposes to rename current VIP
Tier 5 as VIP Tier 4, with the same corresponding Market-Marker
Affiliate Access Credit of 25% and Liquidity Provider Sliding Scale
Credit of 35%. All other Tiers and corresponding Market-Maker Affiliate
Access Credits and Liquidity Provider Sliding Scale Credits remain
unchanged under the proposed rule change.
---------------------------------------------------------------------------
\11\ For purposes of AVP, ``Affiliate'' is defined as having at
least 75% common ownership between the two entities as reflected on
each entity's Form BD, Schedule A.
\12\ See Cboe Options Fees Schedule Footnote 23. Particularly, a
Market-Maker may designate an Order Flow Provider (``OFP'') as its
``Appointed OFP'' and an OFP may designate a Market-Maker to be its
``Appointed Market-Maker'' for purposes of qualifying for credits
under AVP.
---------------------------------------------------------------------------
New AIM Responder Fee Code
The Exchange proposes to amend its Fees Schedule in connection with
the fees related to orders and auction responses executed in the
Automated Improvement Mechanism (``AIM'') and Solicitation Auction
Mechanism (``SAM'') Auctions.
AIM and SAM include functionality in which a TPH (an ``Initiating
TPH'') may electronically submit for execution an order it represents
as agent on behalf of a customer,\13\ broker dealer, or any other
person or entity (``Agency Order'') against any other order it
represents as agent, as well as against principal interest in AIM only,
(an ``Initiating Order'') provided it submits the Agency Order for
electronic execution into the AIM or SAM Auctions.\14\ The Exchange may
designate any class of options traded on Cboe Options as eligible for
AIM or SAM. The Exchange notes that all Users, other than the
Initiating TPH, may submit responses to an Auction (``AIM
Responses'').\15\ AIM and SAM Auctions take into account AIM Responses
to the applicable Auction as well as contra interest resting on the
Cboe Options Book at the conclusion of the Auction (``unrelated
orders''), regardless of whether such unrelated orders were already
present on the Book when the Agency Order was received by the Exchange
or were received after the Exchange commenced the applicable Auction.
If contracts remain from one or more unrelated orders at the time the
Auction ends, they are considered for participation in the AIM or SAM
order allocation process.
---------------------------------------------------------------------------
\13\ The term ``customer'' means a Public Customer or a broker-
dealer. The term ``Public Customer'' means a person that is not a
broker-dealer. See Rule 1.1.
\14\ See Rule 5.37 (AIM); Rule 5.39 (SAM); Rule 5.38 (Complex
AIM); Rule 5.40 (Complex SAM); Rule 5.73 (FLEX AIM); and Rule 5.74
(FLEX SAM).
\15\ For purposes of this filing and the proposed fee, the term
``AIM Response'' will include responses submitted to AIM and SAM
Auctions.
---------------------------------------------------------------------------
The Exchange assesses fees for certain AIM Responses (the ``AIM
Response'' fees set forth in the fees schedule). For example, the
Exchange assesses a fee of $0.50 per contract for non-Customer, non-
Market-Maker AIM Responses in penny classes, yielding fee code NB, and
a fee of $1.05 per contract for Non-Customer, Non-Market-Maker AIM
Responses in non-penny classes, yielding fee code NC.
The Exchange now proposes to add fee code ``MD'', which would be
appended to Market-Maker AIM Responses \16\ and assessed a fee of $0.25
per contract.
---------------------------------------------------------------------------
\16\ Currently, such orders are appended fee code MA, and
assessed a standard fee of $0.23 per contract, subject to the
Liquidity Provider Sliding Scale and Liquidity Provider Sliding
Scale Adjustment Table.
---------------------------------------------------------------------------
The Exchange notes that the same FLEX AIM and FLEX SAM responses
will be assessed the same fee, which is consistent with the structure
of the Exchange's current fees for AIM Responses, which apply uniformly
to qualifying orders in AIM, SAM, FLEX AIM, and FLEX SAM. \17\ The
Exchange also notes that the Market-Maker AIM Responder fee applies to
AIM Responses in Equity, ETF and ETN Options, Sectors Indexes,\18\ and
all other index
[[Page 68702]]
products, executed in AIM, SAM, FLEX AIM, and FLEX SAM Auctions.
