Notice2024-00639
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
January 16, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 10 (Tuesday, January 16, 2024)</title>
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[Federal Register Volume 89, Number 10 (Tuesday, January 16, 2024)]
[Notices]
[Pages 2681-2687]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00639]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99301; File No. SR-CBOE-2024-001]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
January 9, 2024.
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 January 2, 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 in connection with
certain Lead Market-Maker (``LMM'') Incentive Programs, effective
January 2, 2024. Specifically, the Exchange proposes to amend the
following: the Mini Russell 2000 Index (``MRUT'') options LMM Incentive
Program; the Nanos S&P 500 (``NANOS'') Index options LMM Incentive
Program; the Global Trading Hours (``GTH'') Cboe Volatility Index
(``VIX'') options and VIX Weekly (``VIXW'') options LMM Incentive
Programs; and the GTH Mini-SPX Index (``XSP'') LMM Incentive Programs.
Each LMM Incentive Program provides a rebate to Trading Permit
Holders (``TPHs'') with LMM appointments to the respective incentive
program that meet certain quoting standards in the applicable series in
a month. The Exchange notes that meeting or exceeding the quoting
standards (both current and as proposed; described in further detail
below) in each of the LMM Incentive Program products to receive the
applicable rebate (both currently offered and as proposed; described in
further detail below) is optional for an LMM appointed to a program.
Particularly, an LMM appointed to an incentive program is eligible to
receive the corresponding rebate if it satisfies the applicable quoting
standards, which the Exchange believes encourages appointed LMMs to
provide liquidity in the applicable class and trading session (i.e.,
Regular Trading Hours (``RTH'') or GTH). The Exchange may consider
other exceptions to the programs' quoting standards based on
demonstrated legal or regulatory requirements or other mitigating
circumstances. In calculating whether an LMM appointed to an incentive
program meets the applicable program's quoting standards each month,
the Exchange excludes from the calculation in that month the business
day in which the LMM missed meeting or exceeding the quoting standards
in the highest number of the applicable series.
MRUT LMM Incentive Program
The Exchange first proposes to amend the current MRUT LMM Incentive
Program. Currently, the program provides that if the appointed LMM in
MRUT provides continuous electronic quotes during RTH that meet or
exceed the program's heightened quoting standards \3\ in at least 97%
of the series 90% of the time in a given month, the LMM will receive a
rebate for that month in the amount of $15,000 (or pro-rated amount if
an appointment begins after the first trading day of the month or ends
prior to the last trading day of the month). In addition to the rebate,
if the appointed LMM meets or exceeds the above heightened quoting
standards in a given month, the LMM will receive the Monthly average
daily volume (``ADV'') Payment amount that corresponds to the level of
ADV provided by the LMM in MRUT for that
[[Page 2682]]
month per the program's Volume Incentive Pool.
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\3\ Located in the ``MRUT LMM Incentive Program'' table in the
Fees Schedule.
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The Exchange now proposes to amend the time qualification
requirement for the MRUT LMM Incentive Program. Specifically, the
Exchange proposes to update the time qualification requirement to
require the appointed LMM to provide continuous electronic quotes
during RTH that meet or exceed the heightened quoting standards in at
least 97% the MRUT series 88% of the time in a given month in order to
receive the rebate, thereby decreasing the time qualification
requirement by 2%.
The Exchange also proposes to update the rebate amount received for
meeting the heightened quoting standards, as proposed, in a given month
in MRUT, by decreasing the rebate amount from $15,000 to $5,000.
Additionally, the Exchange proposes to remove the MRUT Volume
Incentive Pool program from the Fees Schedule, as the Exchange no
longer wishes to offer the additional volume-based incentive program.
NANOS LMM Incentive Program
Next, the Exchange proposes to amend the current NANOS LMM
Incentive Program.\4\ Currently, the NANOS LMM Incentive Program
provides that, for NANOS, if the appointed LMM provides continuous
electronic quotes during RTH that meet or exceed the heightened quoting
standards \5\ in at least 98% of the NANOS series 90% of the time in a
given month, the LMM will receive a rebate for that month in the amount
of $17,500 (or pro-rated amount if an appointment begins after the
first trading day of the month or ends prior to the last trading day of
the month). The heightened quoting standards are based on the VIX Index
value at the prior market close, with three separate value categories
(i.e., VIX value at prior close less than 20, VIX value at prior close
from 20 to 30, and VIX value at prior close greater than 30). In
addition to the rebate, if the appointed LMM meets or exceeds the above
heightened quoting standards in a given month, the LMM will receive the
Monthly ADV Payment amount that corresponds to the level of ADV
provided by the LMM in NANOS for that month per the program's Volume
Incentive Pool.
