Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule for XSP Fees and PAR Official Fees, 33290-33293 [2019-14815]

Download as PDF 33290 Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86329; File No. SR–CBOE– 2019–032] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule for XSP Fees and PAR Official Fees July 8, 2019. 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 July 1, 2019, 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. 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 (https://www.cboe.com/About CBOE/CBOELegalRegulatoryHome .aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. jbell on DSK3GLQ082PROD with NOTICES 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. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 16:55 Jul 11, 2019 Jkt 247001 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 to (i) adopt a fee for Customer Mini-SPX Index (‘‘XSP’’) options (an Exchange proprietary product) transactions, (ii) amend the Customer Large Trade Discount for XSP orders, (iii) eliminate a sliding scale transaction fee for Market Maker XSP options transactions and propose a flatrate transaction, and (iv) eliminate Par Official fees, effective July 1, 2019. First, the Exchange proposes to adopt a fee for Customer (origin code ‘‘C’’) transactions in XSP (a proprietary product). The Exchange currently does not assess any fee (or provide any rebate) for Customer orders in XSP. The Exchange now proposes to adopt a fee of $0.04 per contract for Customer orders in XSP. The Exchange notes that it currently assesses Customer transaction fees associated with other index products, and the proposed transaction fee for XSP is lower than that of Customer fees associated with such other index products. For example, the Exchange assesses a Customer transaction fee of $0.18 for orders in most all other index products (including other proprietary index products), as well as a transaction fee of $0.25 for certain MSCI index options.3 The Exchange also proposes to amend the Customer Large Trade Discount program with respect to XSP customer transactions. The Customer Large Trade Discount program (the ‘‘Discount’’) provides a discount in the form of a cap on the quantity of customer (‘‘C’’ origin code’’) contracts that are assessed transactions fees in certain options classes. The Discount table in the Fees Schedule sets forth the quantity of contracts necessary for a large customer trade to qualify for the Discount, which varies by product. Different caps are set for (i) VIX, (ii) SPX (including SPXW), (iii) ETF and ETN Options and (iv) ‘‘Other Index Options’’, which currently includes XSP. More specifically, Customer transaction fees for index products (including XSP) are currently only charged up to the first 5,000 contracts. The Exchange proposes to raise the quantity of XSP contracts necessary for a large customer trade to qualify for the Discount from 5,000 contracts per order to 20,000 contracts 3 Excluding products listed in Underlying Symbol List A. See Cboe Options Fee Schedule, ‘‘Index Options Rate Table—All Index Products Excluding Underlying Symbol List A and Sector Indexes.’’ PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 per order. The purpose of the proposed rule change is to moderate the discount level for Customer (C) orders in XSP in light of the increased sizes of qualifying Discount XSP orders. The Exchange believes that notwithstanding the proposed change, the large trade discount for Customer orders in XSP options will continue to incentivize the sending of large customer orders in XSP, providing an increase in trading opportunities which attracts MarketMakers. As a result, an increase in Market-Maker activity facilitates tighter spreads, which may lead to additional increase of order flow from other market participants. Next, the Exchange proposes to eliminate the sliding-scale transaction fees for Market-Maker (origin code ‘‘M’’) transactions in XSP options, which currently range from $0.03 to $0.23 per contract, contingent on the volume threshold (per tier level) reached. The criterion for tier levels is comprised of the percentage of a Market-Maker’s volume transacted in XSP options during the calendar month. In lieu of assessing such transactions on a slidingscale, the Exchange now proposes to assess a flat-rate fee of $0.23 per contract for Market-Maker orders in XSP. Particularly, the Exchange notes that there are currently fewer than five Market-Makers in XSP options to which the fees under the current sliding-scale structure apply. The Exchange notes that, on average in recent months, the percentage of volume in XSP options among these Market-Makers has hovered around the two lowest volume thresholds (which assess a transaction fee of $0.23 per contract or $0.17 per contract). Therefore, the Exchange has determined that the proposed change to exclude XSP options from the slidingscale transaction fees and to asses a flat fee of $0.23 per contract in XSP options for Market-Makers better reflects the current volume trends in this options class, and will allow for the Exchange to capture revenue from potential spikes in volume that would occur outside of the current trend. In addition, the Exchange notes that various other index products, including proprietary products like that of XSP options, are also excluded from the sliding-scale [sic] scale transaction fee table and assessed a flat-rate fee that is commensurate with the proposed flatrate fee for Market-Maker transactions in XSP.4 For example, the Exchange assesses a flat-rate fee of $0.23 per contract for Market-Maker transactions 4 See Cboe Options Fee Schedule, ‘‘Specified Proprietary Index Options Rate Table—Underlying Symbol List A and Sector Indexes.’’ E:\FR\FM\12JYN1.SGM 12JYN1 Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES in Cboe Volatility Index (‘‘VIX’’) options (a proprietary product) and $0.30 per contract for transactions in Russell 2000 Index (‘‘RUT’’) options. Finally, the Exchange proposes to eliminate its PAR Official Fees. Currently, the Exchange assesses fees for transactions executed through PAR Official in VIX and Volatility Index options, ranging from $0.03 to $0.12 per order executed, and for transactions executed through PAR Official in all other options classes, ranging from $0.02 to $0.04. The fees assessed per contract executed are currently contingent on the tier level reached, for which the criteria for each level is the percentage of monthly volume executed through PAR Official in either VIX or Volatility Index options or in all other options classes. PAR Officials are Exchange employees or independent contractors whom the Exchange may designate as being responsible for operating a PAR workstation and effecting proper executions placed with them. The Exchange notes that in 2011 it implemented PAR Official fees in order to help offset the Exchange’s costs of providing PAR Official services (e.g., salaries, etc.).5 Today, PAR Officials no longer maintain many of their responsibilities as they did when the Exchange implemented PAR Official fees; among other things, PAR Officials no longer maintain the book with respect to assigned classes, as the electronic book manages electronic orders and quotes, no longer have responsibilities with respect to routed orders under the current linkage plan,6 and (with the migration of Cboe Options trading platform to that of the technology of its affiliated exchanges, Cboe C2 Exchange, Inc. (‘‘C2’’), Cboe EDGX Exchange, Inc. (‘‘EDGX Options’’), and Cboe BZX Exchange, Inc. (‘‘BZX Options’’), in the fourth quarter of 2019) order routed through PAR will no longer be automatically routed for manual handling by a PAR Official. As a result, the Exchange has determined that PAR Official fees are no longer necessary to assist the Exchange in offsetting its costs of providing PAR 5 See Securities Exchange Act Release No. 67301 (January 11, 2011), 76 FR 2934 (January 18, 2011) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Exchange Fees for Fiscal Year 2011) (SR–CBOE–2010–116); and Securities Exchange Act Release No. 64834 (July 7, 2011), 76 FR 41839 (July 15, 2011) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to PAR Official Fees in Volatility Index Options) (SR–CBOE–2011–057). 6 See Cboe Options Rules, Chapter VI, Section E which describes Exchange responsibilities pursuant to the current linkage plan, the Options Order Protection and Locked/Crossed Market Plan. VerDate Sep<11>2014 16:55 Jul 11, 2019 Jkt 247001 Official services, and now proposes to eliminate its PAR Official fees. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6 of the Act,7 in general, and furthers the requirements of Section 6(b)(4),8 in particular, as it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. The Exchange believes that its proposed fee for Customer transactions in XSP is consistent with Section 6(b)(4) of the Act in that the proposal is reasonable, equitable and not unfairly discriminatory. The Exchange believes that it is reasonable and equitable to assess fees for Customer transactions in XSP because the Exchange currently assesses fees for Customer transactions in other index products, including other proprietary products. In addition to this, the Exchange notes that the proposed XSP Customer transaction fee is less than Customer transaction fees for other index products. To reiterate the example above, assessment of Customer transaction fees in most other index products (including other proprietary products like that of XSP) is $0.18 per contract, as well as $0.25 per contract for certain MSCI index options.9 The Exchange believes that raising the Customer Large Trade Discount threshold for XSP is reasonable because customers will still be receiving a discount for large trades that they would not otherwise receive. The Exchange believes that notwithstanding the proposed increase, the Customer Large Trade Discount will continue to incentivize larger Customer XSP executions. As stated, Customer order flow enhances liquidity on the Exchange for the benefit of all market participants by providing more trading opportunities, which attracts MarketMakers. An increase in the activity of these market participants in turn facilitates tighter spreads, which potentially increases order flow from other market participants. This change is equitable and not unfairly discriminatory because all customers whose large trades qualify for the Discount will still receive it. Moreover, the Exchange notes that while the proposed Customer fee assessed is lower as compared to other U.S.C. 78f. U.S.C. 78f(b)(4). 9 See Cboe Options Fee Schedule, ‘‘Index Options Rate Table—All Index Products Excluding Underlying Symbol List A and Sector Indexes.’’ PO 00000 7 15 8 15 Frm 00074 Fmt 4703 Sfmt 4703 33291 market participants 10 and the large trade discount in XSP is Customer specific, the Exchange believes that the proposed fee and discount is equitable and not unfairly discriminatory because, as described above, Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Moreover, the options industry has a long history of providing preferential pricing to Customers, and the Exchange’s current Fee Schedule currently does so in many places, as do the fees structures of multiple other exchanges.11 The Exchange notes that all fee amounts applicable to Customers will be applied equally to all Customers, i.e., all Customers will be assessed the same amount. Furthermore, the Exchange believes that the proposed elimination of the sliding-scale fee structure for MarketMaker transactions in XSP and, instead, the assessment of the flat-rate fee of $0.23 per contract for Market-Maker transactions in XSP options, is consistent with Section 6(b)(4) of the Act in that the proposal is reasonable, equitable and not unfairly discriminatory. The Exchange believes that the proposed fee change in connection with Market-Maker transactions in XSP is reasonable and equitable because it better reflects the current trend in Market-Maker volume in XSP. As stated, in recent months, the average percentage of volume per Market-Maker in XSP options has hovered around the lowest two volume threshold tiers (which assess a transaction fee of $0.23 per contract or $0.17 per contract). Therefore, the Exchange believes that the change from assessing a sliding-scale fee to a flat-rate fee of $0.23 is reasonably related to the overall levels and patterns of MarketMaker market activity. Moreover, because Market-Maker volume on average has remained within bottom two tiers, the proposed flat-fee will not significantly impact or alter the current cost for executions in XSP that MarketMakers incur today. Additionally, the Exchange notes that various other index products, including other proprietary products like that of XSP options, are also excluded from the sliding-scale scale transaction fee table and assessed a flat-rate fee that is commensurate with 10 See supra note 9. Firms are assessed a transaction fee between $0.20 and $0.70, depending on the transaction type, and Market-Makers, as proposed, are assessed a transaction fee of $0.23. 