Notice2024-30902
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update its Fees Schedule in Connection With the Exchange's Plans To List and Trade Options That Overlie the Cboe Bitcoin U.S. ETF Index and the Cboe Mini Bitcoin U.S. ETF Index
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 30, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 249 (Monday, December 30, 2024)</title>
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[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106654-106660]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30902]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101983; File No. SR-CBOE-2024-055]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Update
its Fees Schedule in Connection With the Exchange's Plans To List and
Trade Options That Overlie the Cboe Bitcoin U.S. ETF Index and the Cboe
Mini Bitcoin U.S. ETF Index
December 19, 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 December 11, 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 update its Fees Schedule in connection with the Exchange's plans to
list and trade options that overlie the Cboe Bitcoin U.S. ETF Index and
the Cboe Mini Bitcoin U.S. ETF Index. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule in connection with
its plans to list and trade options that overlie the Cboe Bitcoin U.S.
ETF Index (``CBTX options'') and the Cboe Mini Bitcoin U.S. ETF Index
(``MBTX options'').\3\ By way of background, the Cboe Bitcoin U.S. ETF
Index is a modified market capitalization-weighted index that is
designed to track the performance of a basket of spot Bitcoin ETFs
listed on U.S. exchanges. CBTX options are cash-settled options based
on the Cboe Bitcoin U.S. ETF Index. MBTX options are cash-settled
options on the Cboe Mini Bitcoin U.S. ETF Index, which is a reduced
value index based on 1/10th the value of the Cboe Bitcoin U.S. ETF
Index.
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\3\ The Exchange initially filed the proposed fee changes on
December 2, 2024 (SR-CBOE-2024-054). On December 11, 2024, the
Exchange withdrew that filing and submitted this proposal.
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The Exchange proposes to amend its Fees Schedule to accommodate the
[[Page 106655]]
planned listing and trading of CBTX and MBTX options.
Standard Transaction Rates and Surcharges
First, the Exchange proposes to adopt certain standard transaction
fees in connection with CBTX and MBTX options. Specifically, the
proposed rule change adopts certain fees for CBTX and MBTX options in
the Rate Table for All Products Excluding Underlying Symbol A,\4\ as
follows:
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\4\ Underlying Symbol List A includes OEX, XEO, RUT, RLG, RLV,
RUI, UKXM, SPX (includes SPXW), SPESG and VIX. See Exchange Fees
Schedule, Footnote 34.
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<bullet> Adopts fee code B1, appended to all Customer (capacity
``C'') orders in CBTX options and assesses a fee of $0.50 per contract;
\5\
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\5\ Under the proposed changes, the Customer Large Trade
Discount Program, set forth in the Exchange Fees Schedule, will
apply to Customer orders in CBTX and MBTX (included in ``Other Index
Options'' under the program). Under the program, a customer large
trade discount program in the form of a cap on customer (``C''
capacity code) transaction fees is in effect for the options set
forth in the Customer Large Trade Discount table. For CBTX and MBTX
options, regular customer transaction fees will only be charged for
up to 5,000 contracts per order, similar to other index options
other than VIX, SPX/SPXW, SPESG, and XSP.
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<bullet> Adopts fee code B2, which is appended to all non-Customer
(i.e., Clearing Trading Permit Holders (capacity ``F''), Non-Clearing
Trading Permit Holder Affiliates (capacity ``L''), Market-Maker
(capacity ``M''), Broker-Dealers (capacity ``B''), Joint Back-Offices
(capacity ``J''), Non-Trading Permit Holder Market-Makers (capacity
``N''), and Professionals (capacity ``U'')) orders in CBTX options and
assesses a fee of $1.00 per contract;
<bullet> Adopts fee code M1, appended to all Customer (capacity
``C'') orders in MBTX options and assesses a fee of $0.25 per contract;
and
<bullet> Adopts fee code M2, which is appended to all non-Customer
(i.e., Clearing Trading Permit Holders (capacity ``F''), Non-Clearing
Trading Permit Holder Affiliates (capacity ``L''), Market-Maker
(capacity ``M''), Broker-Dealers (capacity ``B''), Joint Back-Offices
(capacity ``J''), Non-Trading Permit Holder Market-Makers (capacity
``N''), and Professionals (capacity ``U'')) orders in MBTX options and
assesses a fee of $0.50 per contract.
