Notice2024-13542
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
June 21, 2024
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 89 Issue 120 (Friday, June 21, 2024)</title>
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[Federal Register Volume 89, Number 120 (Friday, June 21, 2024)]
[Notices]
[Pages 52124-52127]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13542]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100340; File No. SR-C2-2024-008]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
June 14, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 3, 2024, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'')
filed with the Securities and Exchange Commission (``SEC'' or
``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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
amend its Fees Schedule. The text of the proposed rule change is 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/options/regulation/rule_filings/ctwo/">http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/</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, effective June 3,
2024.
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 17 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than approximately 14% of the
market share.\3\ Thus, in such a low-concentrated and highly
competitive market, no single options exchange, including the 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 to 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.
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\3\ See Cboe Global Markets U.S. Options Market Volume Summary
by Month (May 29, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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Currently, the Exchange provides a rebate of $0.32 per contract for
C2 Market-Maker orders AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that
add liquidity and are a National Best Bid or Offer (``NBBO'') Joiner or
NBBO Setter (which orders yield fee code ``SL''). To qualify as a NBBO
Joiner, a C2 Market-Maker order must improve the C2 Best Bid or Offer
(``BBO'') and result in C2 joining an existing NBBO. Only the first
order received that results in C2 BBO joining the NBBO at a new price
level will qualify for the enhanced rebate. If C2 is at the NBBO, the
order will not qualify. Alternatively, C2 Market-Makers may receive the
enhanced rebate if they are a NBBO Setter. To qualify as a NBBO Setter
and receive the enhanced rebate, a C2 Market-Maker order must set the
NBBO. The Exchange also provides a rebate of a rebate of [sic] $0.28
per contract for C2 Market-Maker orders AMC, AMD, AMZN, HYG, PLTR,
TSLA, and XLF that add liquidity (which orders yield fee code ``SM'').
Pursuant to Footnote 1 of the Fee Schedule, the Exchange also offers
four Market-Maker Volume Tiers, which provide enhanced rebates between
$0.30 and $0.36 per contract for qualifying Market-Maker orders
yielding fee code SM where a TPH meets required criteria.
The Exchange now proposes to add Footnote 2 (Market-Maker (NBBO
Joiner or NBBO Setter) Volume Tiers), applicable to qualifying C2
Market-Maker orders yielding fee code SL, to the Fees Schedule. Under
proposed Footnote 2 of the Fees Schedule, the Exchange proposes to
offer two Market-Maker (NBBO Joiner or NBBO Setter) Volume Tiers, which
provide enhanced rebates of $0.34 and $0.36 per contract for qualifying
Market Maker orders yielding fee code SL where a TPH meets required
criteria.
The Exchange proposes to add new Market-Maker (NBBO Joiner or NBBO
Setter) Volume Tier 1 to provide a rebate of $0.34 per contract if a
TPH has an ADAV \4\ in Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV,
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF (i.e., yielding fee codes SM
or SL)
[[Page 52125]]
greater than or equal to 0.85% of Average OCV.\5\ The Exchange also
proposes to add new Market-Maker (NBBO Joiner or NBBO Setter) Volume
Tier 2 to provide a rebate of $0.36 per contract if a TPH has an ADAV
in Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN,
HYG, PLTR, TSLA, and XLF (i.e., yielding fee codes SM or SL) >= 1.05%
of Average OCV.
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\4\ ``ADAV'' means average daily added volume calculated as the
number of contracts added, per day.
\5\ ``OCV'' means, the total equity and ETF options volume that
clears in the Customer range at the Options Clearing Corporation
(``OCC'') for the month for which the fees apply, excluding volume
on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
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The proposed changes bring the enhanced rebates offered for orders
yielding fee code SL in-line with the enhanced rebates currently
offered for orders yielding fee code SM. As such, the Exchange believes
the proposed enhanced rebates for C2 Market-Makers in SPY, AAPL, QQQ,
IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that are NBBO
Joiners or Setters will continue to incentivize liquidity providers to
provide more aggressively priced liquidity in SPY, AAPL, QQQ, IWM, SLV,
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF options.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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) \8\ 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,\9\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ 15 U.S.C. 78f(b)(4).
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As described 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. Further, the Exchange notes
that other exchanges offer tiered product-specific pricing and/or
incentives.\10\ The proposed changes are intended to attract order flow
to the Exchange by continuing to offer competitive pricing while also
creating additional incentives to providing aggressively priced
displayed liquidity, which the Exchange believes would enhance market
quality to the benefit of all market participants.
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\10\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for product-specific pricing for SPY,
QQQ, and IWM; and Nasdaq ISE Pricing Schedule, Section 3, Footnote
5, which provides for tiered rebates for Market Maker SPY, QQQ, IWM
orders that add liquidity between $0.10 and $0.26 per contract, as
well as tired [sic] rebates for Market Maker orders in similar,
single-name options (AMZN, META, and NVDA) between $0.15 and $0.22.
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The Exchange believes the proposed change to adopt volume-based
rebate tiers for C2 Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV,
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that are NBBO Joiners or
Setters (which yield fee code ``SL'') is reasonable, because such
market participants are providing liquidity in SPY, AAPL, QQQ, IWM,
SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA and XLF options to the benefit of
all market participants. Increased add volume order flow, particularly
by liquidity providers, contributes to a deeper, more liquid market,
which, in turn, provides for increased execution opportunities and thus
overall enhanced price discovery and price improvement opportunities on
the Exchange. As such, this benefits all market participants by
contributing towards a robust and well-balanced market ecosystem,
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 believes its proposed change is reasonable as it is
competitive and in line with volume-based pricing of at least one other
exchange.\11\ Additionally, the Exchange believes that it is equitable
and not unfairly discriminatory to offer higher rebates to Market-
Makers that add liquidity as compared to other market participants,
because Market-Makers, unlike other market participants, take on a
number of obligations, including quoting obligations, which other
market participants do not have. Further, these rebates are intended to
incentivize Market-Makers to quote and trade more on the Exchange,
thereby providing more trading opportunities for all market
participants. The Exchange notes that the proposed changes to Market-
Maker rebates for orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN,
HYG, PLTR, TSLA and XLF that are NBBO Joiners or Setters and that add
liquidity will be applied equally to all Market-Makers.
