Notice2023-22037
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule To Adopt a Temporary 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
October 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
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[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68801-68803]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22037]
[[Page 68801]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98661; File No. SR-CboeBZX-2023-074]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule To Adopt a Temporary Options Regulatory Fee
September 29, 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 28, 2023, Cboe BZX Exchange, Inc. (the ``Exchange''
or ``BZX'') filed with the Securities and Exchange Commission (the
``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 Options'')
proposes to amend its Fees Schedule relating to the Options Regulatory
Fee. The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://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 amend the Fee Schedule to revise the ORF
charged solely for the dates of September 28 and 29, 2023.
Background
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,
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.\3\ Based on the
Exchange's most recent semi-annual review, the Exchange proposed to
increase the amount of ORF that is collected by the Exchange from
$0.0001 per contract side to $0.0003 per contract side, effective
September 1, 2023.\4\ The increase was 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 then-current rate, would result in projected revenue that
was 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 then-current
rate results was 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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\3\ 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.
\4\ See Securities Exchange Act Release No. 98420 (September 18,
2023), 88 FR 65412 (September 22, 2023) (SR-CboeBZX-2023-071).
\5\ The Exchange notes that in connection with September 1 ORF
rate change, it provided 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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OIP and Current Proposal
As noted above, on September 1, 2023 the Exchange filed to increase
ORF to $0.0003 (from $0.0001) per contract side (the ``Original ORF
Filing''). However, on September 28, 2023, the Commission issued the
Suspension of and Order Instituting Proceedings to Determine whether to
Approve or Disapprove a
[[Page 68802]]
Proposed Rule Change to Modify the Options Regulatory Fee (``the
``OIP'').\6\ As a result of the OIP, on September 28, 2023, the ORF
reverted back to the rate in place prior to September 1, 2023 (i.e.,
$0.0001 per contract side).
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\6\ See Securities Exchange Act Release No. 98597 (September 28,
2023) (SR-CboeBZX-2023-071).
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To ensure consistency of ORF assessments for the full month of
September 2023, the Exchange proposes to modify the Fee Schedule to
specify that the amount of ORF that will be collected by the Exchange
through September 29, 2023 (i.e., the last trading day of the month of
September), will be $0.0003 per contract side (the ``September ORF
Rate'') and that effective October 2, 2023, the ORF will be $0.0001 per
contract side.\7\ The Exchange believes that revenue generated from the
ORF, including based on the September ORF Rate, will continue to cover
a material portion, but not all, of the Exchange's regulatory costs.
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\7\ This proposal is not intended to be responsive to any issues
that may be raised in the OIP, but to instead address the immediate
issue of billing for September 28 and 29th.
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As noted above, the Exchange endeavors to notify Members of any
change in the amount of the fee at least 30 calendar days prior to the
effective date of the change via Exchange Notice; however, the Exchange
notes that as a result of the OIP, such notice in this instance could
not be given 30 days in advance.
For avoidance of doubt, the Exchange notes that the September ORF
Rate applies only through September 29, 2023 and that the ORF,
effective October 2, 2023, will be assessed at a rate of $0.0001 per
contract (i.e., the rate in place prior to the Original ORF Filing).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \8\ of the Act, in general, and
Section 6(b)(4) and (5) \9\ of the Act, in particular, in that it is
designed to provide for the equitable allocation of reasonable dues,
fees, and other charges among its members and other persons using its
facilities and does not unfairly discriminate between customers,
issuers, brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
The Exchange believes the proposed September ORF Rate is reasonable
because it would help maintain fair and orderly markets and benefit
investors and the public interest because it would ensure transparency
and consistency of ORF for the entire month of September 2023.
Specifically, the proposal would ensure that the amount of ORF
collected by the Exchange for the trading days of September 28 and 29,
2023 will be the same rate collected on every other trading day in
September (i.e., $0.0003 per contract side). The Exchange believes this
will avoid disruption to its Members that are subject to the ORF. As
noted above, the Exchange may only use regulatory funds such as ORF
``to fund the legal, regulatory, and surveillance operations'' of the
Exchange.
