Notice2024-24371
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule
Primary source
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Published
October 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 204 (Tuesday, October 22, 2024)</title>
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[Federal Register Volume 89, Number 204 (Tuesday, October 22, 2024)]
[Notices]
[Pages 84424-84430]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24371]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101367; File No. SR-CBOE-2024-044]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Fees Schedule
October 16, 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 October 1, 2024, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(``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
[[Page 84425]]
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 October
1, 2024.
XSP Fees
The Exchange first proposes to amend certain fees related to
transactions in Mini-SPX Index (``XSP'') options. Specifically, the
proposed rule changes amends and adopts certain fees for XSP in the
``Rate Table for All Products Excluding Underlying Symbol List A'', as
follows:
<bullet> Amends fee code XC, appended to all Customer (capacity
``C'') orders in XSP that are for less than 10 contracts and provides a
rebate of $0.13 per contract, to provide a rebate of $0.30 per
contract.
<bullet> Amends fee code MY, appended to all Market-Maker (capacity
``M'') in XSP contra to non-customers that remove liquidity and that
are executed electronically and assesses a fee of $0.14 per contract,
to assess a fee of $0.30 per contract.
GTH Executing Agent Subsidy Program
Next, the Exchange proposes to amend the Global Trading Hours
(``GTH'') Executing Agent Subsidy Program, set forth in the Fees
Schedule. The GTH Executing Agent Subsidy Program offers a monthly
subsidy to Trading Permit Holders (``TPHs'') with executing agent
operations \3\ during the GTH trading session. Pursuant to the current
GTH Executing Agent Subsidy Program, a designated GTH executing agent
receives the monthly subsidy amount that corresponds to the number of
contracts executed on behalf of customers (including public and broker-
dealer customers) during GTH in a calendar month per the GTH Executing
Agent Subsidy Program table, as shown in the table below. Qualifying
customer volume is limited to SPX and VIX options.
---------------------------------------------------------------------------
\3\ Under current rules, an executing agent operation is one
that accepts orders from customers (who may be public or broker-
dealer customers) and submits the orders for execution (either
directly to the Exchange or through another TPH).
------------------------------------------------------------------------
GTH Monthly customer SPX and VIX options volume Subsidy
------------------------------------------------------------------------
0-19,999 contracts........................................... $0.00
20,000-99,999 contracts...................................... 15,000
100,000+ contracts........................................... 50,000
------------------------------------------------------------------------
To become a designated GTH executing agent, a TPH must submit a
form to the Exchange no later than 3:00 p.m. on the second to last
business day of a calendar month to be designated an GTH executing
agent under the program, and thus eligible for the subsidy, beginning
the following calendar month. The current criteria states that a TPH
must include on or with the form information demonstrating it maintains
an GTH executing agent operation: (1) physically staffed throughout
each entire GTH trading session and (2) willing to accept and execute
orders on behalf of customers. The designation will be effective the
first business day of the following calendar month, subject to the
Exchange's confirmation the TPH's GTH executing agent operations
satisfies these two conditions and will remain in effect until the
Exchange receives an email from the TPH terminating its designation or
the Exchange determines the TPH's GTH executing agent operation no
longer satisfies these two conditions.
The Exchange proposes to amend the GTH Executing Agent Subsidy
Program to include Professional Customers (i.e., capacity ``U'') in the
program, so that a designated GTH executing agent receives the monthly
subsidy amount that corresponds to the number of contracts executed on
behalf of customers (including professional, public and broker-dealer
customers) during GTH in a calendar month per the GTH Executing Agent
Subsidy Program table.
The proposed changes are designed to continue to encourage
designated GTH executing agents to increase their order flow executed
as agent (on behalf of customers, including professional customers) in
SPX and VIX options that trade during GTH, to meet the volume
thresholds and receive the corresponding subsidies. The Exchange notes
that incentivizing TPHs to conduct executing agent operations willing
to accept orders from all customers, including professional customers,
during GTH is intended to increase customer accessibility to the GTH
trading session. The Exchange believes that increased order flow
through designated GTH executing agents would allow the Exchange to
grow participation during GTH, which may benefit all market
participants, as additional liquidity to the Exchange during GTH would
create more trading opportunities during GTH, and in turn attract
market participants to submit additional order flow during GTH.