11 See MIAX Options Fee Schedule, Transaction Fees, SPIKES, which gives preferential Customer treatment for transaction in MIAX Option’s proprietary product, SPIKES. E:\FR\FM\12JYN1.SGM 12JYN1 33292 Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES the proposed flat-rate fee assessed for Market-Maker transactions in XSP.12 The Exchange also believes the proposed flat-fee for Market-Maker transactions in XSP is equitable and not unfairly discriminatory because they will apply equally to all Market-Maker transactions in XSP, i.e., all MarketMakers will be assessed the same amount. Though Market-Maker transactions in XSP will be assessed a lower fee than other market participants,13 the Exchange believes that the proposed fee is equitable and not unfairly discriminatory because Market-Makers, unlike other market participants, take on a number of obligations, including quoting obligations that other market participants do not have. Further, Market-Makers have added market making and regulatory requirements, which normally do not apply to other market participants. For example, Market-Makers have obligations to maintain continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and to not make bids or offers or enter into transactions that are inconsistent with a course of dealing. Finally, the Exchange believes that the proposed fee schedule change to remove PAR Official fees from the fee schedule is equitable and reasonable because, today, PAR Officials no longer maintain many of their responsibilities as they did when the Exchange implemented PAR Official fees in order to help offset the Exchange’s costs of providing PAR Official services (e.g., salaries, etc.).14 As a result, the Exchange has determined that PAR Official fees are no longer necessary to assist the Exchange in offsetting its costs of providing PAR Official services. In addition to this, the Exchange believes that removing PAR Official fees from the fee schedule is equitable and not unfairly discriminatory because all orders routed through a PAR Official will no longer be assessed a PAR Official fee. 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. Specifically, the Exchange does not believe that the proposed change will impose any burden on intramarket competitions that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed fee assessed for Customers (as well as the proposed change to the Customer Large Trade Discount) and Market-Makers in XSP will be assessed equally to all such participants, respectively. As described above, while different fees are assessed to different market participants in some circumstances, these different market participants have different obligations and different circumstances. For example, Market Makers have quoting obligations that other market participants do not have, whereas preferential pricing to Customers is a long-standing options industry practice which serves to enhance Customer order flow, thereby attracting Marker-Makers to facilitate tight spreads and trading opportunities to the benefit of all market participants. In addition to this, the Exchange notes that it currently assesses fees for Customers and Market-Maker transactions in other index products, including proprietary products. 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 propose fees assessed and discount apply to an Exchange proprietary product, which are traded exclusively on the Exchange and the Exchange’s affiliate, Cboe EDGX Exchange, Inc. In addition to this, the Exchange notes that the proposed change to remove the PAR Official fees from its fee schedule will not impose an burden on intramarket or intermarket competition, as it is not intended as a competitive pricing change, but rather as a change to reflect the reduction in PAR Officials’ responsibilities and the correlated reduction in revenue necessary to assist the Exchange in compensating PAR Officials for such responsibilities. 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 12 See supra note 4. supra note 10. 14 See supra note 5. 13 See VerDate Sep<11>2014 16:55 Jul 11, 2019 15 15 16 17 Jkt 247001 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). Frm 00075 Fmt 4703 Sfmt 4703 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 shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. 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 • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2019–032 on the subject line. Paper Comments • 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–2019–032. 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 (https://www.sec.gov/ rules/sro.shtml). 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit E:\FR\FM\12JYN1.SGM 12JYN1 Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE–2019–032 and should be submitted on or before August 2, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–14815 Filed 7–11–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86327; File No. SR–LTSE– 2019–01] Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Adopt Rule 14.425, Which Would Require Companies Listed on the Exchange To Develop and Publish Certain Long-Term Policies July 8, 2019. jbell on DSK3GLQ082PROD with NOTICES 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 25, 2019, the Long-Term Stock Exchange, Inc. (‘‘LTSE’’ or ‘‘Exchange’’) 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) under the Securities Exchange Act of 1934 (‘‘Act’’),3 and Rule 19b–4 thereunder,4 the Exchange is filing with the Commission a proposed rule change to adopt new Rule 14.425 (Long-Term Policies), which would require companies listed on the Exchange to develop and publish certain policies that the Exchange believes will facilitate long-term focus and value creation. The text of the proposed rule change is available at the Exchange’s website at 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(1). 