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\11\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for rebates ranging between $0.22 and
$0.48 for all MIAX Pearl Market Maker orders in Penny Classes that
add liquidity.
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The Exchange believes that offering the NBBO Joiner and Setter
rebate for Market Maker orders in AMC, AMD, AMZN, HYG, PLTR, TSLA, and
XLF is reasonable as it is designed to continue to incentivize C2
Market Makers to improve the C2 BBO resulting in C2 joining an existing
NBBO or setting a new NBBO to receive the rebate, ultimately
encouraging C2 Market Makers to submit more aggressive AMC, AMD, AMZN,
HYG, PLTR, TSLA, and XLF orders that will maintain tight spreads,
benefitting both TPHs and public investors.
The Exchange believes the Market-Maker Volume Tiers, as amended,
continue to be a reasonable means to encourage Market-Makers to
increase their order flow to specific multiply listed options on the
Exchange (i.e., SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR,
TSLA, and XLF). The Exchange notes that increased Market-Maker
activity, particularly, facilitates tighter spreads and an increase in
overall liquidity provider activity, both of which signal additional
corresponding increase in order flow from other market participants,
contributing towards a robust, well-balanced market ecosystem,
particularly in multiply listed options on the Exchange. The Exchange
also believes that the proposed enhanced rebates offered under Tiers 1
and 2 are reasonably based on the difficulty of satisfying the tiers'
amended criteria and ensures the proposed rebate and thresholds
appropriately reflect the incremental difficulty in achieving the
Market-Maker (NBBO Joiner or NBBO Setter) Volume Tiers. The Exchange
believes that the proposed enhanced
[[Page 52126]]
rebates are also in line with the enhanced rebates currently offered by
another exchange for similar products.\12\
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\12\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction
Rebates/Fees, which provides for rebates ranging between $0.22 and
$0.48 for all MIAX Pearl Market Maker orders in Penny Classes that
add liquidity.
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The Exchange believes that the Market-Maker (NBBO Joiner or NBBO
Setter) Volume Tiers, as amended, represent an equitable allocation of
fees and is not unfairly discriminatory because it applies uniformly to
all Market-Makers, in that all Market-Makers have the opportunity to
compete for and achieve the proposed tiers. The enhanced rebates will
apply automatically and uniformly to all Market-Makers that achieve the
proposed corresponding criteria. The Exchange notes that the tiers are
open to any Market-Maker that satisfies the tiers' criteria. While the
Exchange has no way of knowing whether this proposed rule change would
definitively result in any particular Market-Maker qualifying for the
proposed tiers, the Exchange notes that currently no Market-Makers
would be able to achieve the criteria in Tiers 1 and 2.
The Exchange lastly notes that it does not believe the tiers, as
amended, will adversely impact any TPH's pricing. Rather, should a TPH
not meet the proposed criteria, the TPH will merely not receive the
enhanced rebates corresponding to the tiers, and will instead receive
the standard rebate.
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 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 change applies to all
similarly situated TPHs equally. Specifically, the proposed change to
adopt volume-based tier rebates for Market-Maker orders in SPY, AAPL,
QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA and XLF that are NBBO
Joiners or NBBO Setters and add liquidity will be applied equally to
all Market-Makers that achieve the proposed tiers' criteria. The
Exchange believes that the proposed change to provide volume-based tier
rebates for Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD,
AMZN, HYG, PLTR, TSLA, and XLF that are NBBO Joiners or NBBO Setters
and that add liquidity will incentivize entry on the Exchange of more
aggressive SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA,
and XLF orders that will maintain tighter spreads, benefitting both
TPHs and public investors criteria and, as a result, provide for deeper
levels of liquidity, increasing trading opportunities for other market
participants, thus signaling further trading activity, ultimately
incentivizing more overall order flow and improving price transparency
on the Exchange. Finally, as noted above, the proposed Market-Maker
(NBBO Joiner or NBBO Setter) Volume Tiers apply uniformly to all
Market-Makers, in that all Market-Makers have the opportunity to
compete for and achieve the tiers, as amended; the enhanced rebates, as
amended, will apply automatically and uniformly to all Market-Makers
that achieve the proposed corresponding criteria.
Next, the Exchange believes the proposed rule change does 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. TPHs
have numerous alternative venues that they may participate on and
director [sic] their order flow, including 16 other options exchanges
and off-exchange venues. Additionally, the Exchange represents a small
percentage of the overall market. Based on publicly available
information, no single options exchange has more than 14% of the market
share.\13\ 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 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.'' 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'. . . .''. 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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\13\ See supra note 3.
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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 \14\ and paragraph (f) of Rule 19b-4 \15\
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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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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#dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad"><span class="__cf_email__" data-cfemail="d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1">[email protected]</span></a>. Please include
file number SR-C2-2024-008 on the subject line.
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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-C2-2024-008. 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-C2-2024-008, and should be
submitted on or before July 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13542 Filed 6-20-24; 8:45 am]
BILLING CODE 8011-01-P
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