In addition to the above transaction fees, the proposed rule change
also adopts a surcharge to CBTX and MBTX options transactions within
the Rate Table--All Products Excluding Underlying Symbol List A.
Specifically, the proposed rule change adds CBTX and MBTX options to
the list of options for which the FLEX Surcharge Fee of $0.10 (capped
at $250 per trade) applies to electronic FLEX orders executed by all
capacity codes, except for Cboe Compression Services (``CCS'') and FLEX
Micro transactions.\6\
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\6\ The FLEX Surcharge Fee will only be charged up to the first
2,500 contracts per trade. See Exchange Fees Schedule, Footnote 17.
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The Exchange also proposes to exclude non-Customer complex orders
in CBTX and MBTX from the Complex Surcharge by amending Footnote 35
(appended to the Complex Surcharge) to provide that the Complex
Surcharge applies per contract per side surcharge for noncustomer
complex order executions that remove liquidity from the Complex Order
Book (``COB'') and auction responses in the Complex Order Auction
(``COA'') and AIM in all classes except CBTX, MBTX, MRUT, NANOS, XSP,
FLEX Micros, Sector Indexes and Underlying Symbol List A.
Fees Programs
The Exchange proposes to exclude CBTX and MBTX options from the
Liquidity Provider Sliding Scale, which offers credits on Market-Maker
orders where a Market-Maker achieves certain volume thresholds based on
total national Market-Maker volume in all underlying symbols, excluding
Underlying Symbol List A, MRUT, MXACW, MXUSA, MXWLD, NANOS, XSP and
FLEX Micros during the calendar month. Specifically, the proposed rule
change updates the Liquidity Provider Sliding Scale table to provide
that volume thresholds are based on total national Market-Maker volume
in all underlying symbols excluding Underlying Symbol List A, CBTX,
MBTX, MRUT, MXACW, MXUSA, MXWLD, NANOS, XSP and FLEX Micros during the
calendar month, and that it applies in all underlying symbols excluding
Underlying Symbol List A, CBTX, MBTX, MRUT, MXACW, MXUSA, MXWLD, NANOS,
XSP and FLEX Micros. The proposed rule change also updates Footnote 10
(appended to the Liquidity Provider Sliding Scale) to provide that the
Liquidity Provider Sliding Scale applies to Liquidity Provider
(Exchange Market-Maker, DPM and LMM) transaction fees in all products
except (1) Underlying Symbol List A, CBTX, MBTX, MRUT, MXACW, MXUSA,
MXWLD, NANOS, XSP and FLEX Micros, (2) volume executed in open outcry,
and (3) volume executed via AIM Responses.
The proposed rule change also updates Footnote 44 (appended to the
Liquidity Provider Sliding Scale Adjustment Table) to exclude CBTX and
MBTX volume from the program by providing (in relevant part) that the
Make Rate under the Liquidity Provider Sliding Scale Adjustment Table
be derived from a Liquidity Provider's electronic volume the previous
month in all symbols excluding Underlying Symbol List A, CBTX, MBTX,
and XSP.