Flex Surcharge Fee
The Exchange also proposes to adopt the FLEX Surcharge fee for XND
(Nasdaq 100 Micro Index Options) FLEX Options orders. Currently, the
Exchange assesses a FLEX Surcharge Fee of $0.10-per-contract credit for
DJX, MRUT, MXEA, MXEF, MXACW, MXUSA, MXWLD, NDX, NDXP and XSP FLEX
Options orders (all capacity codes) executed electronically (except for
Cboe Compression Service (``CCS'') and FLEX Micro transactions). The
FLEX Surcharge Fee is only charged up to the first 2,500 contracts per
trade ($250 per trade). The Exchange proposes to amend its Fees
Schedule, to assess the FLEX Surcharge Fee to XND. The FLEX Surcharge
Fee assists the Exchange in recouping the cost of developing and
maintaining the FLEX system.
RTH XSP LMM Incentive Program
Finally, the Exchange proposes to amend its Regular Trading Hours
(``RTH'') XSP Lead Market-Maker (``LMM'') Incentive Program (the
``Program''). By way of background, the Exchange offers several LMM
Incentive Programs which provide a rebate to 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 in each of the LMM Incentive Program
products to receive the applicable 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 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.
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
[[Page 84426]]
or exceed the basic 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 $0.09
per XSP contract that is executed in RTH in Market-Maker capacity and
adds liquidity electronically contra to non-customer capacity.
Width
--------------------------------------------------------------------------------------------------------------------------------------------------------
Moneyness * Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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.
------------------------------------------------------------------------
Size (0 to 35 days to
Moneyness expiry)
------------------------------------------------------------------------
[>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
------------------------------------------------------------------------
The Exchange proposes to restructure the Program by adopting two
sets of quoting standards for XSP options, a set of basic quoting
standards and a set of advanced quoting standards. First, the Exchange
proposes to adopt the basic quoting standards (below) under the
Program.
Width
--------------------------------------------------------------------------------------------------------------------------------------------------------
Moneyness Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <=30:
[>3% ITM)................................................. $0.40 $0.40 $0.40 $0.40 $0.75
[3% ITM to 2% ITM)........................................ 0.30 0.30 0.30 0.30 0.50
[2% ITM to 0.25% ITM)..................................... 0.12 0.12 0.15 0.20 0.30
[0.25% ITM to ATM)........................................ 0.08 0.08 0.10 0.12 0.18
[ATM to 1% OTM)........................................... 0.05 0.05 0.06 0.06 0.12
[>1% OTM]................................................. 0.03 0.04 0.05 0.05 0.08
VIX Value at Prior Close >30:
[>3% ITM)................................................. 0.50 0.50 0.50 0.80 1.00
[3% ITM to 2% ITM)........................................ 0.30 0.30 0.30 0.50 0.75
[2% ITM to 0.25% ITM)..................................... 0.20 0.20 0.20 0.25 0.50
[0.25% ITM to ATM)........................................ 0.08 0.10 0.12 0.15 0.20
[ATM to 1% OTM)........................................... 0.05 0.06 0.07 0.09 0.12
[>1% OTM]................................................. 0.04 0.05 0.05 0.06 0.10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
[>3% ITM)..................................................... 5 5 5 5 5
[3% ITM to 2% ITM)............................................ 5 5 5 10 10
[2% ITM to 0.25% ITM)......................................... 10 10 10 15 15
[0.25% ITM to ATM)............................................ 20 20 20 20 20
[ATM to 1% OTM)............................................... 20 20 20 20 20
[>1% OTM]..................................................... 20 20 20 20 20
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 84427]]
As proposed, under the Program, if an appointed LMM provides
continuous electronic quotes during RTH that meet or exceed the basic
quoting standards in at least 90% the series 90% of the time in a given
month, the LMM will receive $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, the proposed
rule change adopts a performance payment under the Program, which
provides that, in addition to the above rebate, the LMM with the
highest performance in satisfying the above basic quoting standards in
a month will receive a performance payment of $10,000 for that month.
In order to be eligible to receive the performance payment in a month,
an LMM must meet or exceed the above quoting standards in that month.
Highest performance is measured as the cumulative sum of series in
which an LMM meets or exceeds the basic quoting requirements by the
total series each day (excluding the day in which an LMM missed meeting
or exceeding the basic quoting standard in the highest number of
series).
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 add liquidity electronically contra to non-customer
capacity, currently offered to an LMM appointed to the Program which
provides continuous electronic quotes during RTH that meet or exceed
the XSP heightened quoting standards.