4 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:55 Jul 11, 2019 Jkt 247001 www.longtermstockexchange.com, at the principal office of the Exchange, 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 self-regulatory organization 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 self-regulatory organization 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 on the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On May 10, 2019, the Commission granted the Exchange’s application for registration as a national securities exchange under Section 6 of the Act,5 including approval of rules applicable to the qualification, listing and delisting of companies on the Exchange. The Exchange is proposing to enhance its listing requirements by requiring companies listed on the Exchange (‘‘LTSE-Listed Issuers’’) to adopt and publish the following policies: A LongTerm Stakeholder Policy, a Long-Term Strategy Policy, a Long-Term Compensation Policy, a Long-Term Board Policy and a Long-Term Investor Policy, as described further below. These policies must be consistent with the set of principles described below. Background Many academics, commentators, market participants,6 as well as current 5 See Securities Exchange Act Release No. 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019). 6 See, e.g., McKinsey & Company, McKinsey Global Institute, Measuring the Economic Impact of Short-Termism (February 2017), available at https:// www.mckinsey.com/∼/media/mckinsey/ global%20themes/long%20term%20capitalism/ where%20companies%20with%20a%20long%20 term%20view%20outperform%20their%20peers/ measuring-the-economic-impact-of-shorttermism.ashx (‘‘Our findings show that companies we classify as ‘long term’ outperform their shorterterm peers on a range of key economic and financial metrics.’’); Aspen Institute, American Prosperity Project (December 2016), available at https://assets. aspeninstitute.org/content/uploads/2017/01/ American-Prosperity-Project_Policy-Framework_ FINAL-1.3.17.pdf (‘‘Perverse incentives in our corporate governance system undermine the health of capitalism itself. Short-termism is baked into our tax system and is evident in the decisions, PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 33293 members of the Commission 7 have regulations and rules that govern corporations and capital markets. Changes to the rules of the game are a necessary step to rebuild the public’s trust in our economic system.’’); Martin Lipton, The New Paradigm (January 11, 2017), available at https:// www.wlrk.com/docs/thenewparadigm.pdf (‘‘The economic impact of a short-term myopic approach to managing and investing in businesses has become abundantly clear and has been generating rising levels of concern across a broad spectrum of stakeholders, including corporations, investors, policymakers and academics. The proposition that short-term financial activists and reactive corporate behavior spur sustainable improvements in corporate performance, and thereby systemically increase rather than undermine long-term economic prosperity and social welfare, has been overwhelmingly disproved by the real world experience of corporate decision-makers as well as a growing body of academic research.’’); Chief Justice Leo Strine, Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (April 2017), available at https://ssrn.com/ abstract=2921901 (‘‘Rather, human investors would see great benefit from reforms encouraging the agents responsible for their money to adopt the long-term horizon held by their principals, i.e., human investors.’’); CECP and KKS Advisors, The Economic Significance of Long-Term Plans (November 2018), available at https://cecp.co/wpcontent/uploads/2018/11/Economic-SignificanceFinal-Report.pdf (‘‘Short-termism in capital markets has increasingly become a concern for both companies and the investor community’’ and explaining that the authors of the report ‘‘find evidence that better quality disclosure on themes like corporate purpose and competitive positioning is linked to larger capital market reactions’’); Travis Baratko, A Times-Mirror Conversation With Sen. Mark Warner, The Loudoun Times-Mirror (July 27, 2015), available at https://www.loudountimes.com/ news/article/a_loudoun_times_mirror_ conversation_with_sen._mark_warner432 (quoting Senator Mark Warner as noting that ‘‘[P]eople being investors who are only focused on short-termism, too often you can squeeze a quarterly profit out at the expense of a long-term value proposition.’’). 7 See, e.g., Chairman Jay Clayton, Statement Announcing SEC Staff Roundtable on Short-Term/ Long-Term Management of Public Companies, Our Periodic Reporting System and Regulatory Requirements (May 20, 2019), available at https:// www.sec.gov/news/public-statement/claytonannouncement-short-long-term-managementroundtable (‘‘An undue focus on short-term results among companies may lead to inefficient allocation of capital, reduce long-term returns for Main Street investors, and encumber economic growth’’; ‘‘As a result of increased life expectancy and a shift from defined benefit plans (e.g., pensions) to defined contribution plans (e.g., 401(k)s and IRAs), the investing interests and needs of our Main Street investors have changed. Put simply, our Main Street investors are more than ever focused on long-term results.’’); Chairman Jay Clayton, Statement on Investing in America for the Long Term (Aug. 17, 2018), available at https://www.sec.gov/news/ public-statement/statement-clayton-081718 (‘‘The President has highlighted a key consideration for American companies and, importantly, American investors and their families—encouraging long-term investment in our country. Many investors and market participants share this perspective on the importance of long-term investing. Recently, the SEC has implemented—and continues to consider— a variety of regulatory changes that encourage longterm capital formation while preserving and, in many instances, enhancing key investor protections.’’); SEC, Press Release, SEC Solicits Public Comment on Earnings Releases and Quarterly Reports (Dec. 18, 2018), available at E:\FR\FM\12JYN1.SGM Continued 12JYN1