The proposed rule change updates the Volume Incentive Program
(``VIP'') table to also exclude CBTX and MBTX volume from the VIP,
which currently offers a per contract credit for certain percentage
threshold levels of monthly Customer volume in all underlying symbols,
excluding Underlying Symbol List A, Sector Indexes, DJX, MRUT, MXEA,
MXEF, MXACW, MXUSA, MXWLD, NANOS, XSP and FLEX Micros. The proposed
rule change also amends Footnote 36 (appended to the VIP table) to
reflect the proposed exclusion of CBTX and MBTX from the VIP by
providing (in relevant part) that: the Exchange shall credit each TPH
the per contract amount resulting from each public customer (``C''
capacity code) order transmitted by that TPH which is executed
electronically on the Exchange in all underlying symbols excluding
Underlying Symbol List A, Sector Indexes, DJX, CBTX, MBTX, MRUT, MXEA,
MXEF, MXACW, MXUSA, MXWLD, NANOS, XSP, FLEX Micros, QCC trades, public
customer to public customer electronic complex order executions, and
executions related to contracts that are routed to one or more
exchanges in connection with the Options Order Protection and Locked/
Crossed Market Plan referenced in Rule 5.67, provided the Trading
Permit Holder (``TPH'') meets certain percentage thresholds in a month
as described in the Volume Incentive Program (VIP) table; the
percentage thresholds are calculated based on the percentage of
national customer volume in all underlying symbols excluding Underlying
Symbol List A, Sector Indexes, CBTX, MBTX, MRUT, MXACW, MXEA, MXEF,
MXUSA, MXWLD, NANOS, DJX, XSP, and FLEX Micros entered and executed
over the course of the month; and in the event of a Cboe Options System
outage or other interruption of electronic trading on Cboe Options, the
Exchange will adjust the national customer volume in all underlying
symbols excluding Underlying Symbol List A, Sector Indexes, CBTX, MBTX,
MRUT, MXACW, MXEA, MXEF, MXUSA, MXWLD, NANOS, DJX, XSP, and FLEX Micros
for the entire trading day.
The proposed rule change excludes CBTX and MBTX options from the
list of products eligible to receive Break-Up Credits in orders
executed in AIM,
[[Page 106656]]
SAM, FLEX AIM, and FLEX SAM, by amending the Break-Up Credits table to
exclude CBTX and MBTX along with the products currently excluded--
Underlying Symbol List A, Sector Indexes, DJX, MRUT, MXEA, MXEF, MXACW,
MXUSA, MXWLD, NANOS, XSP and FLEX Micros.
The Exchange proposes to exclude CBTX and MBTX options from the
Marketing Fee Program by updating the Marketing Fee table to provide
that the marketing fee will be assessed on transactions of Market-
Makers (including DPMs and LMMs), resulting from customer orders at the
per contract rate provided above on all classes of equity options,
options on ETFs, options on ETNs and index options, except that the
marketing fee shall not apply to Sector Indexes, DJX, CBTX, MBTX, MRUT,
MXEA, MXEF, MXACW, MXUSA, MXWLD, XSP, NANOS, FLEX Micros or Underlying
Symbol List A. The Exchange notes that, in this way, CBTX and MBTX
options will be treated as most of the Exchange's other exclusively
listed products that are currently excluded from the Marketing Fee
Program. The Exchange does believe that it is necessary at the point of
newly listing and trading for CBTX and MBTX options to be eligible for
the Marketing Fee Program and may determine in the future to submit a
fee filing to add CBTX and MBTX to the Marketing Fee Program if the
Exchange believes it would potentially generate more customer order
flow in CBTX and MBTX options.
The Exchange proposes to exclude CBTX and MBTX options from the
Floor Broker Sliding Scale Rebate Program, which offers rebates for
Firm Facilitated and non-Firm Facilitated orders that correspond to
certain volume tiers and is designed to incentivize order flow in
multiply listed options to the Exchange's trading floor. The Exchange
proposes to update the Floor Broker Sliding Scale Rebate Program to
provide that the Floor Broker Sliding Scale Rebate Program applies to
all products except Underlying Symbol List A, Sector Indexes, DJX,
CBTX, MBTX, MRUT, MXEA, MXEF, MXACW, MXUSA, MXWLD, NANOS, XSP and FLEX
Micros.
