Notice2024-08949
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
April 26, 2024
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 89 Issue 82 (Friday, April 26, 2024)</title>
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[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32499-32503]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08949]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100010; File No. SR-CBOE-2024-019]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
April 22, 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 April 10, 2024, 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
[[Page 32500]]
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\ Specifically,
the Exchange proposes to amend the Regular Trading Hours (``RTH'') XSP
Lead Market-Makers (``LMMs'') Incentive Program (the ``Program'').
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\3\ The Exchange initially filed the proposed fee changes on
April 1, 2024 (SR-CBOE-2024-016). On April 2, 2024, the Exchange
withdrew that filing and submitted SR-CBOE-2024-018. On April 10,
2024, the Exchange withdrew that filing and submitted this proposal.
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By way of background, the Exchange offers several LMM Incentive
Programs which provide 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.\4\ The
Exchange notes that meeting or exceeding the quoting standards in each
of the LMM incentive program products to receive the applicable rebate
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., RTH or
Global Trading Hours). 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.
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\4\ See Exchange Rule 3.55(a). In advance of the LMM Incentive
Program effective date, the Exchange will send a notice to solicit
applications from interested TPHs for the LMM role and will, from
among those applications, select the program LMMs. Factors to be
considered by the Exchange in selecting LMMs include adequacy of
capital, experience in trading options, presence in the trading
crowd, adherence to Exchange rules and ability to meet the
obligations specified in Rule 5.55.
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The Exchange proposes to amend the current Program. Currently, the
Program provides that if an LMM appointed to the Program provides
continuous electronic quotes during RTH that meet or exceed the
proposed heightened quoting standards (below) in at least 95% of the
series 93% of the time in a given month, the LMM will receive (i) a
payment for that month in the amount of $40,000 (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) and (ii) a rebate of $0.27
per XSP contract that is executed in RTH in Market-Maker capacity and
adds liquidity electronically contra to non-customer capacity.
The Exchange now proposes to amend the time requirement for the
Program. Specifically, the Exchange proposes to update the time
requirement to require an appointed LMM to provide continuous
electronic quotes during RTH that meet or exceed the heightened quoting
standards in at least 95% of the XSP series 90% of the time in a given
month in order to receive the rebate, thereby decreasing the time
requirement by 3%.
Further, the Exchange proposes to amend the heightened quoting
requirements offered by the Program. The current heightened quoting
requirements are as follows in the table below:
Width
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Moneyness * Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
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VIX Value at Prior Close <=30:
[>3% ITM)............................................... $0.20 $0.25 $0.25 $0.50 $1.00
[3% ITM to 2% ITM)...................................... 0.10 0.15 0.15 0.25 0.75
[2% ITM to 0.25% ITM)................................... 0.04 0.05 0.05 0.06 0.10
[0.25% ITM to ATM)...................................... 0.02 0.03 0.04 0.05 0.08
[ATM to 1% OTM)......................................... 0.02 0.02 0.02 0.03 0.06
[>1% OTM]............................................... 0.02 0.02 0.02 0.02 0.04
VIX Value at Prior Close >30:
[>3% ITM)............................................... 0.25 0.30 0.30 0.55 1.05
[3% ITM to 2% ITM)...................................... 0.15 0.20 0.20 0.30 0.80
[2% ITM to 0.25% ITM)................................... 0.05 0.06 0.06 0.07 0.11
[0.25% ITM to ATM)...................................... 0.03 0.04 0.05 0.06 0.09
[ATM to 1% OTM)......................................... 0.03 0.03 0.03 0.04 0.07
[>1% OTM]............................................... 0.03 0.03 0.03 0.03 0.05
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* Moneyness is calculated as 1-strike/index for calls, strike/index-1 for puts. Negative numbers are Out of the Money (``OTM'') and positive values are
In the Money (``ITM''). A Moneyness value of zero for either calls or puts is considered At the Money (``ATM''). For example, if the index is at 400,
the 396 call = 1-396/400 = 0.01 = 1% ITM, whereas the 396 put = 396/400-1 = -0.01 = 1% OTM.