The Proposal Is an Equitable Allocation of Fees
The Exchange believes its proposal is an equitable allocation of
fees among its market participants. The Exchange believes that the
proposed September ORF Rate would not place certain market participants
at an unfair disadvantage because all options transactions must clear
via a clearing firm. Such clearing firms can then choose to pass
through all, a portion, or none of the cost of the ORF to its
customers, i.e., the entering firms. Because the ORF is collected from
Member clearing firms by the OCC on behalf of the Exchange, the
Exchange believes that using options transactions in the Customer range
serves as a proxy for how to apportion regulatory costs among such
Members. In addition, the Exchange notes that the regulatory costs
relating to monitoring Members with respect to Customer trading
activity are generally higher than the regulatory costs associated with
Members that do not engage in Customer trading activity, which tends to
be more automated and less labor-intensive. By contrast, regulating
Members that engage in Customer trading activity is generally more
labor intensive and requires a greater expenditure of human and
technical resources as the Exchange needs to review not only the
trading activity on behalf of Customers, but also the Member's
relationship with its Customers via more labor-intensive exam-based
programs. 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. Thus, the Exchange believes the September ORF Rate
(like the rate assessed for every other trading day in September 2023)
would be equitably allocated in that it is charged to all Members on
all their transactions that clear in the Customer range at the OCC.
The Proposed Fee Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange believes that the proposed September ORF
Rate would not place certain market participants at an unfair
disadvantage because all options transactions must clear via a clearing
firm. Such clearing firms can then choose to pass through all, a
portion, or none of the cost of the ORF to its customers, i.e., the
entering firms. Because the ORF is collected from Member clearing firms
by the OCC on behalf of the Exchange, the Exchange believes that using
options transactions in the Customer range serves as a proxy for how to
apportion regulatory costs among such Members. In addition, the
Exchange notes that the regulatory costs relating to monitoring Member
with respect to Customer trading activity are generally higher than the
regulatory costs associated with Members that do not engage in Customer
trading activity, which tends to be more automated and less labor-
intensive. By contrast, regulating Members that engage in Customer
trading activity is generally more labor intensive and requires a
greater expenditure of human and technical resources as the Exchange
needs to review not only the trading activity on behalf of Customers,
but also the Member's relationship with its Customers via more labor-
intensive exam-based programs. 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. Thus, the Exchange believes
the September ORF Rate (like the rate assessed for every other trading
day in September 2023), is not unfairly discriminatory because it is
charged to all Members on all their transactions that clear in the
Customer range at the OCC.
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 rule change will impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
Intramarket Competition. The Exchange believes the proposed fee
[[Page 68803]]
change would not impose an undue burden on competition as it is charged
to all Members on all their transactions that clear in the Customer
range at the OCC; thus, the amount of ORF imposed is based on the
amount of Customer volume transacted. The Exchange believes that the
proposed ORF would not place certain market participants at an unfair
disadvantage because all options transactions must clear via a clearing
firm. Such clearing firms can then choose to pass through all, a
portion, or none of the cost of the ORF to its customers, i.e., the
entering firms. In addition, because the ORF is collected from Member
clearing firms by the OCC on behalf of the Exchange, the Exchange
believes that using options transactions in the Customer range serves
as a proxy for how to apportion regulatory costs among such Members.
Intermarket Competition. The proposed fee change is not designed to
address any competitive issues. Rather, the proposed change is designed
to help the Exchange adequately fund its regulatory activities while
seeking to ensure that total regulatory revenues do not exceed total
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) \10\ of the Act and subparagraph (f)(2) of Rule
19b-4 \11\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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) \12\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\12\ 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#d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0"><span class="__cf_email__" data-cfemail="b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-074 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-2023-074. 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-2023-074 and should
be submitted on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22037 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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