The Exchange next proposes to exclude CBTX and MBTX options from
eligibility for the Order Router Subsidy (``ORS'') and Complex Order
Router Subsidy (``CORS'') Programs, in which Participating TPHs or
Participating Non-Cboe TPHs may receive a payment from the Exchange for
every executed contract routed to the Exchange through their system in
certain classes. Specifically, the proposed rule change updates the
ORS/CORS Program tables to provide that ORS/CORS participants whose
total aggregate non-customer ORS and CORS volume is greater than 0.25%
of the total national volume (excluding volume in options classes
included in Underlying Symbol List A, Sector Indexes, DJX, CBTX, MBTX,
MRUT, MXEA, MXEF, MXACW, MXUSA, MXWLD, NANOS, XSP or FLEX Micros) will
receive an additional payment for all executed contracts exceeding that
threshold during a calendar month. The proposed rule change also
updates Footnote 29 (appended to the ORS Program table) to provide that
Cboe Options does not make payments under the program with respect to
executed contracts in options classes included in Underlying Symbols
List A, Sector Indexes, DJX, CBTX, MBTX, MRUT, MXEA, MXEF, MXACW,
MXUSA, MXWLD, NANOS, XSP or FLEX Micros or with respect to complex
orders or spread orders; and updates Footnote 30 (appended to the CORS
Program table) to provide that Cboe Options does not make payments
under the program with respect to executed contracts in options classes
included in Underlying Symbols List A, Sector Indexes, DJX, CBTX, MBTX,
MRUT, MXEA, MXEF, MXACW, MXUSA, MXWLD, NANOS, XSP or FLEX Micros.
The Exchange also proposes to amend Footnote 6, which states that
in the event of an Exchange System outage or other interruption of
electronic trading on the Exchange that lasts longer than 60 minutes,
the Exchange will adjust the national volume in all underlying symbols
excluding Underlying Symbol List A, Sector Indexes, MRUT, MXEA, MXEF,
MXACW, MXUSA, MXWLD, NANOS, DJX, XSP and FLEX Micros for the entire
trading day. The Exchange proposes to add CBTX and MBTX options to the
list of options.
The Exchange also proposes to exclude Firm (i.e., Clearing Trading
Permit Holders (capacity ``F'') and Non-Clearing Trading Permit Holder
Affiliates (capacity ``L'')) transactions in CBTX and MBTX from the
Clearing TPH Fee Cap. Specifically, it amends footnote 22 (appended to
the Clearing TPH Fee Cap table) to provide that all non-facilitation
business executed in AIM or open outcry, or as a QCC or FLEX
transaction, transaction fees for Clearing TPH Proprietary and/or their
Non-TPH Affiliates in all products except CBTX, MBTX, MRUT, NANOS, XSP,
FLEX Micros, Sector Indexes and Underlying Symbol List A, in the
aggregate, are capped at $65,000 per month per Clearing TPH. The
proposed rule change additionally updates Footnote 11 (which is also
appended to the Clearing TPH Fee Cap table) to provide that the
Clearing TPH Fee Cap in all products except CBTX, MBTX, MRUT, NANOS,
XSP, FLEX Micros, Underlying Symbol List A and Sector Indexes (the
``Fee Cap''), the Cboe Options Proprietary Products Sliding Scale for
Clearing TPH Proprietary Orders, and the Clearing TPH Proprietary VIX
Sliding Scale apply to (i) Clearing TPH proprietary orders (``F''
capacity code), and (ii) orders of Non-TPH Affiliates of a Clearing
TPH.
LMM Incentive Programs
Finally, the Exchange proposes to adopt financial programs in
connection with CBTX and MBTX options for LMMs appointed to the
programs (collectively, the ``LMM Incentive Programs'').\7\ Each LMM
Incentive Program provides 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 (as proposed; described in further
detail below) in each of the LMM Incentive Program products to receive
the applicable rebate (as proposed; described in further detail below)
is optional for an LMM appointed to a program. Rather, 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 the LMM to provide liquidity in the applicable
class and trading session. 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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\7\ 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 notes that it currently offers several LMM Incentive
Programs for other proprietary Exchange products. The proposed
heightened quoting standards are similar to the detail and
[[Page 106657]]
format (corresponding premiums, quote widths, and sizes) of the quoting
standards currently in place for LMM Incentive Programs for other
proprietary Exchange products,\8\ and, similar to the LMM Incentive
Programs with respect to other propriety [sic] Exchange products, the
heightened quoting requirements offered by each of the proposed LMM
Incentive Programs are designed to incentivize LMMs appointed to the
LMM Incentive Programs to provide liquidity in CBTX and MBTX options
during the trading day upon their listing and trading on the Exchange
and thereafter, which, in turn, would provide greater trading
opportunities, added market transparency and enhanced price discovery
for all market participants in CBTX and MBTX options.