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Size (0 to 35 days to
Moneyness expiry)
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[>3% ITM).................................. 5
[3% ITM to 2% ITM)......................... 10
[2% ITM to 0.25% ITM)...................... 15
[0.25% ITM to ATM)......................... 20
[ATM to 1% OTM)............................ 20
[>1% OTM].................................. 20
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The Exchange proposes to restructure the Program and adopt a new
set of heightened quoting standards. The heightened quoting standards
proposed for XSP options are as follows in the table below:
[[Page 32501]]
Width
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Moneyness Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
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VIX Value at Prior Close <=30:
[>3% ITM)............................................... $0.20 $0.25 $0.30 $0.40 $0.75
[3% ITM to 2% ITM)...................................... 0.10 0.13 0.20 0.25 0.50
[2% ITM to 0.25% ITM)................................... 0.08 0.10 0.13 0.16 0.25
[0.25% ITM to ATM)...................................... 0.05 0.06 0.08 0.10 0.15
[ATM to 1% OTM)......................................... 0.03 0.04 0.05 0.06 0.10
[>1% OTM]............................................... 0.02 0.03 0.04 0.05 0.06
VIX Value at Prior Close >30:
[>3% ITM)............................................... 0.30 0.40 0.50 0.60 1.00
[3% ITM to 2% ITM)...................................... 0.15 0.20 0.25 0.30 0.75
[2% ITM to 0.25% ITM)................................... 0.12 0.15 0.19 0.23 0.40
[0.25% ITM to ATM)...................................... 0.08 0.09 0.12 0.15 0.20
[ATM to 1% OTM)......................................... 0.05 0.06 0.07 0.09 0.10
[>1% OTM]............................................... 0.03 0.04 0.05 0.06 0.07
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Size (0 to 35 days to
Moneyness expiry)
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[>3% ITM).................................. 5
[3% ITM to 2% ITM)......................... 5
[2% ITM to 0.25% ITM)...................... 10
[0.25% ITM to ATM)......................... 20
[ATM to 1% OTM)............................ 20
[>1% OTM].................................. 20
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The amended time requirement and proposed heightened quoting
standards are designed to incentivize LMMs appointed to the Program to
provide significant liquidity in XSP options during the RTH session,
which, in turn, would provide greater trading opportunities, added
market transparency and enhanced price discovery for all market
participants in XSP.
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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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) \7\ 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,\8\ 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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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes it is reasonable to decrease the time
requirement for the Program, as the change is reasonably designed to
slightly ease the difficulty in meeting the heightened quoting
standards offered under the Program (for which an appointed LMM
receives the respective rebates), which, in turn, provides increased
incentive for LMMs appointed to the program to provide significant
liquidity in XSP 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 the market, thereby
contributing to robust levels of liquidity.
Additionally, the Exchange believes that it is reasonable to amend
the Program's heightened quoting standards, as the proposed new quoting
requirements are overall reasonably designed to continue to encourage
LMMs appointed to the Program to provide significant liquidity in XSP
options, which benefits investors overall by providing more trading
opportunities, tighter spreads, and overall enhanced market quality to
the benefit of all market participants.
The Exchange believes that the proposed changes to width and quote
sizes for the Program's heightened quoting requirements eases the
heightened quoting standards in a manner that makes it easier for
appointed LMMs to achieve such requirements and will incentivize an
increase in quoting activity in XSP options. Particularly, by
increasing certain quote widths and decreasing certain quote sizes, the
Exchange believes the proposed changes will encourage appointed LMMs to
post more aggressive quotes in XSP options, in order to meet the
heightened quoting standards, as amended, and receive the rebates
offered under the incentive program, resulting in tighter spreads and
increased liquidity to the benefits of investors. The Exchange also
believes that the proposed width and quote sizes are reasonable because
they remain generally aligned with the current heightened standards in
each program, as the proposed width and quote sizes are only marginally
changed in order to incentivize an increase in quoting activity.
The Exchange believes that the proposed changes to the Program are
equitable and not unfairly discriminatory. Specifically, the changes to
the Program will apply equally to any and all TPHs with LMM
[[Page 32502]]
appointments to the Program that seek to meet the Programs' quoting
standards in order to receive the rebates offered. The Exchange
additionally notes that, if an LMM appointed to the Program does not
satisfy the corresponding heightened quoting standard for any given
month, then it simply will not receive the rebate offered by the
Program for that month.
Regarding the Program generally, the Exchange believes it is
reasonable, equitable and not unfairly discriminatory to continue to
offer financial incentives to LMMs appointed to the Program, because it
benefits all market participants trading in XSP options during RTH. The
incentive program encourages the appointed LMMs 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 XSP options, which can
lead to increased volume, providing robust markets. The Exchange
ultimately offers the Program, as amended, to sufficiently incentivize
LMMs appointed to the Program to provide key liquidity and active
markets in the XSP options during RTH and believes that the incentive
program, as amended, will continue to encourage increased quoting to
add liquidity in XSP options, 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 not 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 the Program
will apply to all appointed LMMs in a uniform manner. To the extent
LMMs appointed to the incentive program receive a benefit that other
market participants do not, as stated, these LMMs in their role as
Market-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.'' \9\
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\9\ 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 Program
applies only to transactions in a product exclusively listed on the
Exchange. As noted above, the incentive program is 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 15% of the market share.\10\
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 exchanges, 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.'' \11\ 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'. . . .''.\12\
Accordingly, the Exchange does not believe its proposed fee change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\10\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (March 26, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\11\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\12\ 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 \13\ and paragraph (f) of Rule 19b-4 \14\
thereunder. At any time within 60 days of the filing of the proposed
rule
[[Page 32503]]
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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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 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#d9abacb5bcf4bab6b4b4bcb7adaa99aabcbaf7beb6af"><span class="__cf_email__" data-cfemail="95e7e0f9f0b8f6faf8f8f0fbe1e6d5e6f0f6bbf2fae3">[email protected]</span></a>. Please include
file number SR-CBOE-2024-019 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-2024-019. 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-2024-019 and should be
submitted on or before May 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08949 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P
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