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\4\ As part of the proposed changes, the Exchange proposes to
remove a reference to heightened quoting standards specific to March
2022, as such reference is now outdated.
\5\ Located in the ``NANOS LMM Incentive Program'' table in the
Fees Schedule.
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The Exchange proposes to restructure the NANOS LMM Incentive
Program and adopt a new set of heightened quoting standards. The VIX
Index value categories and heightened quoting standards proposed for
NANOS options are as follows in the table below:
------------------------------------------------------------------------
Premium level Width Size
------------------------------------------------------------------------
VIX Value at Prior Close <30
------------------------------------------------------------------------
$0.00-$2.00................................... $0.10 500
$2.01-$5.00................................... 0.12 500
$5.01-$15.00.................................. 0.20 250
Greater than $15.00........................... 0.31 100
------------------------------------------------------------------------
VIX Value at Prior Close from >=30
------------------------------------------------------------------------
$0.00-$2.00................................... 0.16 300
$2.01-$5.00................................... 0.17 300
$5.01-$15.00.................................. 0.31 150
Greater than $15.00........................... 0.38 100
------------------------------------------------------------------------
The Exchange also proposes to amend the series qualification
requirement for the NANOS LMM Incentive Program. Specifically, the
Exchange proposes to update the series qualification requirement to
require the appointed LMM to provide continuous electronic quotes
during RTH that meet or exceed the heightened quoting standards in at
least 97% the NANOS series 90% of the time in a given month in order to
receive the rebate, thereby decreasing the series qualification
requirement by 1%.
The Exchange proposes to update the rebate amount received for
meeting the heightened quoting standards in a given month in NANOS
options, by decreasing the rebate amount from $17,500 to $5,000.
Additionally, the Exchange proposes to remove the NANOS Volume
Incentive Pool program from the Fees Schedule, as the Exchange no
longer wishes to offer the additional volume-based incentive program.
VIX/VIXW LMM Incentive Programs
The Exchange proposes to amend its GTH VIX/VIXW LMM Incentive
Programs. Currently, the first GTH VIX/VIXW LMM Incentive Program
(``GTH1 VIX/VIXW LMM Incentive Program'') provides that if an LMM in
VIX/VIXW provides continuous electronic quotes during GTH from 7:15
p.m. CST to 2:00 a.m. CST (``GTH1'') that meet or exceed the basic
quoting standards \6\ in at least 99% of each of the VIX and VIXW
series, 90% of the time in a given month, the LMM will receive a rebate
for that month in the amount of $20,000 for VIX and $15,000 for VIXW
(or pro-rated amount if an appointment begins after the first trading
day of the month or ends prior to the last trading day of the month)
for that month. Additionally, if the appointed LMM provides continuous
electronic quotes during GTH that meet or exceed the heightened quoting
standards \7\ in at least 99% of the VIX series, 90% of the time in a
given month, the LMM will receive a rebate for that month of $0.02 per
VIX/VIXW contract executed in its Market-Maker capacity during RTH.
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\6\ Located in the ``GTH1 VIX/VIXW LMM Incentive Program'' table
in the Fees Schedule.
\7\ Id.
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The second GTH VIX/VIXW LMM Incentive Program (``GTH2 VIX/VIXW LMM
Incentive Program'') provides that if the appointed LMM provides
continuous electronic quotes during GTH from 2:00 a.m. CST to 8:15 a.m.
CST (``GTH2'') that meet or exceed the basic quoting standards \8\ in
at least 99% of each of the VIX and VIXW series, 90% of the time in a
given month, the LMM will receive a rebate for that month in the amount
of $20,000 for VIX and $15,000 for VIXW (or pro-rated amount if an
appointment begins after the first trading day of the month or ends
prior to the last trading day of the
[[Page 2683]]
month) for that month. Additionally, if the appointed LMM provides
continuous electronic quotes during GTH that meet or exceed the
heighted quoting standards \9\ in at least 99% of the VIX series, 90%
of the time in a given month, the LMM will receive a rebate for that
month of $0.02 per VIX/VIXW contract executed in its Market-Maker
capacity during RTH.
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\8\ Located in the ``GTH2 LMM Incentive Program'' table in the
Fees Schedule.
\9\ Id.