The Exchange proposes to amend the Program to adopt advanced
quoting standards (provided below). As proposed, if an LMM appointed to
the Program provides continuous electronic quotes during RTH that meet
or exceed the proposed advanced quoting standards (below) in at least
85% of the series 85% of the time in a given month, the LMM will
receive a payment for that month in the amount of $20,000 (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).
Width
--------------------------------------------------------------------------------------------------------------------------------------------------------
Moneyness Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <=30:
[>3% ITM)................................................. $0.30 $0.25 $0.30 $0.40 $0.75
[3% ITM to 2% ITM)........................................ 0.12 0.15 0.20 0.25 0.50
[2% ITM to 0.25% ITM)..................................... 0.10 0.10 0.15 0.16 0.25
[0.25% ITM to ATM)........................................ 0.06 0.06 0.08 0.10 0.15
[ATM to 1% OTM)........................................... 0.03 0.03 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 0.70 1.00
[3% ITM to 2% ITM)........................................ 0.20 0.25 0.25 0.30 0.75
[2% ITM to 0.25% ITM)..................................... 0.15 0.20 0.20 0.25 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring option 1 day 2 days to 5 days 6 days to 14 days 15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
[>3% ITM)..................................................... 5 5 5 5 5
[3% ITM to 2% ITM)............................................ 5 5 5 10 10
[2% ITM to 0.25% ITM)......................................... 10 10 10 15 15
[0.25% ITM to ATM)............................................ 20 20 20 20 20
[ATM to 1% OTM)............................................... 20 20 20 20 20
[>1% OTM]..................................................... 20 20 20 20 20
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange believes the proposed basic and advanced quoting
requirements for XSP options under the Program are designed to continue
to encourage LMMs appointed to the program to provide significant
liquidity in XSP options during RTH, which, in turn, would provide
greater trading opportunities, added market transparency and enhanced
price discovery for all market participants in XSP. Further, by
providing a set of advanced quoting standards that provide for tighter
width standards, the proposed rule change offers LMMs appointed to the
Program a more challenging opportunity, thus further incentive, to
strive to meet the heightened quoting standards in order to receive the
additional rebate.
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.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
[[Page 84428]]
The Exchange also believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\7\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its TPHs and other persons using its facilities.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ Id.
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed fee changes for certain
Customer and Market-Maker orders in XSP are reasonable, equitable and
not unfairly discriminatory. The Exchange believes that it is equitable
and not unfairly discriminatory to provide a rebate of $0.30 per
contract for all Customer orders in XSP that are for less than 10
contracts, as such rebate is designed to incentivize Customer volume in
XSP on the Exchange. The Exchange believes that incentivizing more
Customer orders in XSP will create more trading opportunities, which,
in turn attracts Market-Makers. A resulting increase in Market-Maker
activity facilitates tighter spreads, which may lead to additional
increase of order flow in XSP from other market participants, further
contributing to a deeper, more liquid market to the benefit of all
market participants by creating a more robust and well-balanced market
ecosystem.
Further, the Exchange believes the proposed change to the fee for
Market-Maker orders in XSP contra to non-customers that remove
liquidity and that are executed electronically is reasonable. The
proposed fee, in general, aligns with current fees for other types of
orders in XSP, namely Non-Customer, Non-Market Maker XSP orders contra
to a customer or contra to a non-customer that add liquidity and are
executed electronically (which yield fee code XF). The Exchange
believes that the changes are reasonable and that the fee, even as
amended, will continue to incentivize TPHs to send additional Market-
Maker orders to the Exchange.
The Exchange believes that the proposed fees for certain Customer
and Market-Maker orders in XSP are equitable and not unfairly
discriminatory because the proposed fees will apply automatically and
uniformly to all applicable Customer and Market-Maker orders in XSP
which yield fee codes XC and MY, respectively.
Additionally, the Exchange believes that the proposed amendment to
the GTH Executing Agent Subsidy Program, to include Professional
Customers (i.e., capacity ``U'') in the program, so that a designated
GTH executing agent may receive specified subsidy amounts that
correspond to the number of contracts executed on behalf of customers
(including professional, public and broker-dealer customers) during GTH
in a calendar month, is reasonable. The GTH Executing Agent Subsidy
Program is overall designed to encourage designated GTH executing
agents to increase their customer order flow in SPX and VIX options
traded during GTH. The Exchange believes that adding professional
customer capacity orders to the program will encourage increased order
flow, which would allow the Exchange to grow participation in the GTH
trading session to the benefit of all market participants that trade
during GTH, by providing greater trading opportunities as a result of
increased liquidity, thereby attracting additional order flow from
market participants during GTH.