---------------------------------------------------------------------------
\17\ See Cboe Exchange Fees Schedule, Footnote 20.
\18\ See Cboe Exchange Fees Schedule, Footnote 47.
---------------------------------------------------------------------------
The Exchange also proposes to remove Market-Maker volume via AIM
Market-Maker Responses (yielding fee code MD) from eligibility for
credits pursuant to the Liquidity Provider Sliding Scale, similar to
how Market-Maker orders transacted in open outcry (i.e., manual) in
Equity, ETF, and ETN Options, Sector Indexes and All Other Index
Products, which yield fee code MB, are handled today. Currently, the
Liquidity Provider Sliding Scale offers credits on Market-Maker orders
where a Market-Maker achieves certain volume thresholds based on total
national Market-Maker volume in all underlying symbols \19\ during the
calendar month. Footnote 10 (appended to the Liquidity Provider Sliding
Scale) states that the Liquidity Provider Sliding Scale applies to
Liquidity Provider (Cboe Options Market-Maker, DPM and LMM) transaction
fees in all products except (1) Underlying Symbol List A \20\ (34),
MRUT, NANOS, XSP and FLEX Micros, and (2) volume executed in open
outcry. The proposed rule change amends Footnote 10 to add volume
executed via AIM Responses to the list of Liquidity Provider Sliding
Scale exclusions. The proposed rule change also adds language to
Footnote 10 to make it clear that the volume thresholds under the
Liquidity Provider Sliding Scale will continue to include volume
executed via AIM Responses. The Exchange notes that it continues to
include volume executed via AIM Responses in a Market-Maker's volume
eligible to meet the tier thresholds in order to continue to
incentivize Market-Maker order flow to the trading floor. The Exchange
offers a hybrid market system and aims to continue to balance
incentives for Market-Makers to contribute to deep liquid markets for
investors on both its electronic and open outcry platforms.
---------------------------------------------------------------------------
\19\ Excluding products in Underlying Symbol List A (see
Footnote 34), MRUT, NANOS, XSP and FLEX Micros.
\20\ See Cboe Exchange Fees Schedule, Footnote 34.
---------------------------------------------------------------------------
Score Program Changes
The Exchange 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 & XSP (``Qualifying Classes''). The SCORe program is
available to any TPH Originating Clearing Firm or non-TPH Originating
Clearing Firm that sign up for the program.\21\ SCORe utilizes Discount
Tiers to determine the Originating Firm's applicable corresponding
discounts. 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. Currently, the program sets forth four
Discount Tiers, with applicable discounts ranging from $0 to $0.14 per
retail contract.
---------------------------------------------------------------------------
\21\ 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.
---------------------------------------------------------------------------
The Exchange proposes to amend Footnote 48 to exclude from the
SCORe program certain orders that are revised post-trade, using the
Clearing Editor tool. Specifically, the Exchange proposes to exclude
orders where the capacity is changed from another capacity to Customer
using the Clearing Editor, and single leg orders created by hard-edits
to complex orders using the Clearing Editor.
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.\22\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \23\ 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) \24\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
---------------------------------------------------------------------------
As stated 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 proposed rule 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
TPHs.
Customer Volume Incentive Program and Affiliated Volume Plan
The Exchange believes the proposed amendments to the VIP (and
corresponding amendments to AVP) to eliminate Tier 4 and to amend the
volume threshold for Tier 3 to be above 2.00%-4.00%, is reasonable
because it continues to encourage TPHs to take the opportunity to
receive credits on Customer orders by reaching the proposed volume
thresholds. The Exchange notes that relative volume-based incentives
and discounts have been widely adopted by exchanges \25\ and are
reasonable, equitable and non-discriminatory because they are open to
all TPHs on an equal basis and provide additional benefits or discounts
that are reasonably related to (i) the value to an exchange's market
quality and (ii) associated higher levels of market activity, such as
higher levels of liquidity provision and/or growth patterns.
Additionally, as noted above, the Exchange operates in a highly
competitive market. The Exchange is only one of several options venues
to which market participants may direct their order flow. Competing
options exchanges offer similar tiered pricing structures to that of
the Exchange, including schedules of rebates/credits and fees that
apply based upon members achieving certain volume and/or growth
thresholds. These competing pricing schedules, moreover, are presently
comparable to those that the Exchange provides, including the pricing
of comparable tiers.\26\
---------------------------------------------------------------------------
\25\ See supra note 5.