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\8\ See Exchange Fees Schedule, ``MRUT LMM Incentive Program'',
``MSCI LMM Incentive Program'', ``MXACW LMM Incentive Program'',
``MXUSA LMM Incentive Program'', ``MXWLD LMM Incentive Program'',
``NANOS LMM Incentive Program'', ``GTH VIX/VIXW LMM Incentive
Program'', ``GTH1 SPX/SPXW LMM Incentive Program'', ``GTH2 SPX/SPXW
LMM Incentive Program'', ``RTH XSP LMM Incentive Program'', ``GTH1
XSP LMM Incentive Program'', ``GTH2 XSP LMM Incentive Program'', and
``RTH SPESG LMM Incentive Program''.
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The Exchange first proposes to adopt a MBTX/MBTXW LMM Incentive
Program (``MBTX LMM Incentive Program''). As proposed, the MBTX LMM
Incentive Program provides that if an LMM appointed to the MBTX LMM
Incentive Program provides continuous electronic quotes during Regular
Trading Hours (``RTH'') that meet or exceed the proposed heightened
quoting standards (below) in at least 85% of MBTX series 85% of the
time in a given month, the LMM will receive (i) a payment for that
month in the amount of $10,000 (or pro-rated amount if an appointment
begins after the first trading day of the month or ends prior to the
last trading day of the month) for that month and (ii) a credit of
$0.25/contract applied to all MBTX contracts executed in Market-Maker
capacity during RTH.
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6 days or less 7 days to 14 days 15 days to 60 days 61 to 120 days 121 to 270 days
-------------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size Width Size
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$0.00-$5.00............................... $0.15 20 $0.20 15 $0.25 10 $0.30 5 $0.80 5
$5.01-$15.00.............................. 0.50 20 0.35 15 0.40 10 0.50 5 1.00 5
$15.01-$20.00............................. 1.00 5 1.50 5 0.50 10 0.50 5 2.00 3
$20.01-$50.00............................. 1.20 5 3.00 5 4.00 5 1.00 5 5.00 3
$50.01-$100.00............................ 5.00 1 8.00 1 8.00 1 8.00 1 8.00 3
$100.01-$200.00........................... 8.00 1 10.00 1 12.00 1 12.00 1 14.00 1
Greater than $200.00...................... 10.00 1 12.00 1 14.00 1 14.00 1 16.00 1
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The Exchange next proposes to adopt a CBTX/CBTXW LMM Incentive
Program (``CBTX LMM Incentive Program''). As proposed, the CBTX LMM
Incentive Program provides that if an LMM appointed to the CBTX LMM
Incentive Program provides continuous electronic quotes during RTH that
meet or exceed the proposed heightened quoting standards (below) in at
least 85% of CBTX series 85% of the time in a given month, the LMM will
receive (i) a payment for that month in the amount of $10,000 (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 credit of $0.50/contract applied to all CBTX contracts executed in
Market-Maker capacity during RTH.
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6 days or less 7 days to 14 days 15 days to 60 days 61 to 120 days 121 to 270 days
-------------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$5.00............................... $0.40 10 $0.60 10 $1.00 10 $1.00 5 $2.00 5
$5.01-$15.00.............................. 0.80 10 1.50 10 1.50 10 1.50 5 3.00 5
$15.01-$20.00............................. 2.00 5 3.00 5 3.50 5 3.50 5 5.00 5
$20.01-$50.00............................. 4.00 5 5.00 5 5.00 5 5.00 5 8.00 3
$50.01-$100.00............................ 6.00 5 8.00 5 8.00 5 8.00 5 12.00 3
$100.01-$200.00........................... 12.00 1 12.00 1 12.00 1 12.00 3 12.00 1
Greater than $200.00...................... 16.00 1 16.00 1 16.00 1 16.00 1 18.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
The heightened quoting requirements offered by the CBTX and MBTX
LMM Incentive Programs are designed to incentivize LMMs appointed to
the LMM Incentive Programs to provide significant liquidity in CBTX and
MBTX options during the trading day upon their listing and trading on
the Exchange, which, in turn, would provide greater trading
opportunities, added market transparency and enhanced price discovery
for all market participants in CBTX and MBTX 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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ 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.