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The Exchange proposes to restructure the GTH1 and GTH2 VIX/VIXW LMM
Incentive Programs by combining the two GTH programs into a singular
GTH VIX/VIXW LMM Incentive Program, with one set of basic quoting
standards for VIX options and one set of basic quoting standards for
VIXW options. The proposed program provides that, if the appointed LMM
provides continuous electronic quotes during GTH (i.e., from 7:15 p.m.
CT to 8:15 a.m. CT the next day) that meet or exceed the basic quoting
standards \10\ in at least 95% of each of the VIX and VIXW series, 90%
of the time in a given month, the LMM will receive a rebate for that
month in the amount of $25,000 for VIX and $10,000 for VIXW (or pro-
rated amount if an appointment begins after the first trading day of
the month or ends prior to the last trading day of the month) for that
month.
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\10\ Located in the proposed ``GTH VIX/VIXW LMM Incentive
Program'' table in the Fees Schedule.
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The Exchange notes that the current basic quoting standards for the
GTH1 VIX/VIXW LMM Incentive Program (which are substantially similar to
the basic quoting standards for the GTH2 VIX/VIXW LMM Incentive
Program, the only difference being that the current GTH1 basic quoting
standards (i.e., the proposed GTH basic quoting standards) have
slightly lower size requirements in certain instances than the current
GTH2 basic quoting standards) will be the basic quoting standards for
the new combined GTH VIX/VIXW LMM Incentive Program. The new proposed
rebate amounts represent a slight increase of $5,000 for VIX options
and a slight decrease of $5,000 for VIXW options, as compared to the
current rebates in place for the GTH1 and GTH2 VIX/VIXW LMM Incentive
Programs. There are no additional heightened quoting standards with
additional rebate(s) under the proposed program.
The proposed basic quoting standards for VIX options are as follows
in the table below:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring less than 15 Near term 15 days to 60 Mid term 61 days to 180 Long term 181 days or
days days days greater
Premium level -------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <18
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... $0.35 30 $0.25 40 $0.35 30 $0.80 5
$1.01-$3.00..................................... 0.50 15 0.35 25 0.50 15 0.90 5
$3.01-$5.00..................................... 0.60 15 0.35 15 0.60 10 1.00 5
$5.01-$10.00.................................... 1.00 10 0.80 10 1.30 10 2.00 5
$10.01-$30.00................................... 2.00 5 1.50 5 2.00 5 3.00 3
Greater than $30.00............................. 5.00 3 3.00 3 5.00 3 5.00 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from 18-25
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... 0.50 15 0.35 30 0.50 15 1.00 5
$1.01-$3.00..................................... 0.50 10 0.50 20 0.70 10 1.00 5
$3.01-$5.00..................................... 0.80 5 0.50 15 0.80 5 1.30 5
$5.01-$10.00.................................... 1.50 5 1.00 5 2.00 5 2.20 5
$10.01-$30.00................................... 3.00 1 2.50 1 3.00 1 5.00 1
Greater than $30.00............................. 5.00 1 5.00 1 5.00 1 10.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from <ls-thn-eq>25
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... 0.80 10 0.50 10 0.60 10 1.20 5
$1.01-$3.00..................................... 1.00 10 0.75 10 1.00 10 1.20 5
$3.01-$5.00..................................... 1.20 5 0.90 10 1.20 5 1.80 5
$5.01-$10.00.................................... 2.00 5 1.50 5 2.50 5 3.00 3
$10.01-$30.00................................... 5.00 1 5.00 1 5.00 1 7.00 1
Greater than $30.00............................. 10.00 1 10.00 1 10.00 1 10.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
The proposed basic quoting standards for VIXW options are as
follows in the table below:
----------------------------------------------------------------------------------------------------------------
Less than 21 days to 21 days or greater to
expiration expiration
Premium level ---------------------------------------------------
Width Size Width Size
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00................................................. $1.00 10 $1.50 10
$1.01-$3.00................................................. 1.50 10 2.50 10
$3.01-$5.00................................................. 2.50 3 4.00 3
$5.01-$10.00................................................ 4.00 1 6.00 1
$10.01-$30.00............................................... 6.00 1 10.00 1
[[Page 2684]]
Greater than $30.00......................................... 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from 18-25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00................................................. 1.50 5 2.00 5