\26\ Id.
---------------------------------------------------------------------------
The Exchange believes adjusting the VIP volume thresholds by
eliminating Tier 4 (and making corresponding changes to the AVP) and
amending the volume threshold for Tier 3 is reasonable because it will
continue to encourage TPHs to increase their overall order flow to the
Exchange based on increasing their Customer, Professional Customer,
Broker-Dealer, and JBO executed orders as a percentage of national
customer volume. Particularly, the Exchange believes the proposed
[[Page 68703]]
threshold change is reasonable because it will encourage increased
volume, thus a deeper, more liquid market, and an increase in
transaction opportunities provided by the increased liquidity. In turn,
these increases benefit all TPHs by contributing towards a robust and
well-balanced market ecosystem. Increased overall order flow benefits
all investors by deepening the Exchange's liquidity pool, providing
greater execution incentives and opportunities, offering additional
flexibility for all investors to enjoy cost savings, supporting the
quality of price discovery, promoting market transparency, and
improving investor protection.
The proposed volume thresholds also do not represent a significant
departure from the current required criteria under the Exchange's
existing tiers and is therefore still reasonable based on the
difficulty of satisfying the tiers' criteria and ensures the existing
credit and proposed thresholds appropriately reflect the incremental
difficulty to achieve the existing VIP tiers. Further, the Exchange
believes that the amendments are reasonable because it will still allow
TPHs transmitting qualifying orders that reach a threshold of above
3.00--4.00% to receive either the same credit for doing so, in the case
of Simple and Complex Non-AIM Contracts, or a $0.01 lesser credit for
Simple and Complex AIM Contracts. Additionally, as noted above,
currently, no TPHs qualify for Tier 4. Finally, the changes to the AVP
are reasonable because the AVP utilizes the VIP tier structure, and
thus, any changes to the VIP tiers must be incorporated into the AVP.
The Exchange believes Tiers 3 and 4, as amended, remain in line
with existing tiers, both in required criteria and credits. For
example, the volume threshold amount under existing Tier 1 is currently
set as a range within a 0.75 percentage point (0%-0.75%) and Tier 2 is
currently set as a range within a 1.25 percentage point (between 0.75%
up to 2.00%). It is reasonable to incrementally increase this range for
Tier 3 to be within 2 percentage points (between 2.00% and 4.00%), and
then over 4.00% for Tier 4, as proposed, since higher credits are
available for higher tiers. The Exchange also believes that the tiers,
as amended, are in a reasonable increment to encourage overall order
flow to the Exchange without so significantly increasing the difficulty
in reaching the tiers' criteria.
The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
TPHs have the opportunity to meet the tier thresholds. The Exchange
also notes that the proposed changes will not adversely impact any
TPH's pricing or ability to qualify for other credit tiers. Rather,
should a TPH not meet the proposed criteria, the TPH will merely not
receive the proffered credit, for both the VIP and AVP.
New AIM Responder Fee Code
The Exchange believes that the proposed rule change to adopt a fee
code and assess a standard rate for Market-Maker AIM Responses is
reasonable, equitable and not unfairly discriminatory. As noted above,
the Exchange operates in a highly competitive market. The Exchange is
only one of several options venues to which market participants may
direct their order flow, and it represents a small percentage of the
overall market. The Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory in that
competing options exchanges,\27\ including the Exchange's affiliated
options exchanges,\28\ offer substantially the same fees and credits in
connection with similar price improvement auctions, as the Exchange now
proposes.
---------------------------------------------------------------------------
\27\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX
Price Improvement Mechanism (``PRIME'') Fees, which assesses a fee
of $0.50 (Penny Classes) and $1.10 (non-Penny Classes) for Market-
Maker PRIME responses; see also NYSE American Options Fee Schedule,
Section I(G), ``CUBE Auction Fees and Credits'', which assesses a
fee of $0.50 (Penny Classes) and $1.05 (non-Penny Classes) for Non-
Customer CUBE (its Customer Best Execution Auction) responses.
\28\ See EDGX Options Exchange Fee Schedule, ``Fee Codes and
Associated Fees'', fee code BD is appended to AIM Responder Penny
orders and is assessed a fee of $0.50 per share, and fee code BE is
appended to AIM Responder Non-Penny orders and is assessed a fee of
$1.05 per share.