[[Page 106658]]
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \11\ 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,\12\
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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
\12\ 15 U.S.C. 78f(b)(4).
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Standard Transaction Rates and Surcharges
The Exchange believes that the proposed amendments to the Fees
Schedule in connection with standard transaction rates and surcharges
for CBTX and MBTX options transactions are reasonable, equitable and
not unfairly discriminatory. The Exchange believes that the proposed
standard transaction rates for Customer and non-Customer orders in CBTX
and MBTX options are reasonable. Specifically, the proposed fees are in
line with or less than fees for transactions in similar industry
products,\13\ when taking into account adjustments for notional size
differences, based on the spot value of the underlying index of CBTX
and MBTX options as compared to the spot value of other similar
industry products and considering the difference in multipliers among
the various products.
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\13\ See CME Fees Schedule, Bitcoin Futures & Options, Micro
Bitcoin Futures & Options.
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Additionally, the Exchange believes it is reasonable to charge
different fee amounts to different user types in the manner proposed
because the proposed fees are consistent with the price differentiation
that exists today for other index products. Moreover, the Exchange
believes that it is reasonable to assess lower fees for MBTX options
orders (as compared to CBTX options orders), because of the relation
between MBTX options and CBTX options, wherein MBTX options overlie an
index with 1/10th the value of the index that underlies CBTX options.
The Exchange believes it is reasonable to apply the FLEX Surcharge
Fee to CBTX and MBTX options, as the FLEX Surcharge Fee assists the
Exchange in recouping the cost of developing and maintaining the FLEX
system. Moreover, the Exchange believes it is reasonable to exclude
CBTX and MBTX options from the Complex Surcharge because the proposed
surcharge exclusions will provide consistency between the fees assessed
for orders in other proprietary products, including MRUT, NANOS, XSP,
FLEX Micros, Sector Indexes and Underlying Symbol List A.
The Exchange believes the proposed standard transaction rates and
exclusion from certain surcharges are equitable and not unfairly
discriminatory because they will apply automatically and uniformly to
all capacities as applicable (i.e., Customer and non-Customer), in CBTX
and MBTX options. The Exchange also believes that it is equitable and
not unfairly discriminatory to assess lower fees to Customers as
compared to other market participants because Customer order flow
enhances liquidity on the Exchange for the benefit of all market
participants. Specifically, Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market-Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The fees offered to Customers are intended to attract more Customer
trading volume to the Exchange. Moreover, the options industry has a
long history of providing preferential pricing to Customers, and the
Exchange's current Fees Schedule currently does so in many places, as
do the fees structures of many other exchanges. Finally, all fee
amounts listed as applying to Customers will be applied equally to all
Customers (meaning that all Customers will be assessed the same
amount).
Fees Programs
The Exchange believes that the proposed updates to the Fees
Schedule in connection with the application of certain fees programs to
transactions in CBTX and MBTX options are reasonable, equitable and not
unfairly discriminatory. The Exchange believes it is reasonable to
exclude CBTX and MBTX options from the Liquidity Provider Sliding
Scale, the VIP, Break-Up Credits applicable to Customer Agency Orders
in AIM and SAM, the Marketing Fee, the Floor Broker Sliding Scale
Rebate Program, and the ORS/CORS program because other proprietary
index products are also excepted from these programs.\14\ Moreover, the
Exchange notes that the proposed rule change does not alter any of the
existing programs, but instead, merely proposes not to include
transactions in CBTX and MBTX options in those programs.
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\14\ See Exchange Fees Schedule, Liquidity Provider Sliding
Scale, Volume Incentive Program, Break-Up Credits, Marketing Fee,
Floor Broker Sliding Scale Rebate Program, Order Router Subsidy
Program and Complex Order Router Subsidy Program.
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The Exchange believes that excluding CBTX and MBTX options
transactions from certain fees programs is equitable and not unfairly
discriminatory because the programs will equally not apply to, or
exclude in the same manner, all market participants' orders in CBTX and
MBTX options. The Exchange notes that the proposed rule change does not
alter any of the existing program rates or volume calculations, but
instead, merely proposes to include (or not to) include transactions in
CBTX and MBTX options in those programs and volume calculations in the
same way that transactions in proprietary index products are (or are
not) currently included.