$1.01-$3.00................................................. 2.50 5 4.00 5
$3.01-$5.00................................................. 4.00 1 5.00 1
$5.01-$10.00................................................ 6.00 1 8.00 1
$10.01-$30.00............................................... 10.00 1 10.00 1
Greater than $30.00......................................... 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close from <ls-thn-eq>25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00................................................. 10.00 1 10.00 1
$1.01-$3.00................................................. 10.00 1 10.00 1
$3.01-$5.00................................................. 10.00 1 10.00 1
$5.01-$10.00................................................ 10.00 1 10.00 1
$10.01-$30.00............................................... 10.00 1 10.00 1
Greater than $30.00......................................... 10.00 1 10.00 1
----------------------------------------------------------------------------------------------------------------
GTH1 and GTH2 XSP LMM Incentive Programs
Lastly, the Exchange proposes to amend the XSP LMM Incentive
Programs. The GTH1 XSP LMM Incentive Program provides that if the
appointed LMM provides continuous electronic quotes during GTH1 that
meet or exceed the heightened quoting standards \11\ in at least 85% of
the series 90% of the time in a given month, the LMM will receive (i) a
rebate for that month in the amount of $20,000 (or pro-rated amounts if
an appointment begins after the first trading day of the month or ends
prior to the last trading day of the month) and (ii) a rebate for that
month of $0.03 per XSP contract executed in a Market-Maker capacity
which provide liquidity in the Simple Book during RTH. The GTH2 XSP LMM
Incentive Program provides that if an LMM appointed to the Program
provides continuous electronic quotes during GTH2 that meet or exceed
the heightened quoting standards \12\ (which are the same as the
heightened quoting standards in the GTH1 XSP LMM Incentive Program) in
at least 85% of the series 90% of the time in a given month, the LMM
will receive a payment for that month in the amount of $25,000 (or pro-
rated amount if an appointment begins after the first trading day of
the month or ends prior to the last trading day of the month). For each
of the XSP LMM Incentives Programs, the heightened quoting standards
are based on the VIX Index value at the prior market close, with three
separate value categories (i.e., VIX value at prior close less than 20,
VIX value at prior close from 20 to 30, and VIX value at prior close
greater than 30).
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\11\ Located in the ``GTH1 XSP LMM Incentive Program'' table in
the Fees Schedule.
\12\ Located in the ``GTH2 XSP LMM Incentive Program'' table in
the Fees Schedule.
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The Exchange proposes to restructure the GTH1 and GTH2 XSP LMM
Incentive Programs and adopt a new set of heightened quoting standards
(which will apply to both programs). The proposed VIX Index value
categories and heightened quoting standards for XSP options during each
of GTH1 and GTH2 are as follows in the table below:
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Expiring 7 days or less Near term 8 days to 60 Mid term 61 days to 270 Long term 271 to 500
-------------------------- days days days
Premium level -----------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <30
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.01-$1.00..................................... $0.10 5 $0.11 5 $0.15 5 $0.25 5
$1.01-$5.00..................................... 0.15 5 0.15 5 0.20 5 0.30 5
$5.01-$8.00..................................... 0.25 5 0.30 5 0.40 5 0.60 5
$8.01-$12.00.................................... 0.60 5 0.80 5 1.10 5 1.35 5
$12.01-$20.00................................... 1.00 5 1.30 5 1.80 5 2.20 5
Greater than $20.00............................. 2.00 5 2.40 5 2.80 5 3.60 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <ls-thn-eq>=30
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.01-$1.00..................................... 0.15 5 0.16 5 0.20 5 0.30 5
$1.01-$5.00..................................... 0.18 5 0.20 5 0.25 5 0.40 5
$5.01-$8.00..................................... 0.25 5 0.30 5 0.45 5 0.70 5
$8.01-$12.00.................................... 0.60 5 0.90 5 1.20 5 1.50 5
$12.01-$20.00................................... 1.20 5 1.50 5 2.00 5 2.40 5
Greater than $20.00............................. 2.40 5 2.80 5 3.20 5 4.00 5
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[[Page 2685]]
The Exchange also proposes to increase the rebates offered by the
GTH1 and GTH2 XSP LMM Incentive Programs to an LMM appointed to the
program for meeting the heightened quoting standards in a given month.