---------------------------------------------------------------------------
Additionally, the Exchange believes that the proposed rule change
is equitable and not unfairly discriminatory because the proposed fee
will apply automatically and uniformly to all Market-Maker AIM Response
orders. The Exchange also believes that the proposed fees in connection
with Market-Maker AIM Response orders do not represent a significant
departure from the fees and credits rebates currently offered under the
fees schedule for these market participants. For example, under the
existing fees schedule electronic orders in Equity, ETF and ETN
Options, Sectors Indexes,\29\ and all other index products with M
Capacity Codes are assessed a fee of $0.23 per contract in Penny and
non-Penny Classes.
---------------------------------------------------------------------------
\29\ See Cboe Exchange Fees Schedule, Footnote 47.
---------------------------------------------------------------------------
The Exchange also believes that assessing a fee applicable to
Market-Maker responses that is lower than non-Customer, non-Market-
Maker responses is equitable and not unfairly discriminatory because
Market-Makers are already subject to certain other transaction fees not
otherwise applicable to other market participants. In particular, in
addition to Market-Maker-specific standard transaction fees,\30\
Market-Makers are also currently assessed a marketing fee of $0.25 in
Penny Program classes and $0.70 in all other classes on certain
transactions resulting from customer orders,\31\ including qualifying
orders submitted as AIM Responses. Further, Market-Makers, unlike other
market participants, take on a number of obligations, including quoting
obligations that other market participants do not have, as well as
added market making and regulatory requirements, which normally do not
apply to other market participants. For example, Market-Makers have
obligations to maintain continuous markets, engage in a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and to not make bids or offers or enter into
transactions that are inconsistent with a course of dealing.
Additionally, the Exchange notes that Market-Makers (with an
appointment in the applicable class) may not submit solicited orders
into an AIM Auction; \32\ this restriction does not apply to Firm
orders. As stated, the Exchange also recognizes that Market-Makers are
the primary liquidity providers in the options markets, and
particularly, during AIM auctions. Thus, the Exchange believes Market-
Makers provide the most accurate prices reflective of the true state of
the market and are primarily responsible for encouraging more
aggressive quoting and superior price improvement during an AIM
Auction. As a result, the Exchange believes it is important to continue
to incentivize Market-Makers to actively participate in such auctions
by means of assessing a lower transaction fee for Market-Maker AIM
Response orders. Increased Market-Maker liquidity also increases
trading opportunities and signals to other
[[Page 68704]]
participants to increase their order flow, which benefits all market
participants.
---------------------------------------------------------------------------
\30\ See Cboe Options Fees Schedule, ``SPX Liquidity Provider
Sliding Scale'' table; ``Liquidity Provider Sliding Scale'' table;
and ``Liquidity Provider Sliding Scale Adjustment Table''.
\31\ That is, Market-Maker orders that execute against customer
orders.
\32\ This is also true for SAM Auctions. See Rule 5.39.
---------------------------------------------------------------------------
The proposed rule change to remove Market-Maker volume transacted
via AIM Responses from eligibility for credits pursuant to the
Liquidity Provider Sliding Scale is reasonable because it is also
reasonably designed to balance incentivizing Market-Maker's
participation in AIM Auctions with establishing a fee in-line with
other AIM Response fees. The Exchange also believes that it is
reasonable to continue to include Market-Maker AIM Response volume in
the volume thresholds for meeting the Liquidity Provider Sliding Scale
tiers because, as stated above, it is designed to continue to
incentivize Market-Maker participation in AIM Auctions and would assist
the Exchange in continuing to provide a robust hybrid market. The
Exchange notes that the AIM and C-AIM Auctions generally deliver
meaningful opportunities for price improvement to orders and provide an
efficient manner of access to liquidity for members. Increased overall
auction-related order flow benefits all investors by deepening the
Exchange's liquidity pool, potentially providing even greater execution
incentives and opportunities, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection. The Exchange notes, too, that other programs in the Fees
Schedule include certain volume in meeting volume thresholds while not
including the same volume as eligible for credits or reduced rates
under such programs.\33\ The proposed rule change is equitable and not
unfairly discriminatory because the proposed rule change will apply
equally to all Market-Maker AIM Response volume, in that, no such
volume will be allotted credits under the Liquidity Provider Sliding
Scale Program.