The Exchange also believes that the proposed rule changes related
to the GTH Executing Agent Subsidy Program are equitable and not
unfairly discriminatory. In particular, the Exchange believes the
proposed changes are equitable and not unfairly discriminatory because
all TPHs that conduct this type of operation during GTH will continue
to have the opportunity to become a designated GTH executing agent and
to execute relevant orders on behalf of customers, including
professional customers, and thus be eligible for the monthly subsidy
commensurate with applicable customer volumes. As noted above, the
proposed changes reflect the growth of the GTH trading session and are
designed to continue to encourage designated GTH executing agents to
increase their order flow executed as agent in SPX and VIX symbols that
trade during GTH, to meet the volume thresholds and receive
corresponding subsidies. TPHs that conduct executing agent operations
provide benefits to investors during GTH, including increased customer
accessibility, including for professional customers, to the GTH trading
session and increased order flow.
The Exchange believes assessing a FLEX Surcharge Fee of $0.10 per
contract for all XND orders executed electronically on FLEX and capping
it at $250 (i.e., first 2,500 contracts per trade) is reasonable
because it is the same amount currently charged to other index products
for the same transactions.\8\ The proposed Surcharge is also equitable
and not unfairly discriminatory because the amount will be assessed to
all market participants to whom the FLEX Surcharge applies.
---------------------------------------------------------------------------
\8\ See Cboe Options Fees Schedule, Rate Table--All Products
Excluding Underlying Symbol List A, FLEX Surcharge Fee.
---------------------------------------------------------------------------
The Exchange believes the amended XSP RTH LMM Incentive Program, as
proposed, is reasonable, equitable and not unfairly discriminatory. The
Exchange believe the series and time requirement for the basic quoting
standards (which are less than current Program requirements), as well
as the basic quoting standards themselves (which are in general wider
in quote size and quote width than current Program standards), are
reasonable. As compared to the current Program, such changes are
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 these programs 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
those markets, thereby contributing to robust levels of liquidity.
The Exchange also believes the proposed rebate offered under the
Program to an LMM appointed to the program for meeting the basic
quoting standards in a given month ($15,000) remains reasonably
designed to incentivize an appointed LMM to meet the applicable quoting
standards for 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 is reasonable because it is comparable to and within the range
of the rebates offered by other LMM Incentive Programs. For example,
the GTH1 and GTH2 XSP LMM Programs each currently offer $15,000 to
appointed LMMs for XSP options if the heightened quoting standards are
met in a given month.
Further, the Exchange believes the proposed performance payment of
$10,000 provided to the LMM with the highest performance in satisfying
the relevant heightened quoting standards for the Program is reasonable
and equitable as the LMM Incentive Programs for MXEA and MXEF, MXACW,
MXUSA, and MXWLD options offers a similar performance payment. All
appointed LMMs are eligible for the performance payment, which is
designed to incentivize LMMs
[[Page 84429]]
to provide liquid and active markets in XSP options to encourage
product growth.
The Exchange also believes the elimination of the additional per
contract credit incentive is reasonable, as the Exchange is not
required to maintain the additional per contract incentive and now
wishes to eliminate it from the Program.
Additionally, the Exchange believes the proposed advanced quoting
standards are reasonable. As noted above, by providing a set of
advanced quoting standards that provide for tighter width standards,
the proposed rule change offers LMMs appointed to the Program a more
challenging opportunity, thus further incentive, to strive to meet the
heightened quoting standards in order to receive the additional rebate.
In general, the proposed Program is a reasonable financial
incentive program because the proposed heightened quoting standards and
rebate amounts for meeting the heightened quoting standards in XSP
series are reasonably designed to incentivize LMMs appointed to the
Program to meet the proposed heightened quoting standards during RTH
for XSP, 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 believes that the proposed heightened quoting
standards are reasonable because they are similar to the detail and
format of the quoting standards currently in place for LMM Incentive
Programs for other proprietary Exchange products that trade during
RTH.\9\ The Exchange also believes that proposed heightened quoting
requirements are reasonably tailored to reflect market characteristics
of XSP. For example, the Exchange believes the generally smaller widths
appropriately reflect the lower-priced and smaller notional sized XSP
product (XSP options are 1/10\th\ the size of SPX options). The
Exchange believes continuing to utilize moneyness as a quoting standard
is reasonable, given the program objectives to achieve tight liquidity
in a market where options premiums change quickly.