The Exchange proposes to decrease such rebates from $20,000 to $15,000
for the GTH1 XSP LMM Incentive Program, and from $25,000 to $15,000 for
the GTH2 XSP LMM Incentive Program. Additionally, for the GTH1 XSP LMM
Incentive Program, the Exchange proposes to eliminate the additional
credit of $0.03 per contract applied to all XSP contracts executed in a
Market-Maker capacity which provide liquidity in the Simple Book during
RTH.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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) \15\ 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,\16\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
\16\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that it is reasonable to amend the monthly
rebate amounts applicable to the MRUT, NANOS, GTH VIX/VIXW, and GTH1
and GTH2 XSP LMM Incentive Programs. The Exchange notes that LMMs
appointed to the respective programs will continue to receive a monthly
rebate. The Exchange believes that the proposed rebate amounts are
reasonably designed to continue to incentivize an LMM appointed to the
respective program to meet the applicable quoting standards for MRUT,
NANOS, VIX/VIXW, and XSP options, thereby providing liquid and active
markets, which facilitates tighter spreads, increased trading
opportunities, and overall enhanced market quality to the benefit of
all market participants.
The Exchange further believes that the proposed rule change to
amend the rebate amounts received for MRUT ($5,000), NANOS ($5,000),
VIX ($25,000), VIXW ($10,000), XSP ($15,000 for each of GTH1 and GTH2)
options is reasonable because they are comparable to the rebates
offered by other LMM Incentive Programs offered by the Exchange. For
example, the SPESG LMM Program currently offers $10,000 to appointed
LMMs for SPESG options if the heightened quoting standards are met in a
given month. The Exchange believes the amount of the rebate for each
LMM Program remains commiserate with the quoting requirements of each
of the LMM Incentive Programs, of which some standards are being
restructured, as proposed.
Similarly, the Exchange believes that the proposed rule changes to
eliminate the volume incentive pool programs for the MRUT and NANOS LMM
Incentive Programs and to eliminate the additional per contract credit
incentives for the GTH VIX/VIXW and GTH1 XSP LMM Incentive Programs are
reasonable because it is consistent with the rebate structures
currently in place for other LMM Incentive Programs, in that most do
not offer a volume incentive pool program or additional per contract
credit incentive. The Exchange notes that it is not required to
maintain the volume incentive pool or additional per contract credit
incentive, and now wishes to eliminate them from the respective
programs.
The Exchange believes it is reasonable to decrease the series
requirement for the NANOS and VIX/VIXW LMM Incentive Programs, and
decrease the time requirement for MRUT LMM Incentive Program, as such
changes are reasonably designed to slightly ease the difficulty in
meeting the heightened quoting standards offered under these programs
(for which an appointed LMM receives the respective rebates), which, in
turn, provides increased incentive for LMMs appointed to these programs
to provide significant liquidity in NANOS, VIX/VIXW, and MRUT options.
Such liquidity benefits all market participants by providing more
trading opportunities, tighter spreads, and added market transparency
and price discovery, and signals to other market participants to direct
their order flow to those markets, thereby contributing to robust
levels of liquidity.
Additionally, the Exchange believes that it is reasonable to
restructure the VIX Index value categories and amend widths and sizes
in the heightened quoting standards under the NANOS, VIX/VIXW and XSP
LMM Incentive Programs, as these proposed new quoting requirements are
overall reasonably designed to continue to encourage LMMs appointed to
the respective incentive programs to provide significant liquidity in
NANOS, VIX/VIXW and XSP options, which benefits investors overall by
providing more trading opportunities, tighter spreads, and added market
transparency and price discovery. Further, by restructuring the
programs, the Exchange believes that the proposed rule changes are
reasonably designed to reflect then-current market conditions and
market characteristics in NANOS, VIX/VIXW and XSP options where the VIX
Index may be experiencing higher volatility, and thus encourage LMMs
appointed to the programs to meet the quoting standards to receive a
rebate. Additionally, the proposed rule change is, in light of the
restructuring of VIX Index value categories, generally designed to
further align the lesser premium quote widths and size standards for
NANOS, VIX/VIXW and XSP options with the more expensive premium quote
width and size standards, in order to incentivize an increase in
quoting activity and the provision of tighter markets for all premium
levels.
The Exchange also believes the proposed change to adopt a singular
GTH VIX/VIXW LMM Incentive Program (as compared to separate GTH1 and
GTH2 VIX/VIXW LMM Incentive Programs) is reasonable. The Exchange
believes the proposed changes are reasonably designed to continue to
incentivize appointed LMMs to meet the proposed quoting standards for
VIX/VIXW, thereby providing liquid and active markets, which
facilitates tighter spreads, increased trading opportunities, and
overall enhanced market quality to the benefit of all market
participants. Additionally, the Exchange believes that the proposed
widths and sizes for the singular program are reasonable because they
remain aligned with the current heightened standards in each program.