LMM Incentive Programs
The Exchange believes the proposed LMM Incentive Programs are
reasonable, equitable and not unfairly discriminatory. Particularly,
the proposed CBTX and MBTX LMM Incentive Programs are reasonable
financial incentive programs because the proposed heightened quoting
standards and rebate amount for meeting the heightened quoting
standards in each CBTX and MBTX series, as applicable, are reasonably
designed to incentivize LMMs appointed to the Programs to meet the
proposed heightened quoting standards during RTH for CBTX and MBTX, as
applicable, 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, particularly in newly listed and traded products on the
Exchange during the trading day.
The Exchange believes that the proposed heightened quoting
standards are reasonable because they are similar to the detail and
format (corresponding premiums, quote widths, and sizes) of the quoting
standards currently in place for LMM Incentive Programs for other
proprietary Exchange products.\15\ The Exchange believes the proposed
[[Page 106659]]
heightened quoting standards for the CBTX and MBTX LMM Incentive
Programs reasonably reflect what the Exchange believes will be typical
market characteristics in CBTX and MBTX options, given their relative
spot value, notional value and general anticipated retail base.
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\15\ See Exchange Fees Schedule, ``MRUT LMM Incentive Program'',
``MSCI LMM Incentive Program'', ``MXACW LMM Incentive Program'',
``MXUSA LMM Incentive Program'', ``MXWLD LMM Incentive Program'',
``NANOS LMM Incentive Program'', ``GTH VIX/VIXW LMM Incentive
Program'', ``GTH1 SPX/SPXW LMM Incentive Program'', ``GTH2 SPX/SPXW
LMM Incentive Program'', ``RTH XSP LMM Incentive Program'', ``GTH1
XSP LMM Incentive Program'', ``GTH2 XSP LMM Incentive Program'', and
``RTH SPESG LMM Incentive Program''.
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Further, the Exchange believes the proposed percentage of the
series (85% of each series) in which an LMM must meet the proposed
heightened quoting requirements is reasonable given the new market
ecosystem for CBTX and MBTX options. Because the CBTX/MBTX market is
still new and not yet as robust as that of other products, such as SPX/
SPXW, it may pose more difficulty for LMMs in CBTX and MBTX options to
offset risk and hedge, thus more difficulty in achieving the heightened
quoting requirement. Therefore, the Exchange believes the proposed
percentage of the series is reasonably commensurate with the
potentially higher risk, and challenge in achieving the heightened
quoting requirements, LMMs would have to take on in the new CBTX/MBTX
market. The Exchange notes that the percentage of the series in place
under the LMM Programs for MXACW and MXUSA options (90% of series and
85% of series, respectively), which are comparable in terms of
potentially higher risk and challenge in achieving heightened quoting
requirements, are tailored in a similar manner.
The Exchange further believes that the proposed rebate amounts
received for CBTX ($10,000) and MBTX ($10,000) options are reasonable
because they are comparable to the rebates offered by other LMM
Incentive Programs offered by the Exchange. For example, the LMM
Programs for MXACW and MXUSA options, which are comparable in terms of
potentially higher risk and challenge in achieving heightened quoting
requirements, each currently offer $10,000 per class, per month to
appointed LMMs for MXACW and MXUSA options if the heightened quoting
standards are met in a given month. The Exchange believes that the
proposed rebate amounts are reasonably designed to continue to
incentivize an LMM appointed to the respective program to meet the
applicable quoting standards for CBTX and MBTX 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.
Similarly, the Exchange believes that the additional per contract
credits for Market-Maker CBTX and MBTX options orders executed in RTH
offered by the LMM Incentive Programs are reasonable and equitable as
LMM Incentive Programs for other products have, in the past, offered
similar additional per contract credits.\16\ All appointed LMMs are
eligible for the additional per contract credits, which is designed to
incentivize LMMs in these newly listed products to provide liquid and
active markets in these products to encourage their growth.