---------------------------------------------------------------------------
\9\ See Cboe Options Fees Schedule, ``RTH SPESG LMM Incentive
Program'', ``MRUT LMM Incentive Program'', ``MXACW LMM Incentive
Program'', ``MXUSA LMM Incentive Program'', ``MXWLD Incentive
Program'', ``NANOS LMM Incentive Program'', and ``MSCI LMM Incentive
Program.''
---------------------------------------------------------------------------
Finally, the Exchange believes it is equitable and not unfairly
discriminatory to offer the financial incentive to LMMs appointed to
the Program because it will benefit all market participants trading in
XSP during RTH by encouraging the appointed LMMs to satisfy the basic
and advanced quoting standards, which incentivizes continuous increased
liquidity and thereby may 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, which can lead to increased volume,
providing for robust markets. The Exchange ultimately proposes to offer
the Program to sufficiently incentivize the appointed LMMs to provide
key liquidity and active markets in XSP options to encourage liquidity,
thereby protecting investors and the public interest. The Exchange also
notes that an LMM appointed to the Program may undertake added costs
each month to satisfy that heightened quoting standards (e.g., having
to purchase additional logical connectivity). The Exchange believes the
Program is equitable and not unfairly discriminatory because similar
programs currently exist for LMMs appointed to programs in other
proprietary products,\10\ including for XSP during the GTH sessions,
and the Program will equally apply to any TPH that is appointed as an
LMM to the Program. Additionally, if an appointed LMM does not satisfy
the heightened quoting standard in XSP for any given month, then it
simply will not receive the offered payments or rebates for that month.
---------------------------------------------------------------------------
\10\ See Cboe Options Fees Schedule, ``MRUT LMM Incentive
Program'', ``MSCI LMM Incentive Program'', ``MXACW LMM Incentive
Program'', ``MXUSA LMM Incentive Program'', ``MXWLD Incentive
Program'', ``NANOS LMM Incentive Program'', ``GTH VIX/VIXW LMM
Incentive Program'', ``GTH1/GTH2 SPX/SPXW LMM Incentive Programs'',
``GTH1/GTH2 XSP LMM Incentive Programs'', and ``RTH SPESG LMM
Incentive Program.''
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change related to XSP fee codes will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed fees will apply automatically and uniformly to all applicable
Customer and Market-Maker orders in XSP which yield fee codes XC and
MY, respectively.
In regard to the proposed changes to the GTH Executing Agent
Subsidy Program, all TPHs that conduct executing agent operations
willing to accept orders from all customers (including professional
customers) will continue to have an opportunity to be eligible for the
GTH Executing Agent Subsidy program. Also, such TPHs that conduct this
type of operation may provide benefits to investors during GTH,
including increased customer accessibility to, and liquidity and
trading opportunities during, the GTH trading session. The proposed
changes are designed to continue to encourage designated GTH executing
agents to increase their order flow executed as agent in SPX and VIX
symbols that trade during GTH, to receive specified subsidies.
In regard to the proposed FLEX Surcharge rule changes, the Exchange
believes that the proposed rule change will not impose any burden on
intramarket competition because the proposed rule changes apply to all
market participants that trade XND FLEX Options.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
amendments to RTH XSP LMM Program will apply uniformly to any LMM
appointment to the programs. To the extent LMMs appointed to these LMM
Incentive Programs 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. An LMM appointed to an incentive program may also 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 proposed changes 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
[[Page 84430]]
individual stocks for all types of orders, large and small.'' \11\
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\11\ 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 changes will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed fees and programs apply to Exchange proprietary products,
which are traded exclusively on the Exchange. To the extent that the
proposed changes make Cboe Options a more attractive marketplace for
market participants at other exchanges, such market participants are
welcome to become Cboe Options market participants.
Additionally, 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 17 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 16% of the market share.\12\
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.'' \13\ 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'. . ..''.\14\
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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\12\ See Cboe Global Markets U.S. Options Market Volume Summary,
Month-to-Date (March 29, 2023), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\14\ 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 \15\ and paragraph (f) of Rule 19b-4 \16\
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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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
file number SR-CBOE-2024-044 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-2024-044. 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-2024-044 and should be
submitted on or before November 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-24371 Filed 10-21-24; 8:45 am]
BILLING CODE 8011-01-P
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