Agencies

[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Notices]
[Pages 33290-33293]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14815]



[[Page 33290]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86329; File No. SR-CBOE-2019-032]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule for XSP Fees and PAR Official Fees

July 8, 2019.
    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 July 1, 2019, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 (https://www.cboe.com/About CBOE/
CBOELegalRegulatoryHome .aspx), 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 to (i) adopt a fee 
for Customer Mini-SPX Index (``XSP'') options (an Exchange proprietary 
product) transactions, (ii) amend the Customer Large Trade Discount for 
XSP orders, (iii) eliminate a sliding scale transaction fee for Market 
Maker XSP options transactions and propose a flat-rate transaction, and 
(iv) eliminate Par Official fees, effective July 1, 2019.
    First, the Exchange proposes to adopt a fee for Customer (origin 
code ``C'') transactions in XSP (a proprietary product). The Exchange 
currently does not assess any fee (or provide any rebate) for Customer 
orders in XSP. The Exchange now proposes to adopt a fee of $0.04 per 
contract for Customer orders in XSP. The Exchange notes that it 
currently assesses Customer transaction fees associated with other 
index products, and the proposed transaction fee for XSP is lower than 
that of Customer fees associated with such other index products. For 
example, the Exchange assesses a Customer transaction fee of $0.18 for 
orders in most all other index products (including other proprietary 
index products), as well as a transaction fee of $0.25 for certain MSCI 
index options.\3\
---------------------------------------------------------------------------