---------------------------------------------------------------------------
\33\ See e.g., Cboe Options Fees Schedule, Volume Incentive
Program (VIP) table (which counts volume for capacity B, J and U
towards tier qualification but not as eligible for the VIP credit),
and Cboe Options Clearing Trading Permit Holder Proprietary Products
Sliding Scale table (which counts volume in products not included in
Underlying Symbol List A towards reaching the tiers, but provides
reduced rates to volume in products included in Underlying Symbol
List A).
---------------------------------------------------------------------------
SCORe Program Changes
The Exchange believes the proposal to exclude certain orders that
are revised post-trade, using the Clearing Editor tool is reasonable
because it no longer wishes to include these orders as part of the
program, and it is not required to do so. The Exchange notes that
orders where the capacity is changed from another capacity to Customer
using the Clearing Editor and single leg orders created by hard-edits
to complex orders using the Clearing Editor were not intended to be a
part of the program and believes the intention of the program will
continue to be achieved as a result of the proposed changes. The
Exchange believes the proposed changes are reasonable because they
provide further clarity regarding what orders are (and are not)
eligible for the program. Further, the Exchange believes the changes
remain equitable and reasonable by not materially changing 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. The Exchange
believes the proposed change is equitable and not unfairly
discriminatory because the exclusions of certain orders that are
revised post-trade, using the Clearing Editor tool apply to all
registered Originating Firms uniformly.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
believes the proposed rule change to the VIP and AVP does not impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes that the proposed changes to the VIP, and corresponding
changes to the AVP, will encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all TPHs. As a result, the Exchange believes that the proposed
change furthers the Commission's goal in adopting Regulation NMS of
fostering competition among orders, which promotes ``more efficient
pricing of individual stocks for all types of orders, large and
small.'' \34\ Further, the proposed change applies to all TPHs
submitting qualified orders equally, in that all TPHs submitting such
orders are eligible for the tiers (as amended), have a reasonable
opportunity to meet the tiers' criteria (as amended) and will all
receive the existing credit if such criteria is met. As described
above, while only certain orders would count towards the qualifying
thresholds, specifically, Customers, Professionals, Broker-Dealers and
JBOs, these market participants' orders are primarily executed as
agency orders, whose order flow would bring greater volume and
liquidity, which benefits all market participants by providing more
trading opportunities and tighter spreads. Overall, the proposed change
is designed to encourage additional order flow to the Exchange, which
the Exchange believes benefits all market participants on the Exchange
by providing more liquidity, thus trading opportunities, encouraging
even more TPHs to send orders, thereby contributing towards a robust
and well-balanced market ecosystem to the benefit of all market
participants.
---------------------------------------------------------------------------
\34\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------
The Exchange does not believe that the proposed rule change to
adopt a new fee code for Market-Maker AIM Responses will impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes will apply uniformly to all Market-Maker AIM Responses, in that
all such orders will automatically and uniformly yield fee code MD and
be assessed the standard fee for MD. Further, all such orders will
uniformly not be eligible for credits under the Liquidity Provider
Sliding Scale.
Additionally, the Exchange does not believe that the proposed
changes to the SCORe program will impose any burden on intramarket
competition because the proposed changes apply to all registered
Originating Firms uniformly, in that exclusions of certain orders that
are revised post-trade, using the Clearing Editor tool apply to all
registered Originating Firms uniformly.
Finally, the Exchange believes the proposed rule changes do not
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.
Based on publicly available information, no single options exchange has
more than 19% of the market share.\35\ Therefore, no exchange possesses
significant pricing
[[Page 68705]]
power in the execution of option order flow. Indeed, participants can
readily choose to send their orders to other exchange, and,
additionally 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.'' \36\ 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'. . . .''.\37\ 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.
---------------------------------------------------------------------------
\35\ See supra note 4.
\36\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\37\ 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)).
---------------------------------------------------------------------------
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)(ii) of the Act,\38\ and Rule 19b-4(f)(2) \39\ 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 shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
\39\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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#f785829b92da94989a9a92998384b7849294d9909881"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email protected]</span></a>. Please include
file number SR-CBOE-2023-056 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-2023-056. 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-2023-056 and should be
submitted on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
---------------------------------------------------------------------------
\40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21943 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 4, 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.