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\16\ See, for example, Securities Exchange Act Release No. 96510
(December 15, 2022), 87 FR 78150 (December 21, 2022) (SR-CBOE-2022-
061), wherein the Exchange adopted an additional per contract credit
for Market-Maker XSP orders executed in RTH, as part of its GTH1 XSP
LMM Incentive Program.
---------------------------------------------------------------------------
Finally, the Exchange believes it is equitable and not unfairly
discriminatory to offer the financial incentive to LMMs appointed to
the LMM Incentive Programs, because it will benefit all market
participants trading in CBTX and MBTX during RTH by encouraging the
appointed LMMs to satisfy the heightened 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 CBTX and MBTX, which can
lead to increased volume, providing for robust markets. The Exchange
ultimately proposes to offer the CBTX and MBTX LMM Incentive Programs
to sufficiently incentivize the appointed LMMs to provide key liquidity
and active markets in the newly listed and traded CBTX and MBTX options
during the trading day to encourage liquidity, thereby protecting
investors and the public interest. The Exchange also notes that an LMM
appointed to the LMM Incentive Programs may undertake added costs each
month to satisfy heightened quoting standards (e.g., having to purchase
additional logical connectivity). The Exchange believes the proposed
programs are equitable and not unfairly discriminatory because similar
programs currently exist for LMMs appointed to programs in other
proprietary products,\17\ and the proposed programs will equally apply
to any TPH that is appointed as an LMM to the each of the LMM Incentive
Programs, as applicable. Additionally, if an appointed LMM does not
satisfy the heightened quoting standards in CBTX and MBTX (as
applicable) for any given month, then it simply will not receive the
offered payment for that month.
---------------------------------------------------------------------------
\17\ Id.
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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 will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed CBTX and
MBTX transaction fees for the separate types of market participants
will be assessed automatically and uniformly to all such market
participants, i.e., all qualifying Customer orders in CBTX and MBTX
options will be assessed the same amount and all qualifying non-
Customer orders in CBTX and MBTX will be assessed the same amount. As
discussed above, while different fees are assessed to different market
participants in some circumstances, these different market participants
have different obligations and different circumstances as discussed
above. For example, preferential pricing to Customers is a long-
standing options industry practice which serves to enhance Customer
order flow, thereby attracting Market-Makers to facilitate tighter
spreads and trading opportunities to the benefit of all market
participants. Additionally, the proposed surcharge will be assessed
uniformly to all market participants to whom the FLEX Surcharge
applies.
Further, the proposed rule change will uniformly exclude all
transactions in CBTX and MBTX options from certain programs and
surcharge (i.e., Liquidity Provider Sliding Scale, the VIP, Break-Up
Credits applicable to Customer Agency Orders in AIM and SAM, the
Marketing Fee, the Floor Broker Sliding Scale Rebate Program, the ORS/
CORS program, and the Complex Surcharge), as it currently does for many
of the Exchange's other proprietary products. Overall, the proposed
rule change is designed to increase incentive for customer order flow
providers to submit customer order flow in a newly listed and traded
product, which, as indicated above, contributes to a more robust market
ecosystem to the benefit of all market participants.
The Exchange also does not believe that the proposed LMM Incentive
Programs for CBTX and MBTX options would impose any burden on
intramarket competition because it applies to all LMMs appointed to
each of the LMM Incentive Programs in a
[[Page 106660]]
uniform manner, in the same way similar programs apply to appointed
LMMs in other proprietary products today. To the extent appointed LMMs
receive a benefit that other market participants do not, 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, especially in the newly developing CBTX and MBTX market,
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 heightened quoting standards (e.g., having
to purchase additional logical connectivity). The Exchange also notes
that the LMM Incentive Programs, like the other LMM Incentive Programs,
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 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 because the
proposed rule changes apply only to products exclusively listed on the
Exchange.
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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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#384a4d545d155b5755555d564c4b784b5d5b165f574e"><span class="__cf_email__" data-cfemail="3143445d541c525e5c5c545f4542714254521f565e47">[email protected]</span></a>. Please include
file number SR-CBOE-2024-055 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-2024-055. 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-2024-055 and should be
submitted on or before January 21, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-30902 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P
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