[[Page 2686]]
The Exchange believes that the proposed changes to the LMM
Incentive Programs are equitable and not unfairly discriminatory.
Specifically, the changes to the LMM Incentive Program will apply
equally to any and all TPHs with LMM appointments to the MRUT, NANOS,
GTH VIX/VIXW, and GTH1 and GTH2 XSP LMM Incentive Programs, as
applicable, that seek to meet the programs' quoting standards in order
to receive the rebates (as proposed) offered under each respective
program. The Exchange additionally notes that, if an LMM appointed to
any of the LMM Incentive Programs does not satisfy the corresponding
heightened quoting standard for any given month, then it simply will
not receive the rebate offered by the respective program for that
month.
Regarding each of the LMM Incentive Programs generally, the
Exchange believes it is reasonable, equitable and not unfairly
discriminatory to continue to offer these financial incentives,
including as amended, to LMMs appointed to the programs, because it
benefits all market participants trading in the corresponding products
during RTH (for MRUT and NANOS) and GTH (for VIX/VIXW and XSP). These
incentive programs encourage the LMMs appointed to such programs to
satisfy the applicable quoting standards, which may increase liquidity
and provide more trading opportunities and tighter spreads. Indeed, the
Exchange notes that these LMMs serve a crucial role in providing quotes
and the opportunity for market participants to trade MRUT, NANOS, VIX/
VIXW, and XSP options, as applicable, which can lead to increased
volume, providing for robust markets. The Exchange ultimately offers
the LMM Incentive Programs, as amended, to sufficiently incentivize
LMMs appointed to each incentive program to provide key liquidity and
active markets in the corresponding program products during the
corresponding trading sessions, and believes that these incentive
programs, as amended, will continue to encourage increased quoting to
add liquidity in each of the corresponding program products, thereby
protecting investors and the public interest. The Exchange also notes
that an LMM appointed to an incentive program may undertake added costs
each month to satisfy that heightened quoting standards (e.g., having
to purchase additional logical connectivity).
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. First, the Exchange believes
the proposed rule change does impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Particularly, the proposed changes to existing LMM
Incentive Programs will apply to all LMMs appointed to the applicable
program classes (i.e., MRUT, NANOS, VIX/VIXW, and XSP) in a uniform
manner. To the extent these LMMs appointed to an incentive program
receive a benefit that other market participants do not, as stated,
these LMMs in their role as Mark-Makers on the Exchange have different
obligations and are held to different standards. For example, Market-
Makers play a crucial role in providing active and liquid markets in
their appointed products, thereby providing a robust market which
benefits all market participants. Such Market-Makers also have
obligations and regulatory requirements that other participants do not
have. The Exchange also notes that an LMM appointed to an incentive
program may undertake added costs each month to satisfy that heightened
quoting standards (e.g., having to purchase additional logical
connectivity). The Exchange also notes that the incentive programs are
designed to attract additional order flow to the Exchange, wherein
greater liquidity benefits all market participants by providing more
trading opportunities, tighter spreads, and added market transparency
and price discovery, and signals to other market participants to direct
their order flow to those markets, thereby contributing to robust
levels of liquidity. 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.'' \17\
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\17\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as the LMM
Incentive Programs apply only to transactions in products exclusively
listed on the Exchange. As noted above, the incentive programs are
designed to attract additional order flow to the Exchange, wherein
greater liquidity benefits all market participants by providing more
trading opportunities, tighter spreads, and added market transparency
and price discovery, and signals to other market participants to direct
their order flow to those markets, thereby contributing to robust
levels of liquidity. The Exchange notes that it operates in a highly
competitive market. TPHs have numerous alternative venues that they may
participate on and direct their order flow, including 16 other options
exchanges, as well as off-exchange venues, where competitive products
are available for trading. Based on publicly available information, no
single options exchange has more than 12% of the market share.\18\
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, 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.'' \19\ 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'. . . .''.\20\
Accordingly, the Exchange does not believe its proposed
[[Page 2687]]
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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\18\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (December 18, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\19\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\20\ See 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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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) of the Act \21\ and paragraph (f) of Rule 19b-4 \22\
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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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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#7b090e171e56181416161e150f083b081e18551c140d"><span class="__cf_email__" data-cfemail="0e7c7b626b236d6163636b607a7d4e7d6b6d20696178">[email protected]</span></a>. Please include
file number SR-CBOE-2024-001 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-2024-001. 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-2024-001 and should be
submitted on or before February 6, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00639 Filed 1-12-24; 8:45 am]
BILLING CODE 8011-01-P
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