    \3\ Excluding products listed in Underlying Symbol List A. See 
Cboe Options Fee Schedule, ``Index Options Rate Table--All Index 
Products Excluding Underlying Symbol List A and Sector Indexes.''
---------------------------------------------------------------------------

    The Exchange also proposes to amend the Customer Large Trade 
Discount program with respect to XSP customer transactions. The 
Customer Large Trade Discount program (the ``Discount'') provides a 
discount in the form of a cap on the quantity of customer (``C'' origin 
code'') contracts that are assessed transactions fees in certain 
options classes. The Discount table in the Fees Schedule sets forth the 
quantity of contracts necessary for a large customer trade to qualify 
for the Discount, which varies by product. Different caps are set for 
(i) VIX, (ii) SPX (including SPXW), (iii) ETF and ETN Options and (iv) 
``Other Index Options'', which currently includes XSP. More 
specifically, Customer transaction fees for index products (including 
XSP) are currently only charged up to the first 5,000 contracts. The 
Exchange proposes to raise the quantity of XSP contracts necessary for 
a large customer trade to qualify for the Discount from 5,000 contracts 
per order to 20,000 contracts per order. The purpose of the proposed 
rule change is to moderate the discount level for Customer (C) orders 
in XSP in light of the increased sizes of qualifying Discount XSP 
orders. The Exchange believes that notwithstanding the proposed change, 
the large trade discount for Customer orders in XSP options will 
continue to incentivize the sending of large customer orders in XSP, 
providing an increase in trading opportunities which attracts Market-
Makers. As a result, an increase in Market-Maker activity facilitates 
tighter spreads, which may lead to additional increase of order flow 
from other market participants.
    Next, the Exchange proposes to eliminate the sliding-scale 
transaction fees for Market-Maker (origin code ``M'') transactions in 
XSP options, which currently range from $0.03 to $0.23 per contract, 
contingent on the volume threshold (per tier level) reached. The 
criterion for tier levels is comprised of the percentage of a Market-
Maker's volume transacted in XSP options during the calendar month. In 
lieu of assessing such transactions on a sliding-scale, the Exchange 
now proposes to assess a flat-rate fee of $0.23 per contract for 
Market-Maker orders in XSP. Particularly, the Exchange notes that there 
are currently fewer than five Market-Makers in XSP options to which the 
fees under the current sliding-scale structure apply. The Exchange 
notes that, on average in recent months, the percentage of volume in 
XSP options among these Market-Makers has hovered around the two lowest 
volume thresholds (which assess a transaction fee of $0.23 per contract 
or $0.17 per contract). Therefore, the Exchange has determined that the 
proposed change to exclude XSP options from the sliding-scale 
transaction fees and to asses a flat fee of $0.23 per contract in XSP 
options for Market-Makers better reflects the current volume trends in 
this options class, and will allow for the Exchange to capture revenue 
from potential spikes in volume that would occur outside of the current 
trend. In addition, the Exchange notes that various other index 
products, including proprietary products like that of XSP options, are 
also excluded from the sliding-scale [sic] scale transaction fee table 
and assessed a flat-rate fee that is commensurate with the proposed 
flat-rate fee for Market-Maker transactions in XSP.\4\ For example, the 
Exchange assesses a flat-rate fee of $0.23 per contract for Market-
Maker transactions

[[Page 33291]]

in Cboe Volatility Index (``VIX'') options (a proprietary product) and 
$0.30 per contract for transactions in Russell 2000 Index (``RUT'') 
options.
---------------------------------------------------------------------------

    \4\ See Cboe Options Fee Schedule, ``Specified Proprietary Index 
Options Rate Table--Underlying Symbol List A and Sector Indexes.''
---------------------------------------------------------------------------

    Finally, the Exchange proposes to eliminate its PAR Official Fees. 
Currently, the Exchange assesses fees for transactions executed through 
PAR Official in VIX and Volatility Index options, ranging from $0.03 to 
$0.12 per order executed, and for transactions executed through PAR 
Official in all other options classes, ranging from $0.02 to $0.04. The 
fees assessed per contract executed are currently contingent on the 
tier level reached, for which the criteria for each level is the 
percentage of monthly volume executed through PAR Official in either 
VIX or Volatility Index options or in all other options classes.
    PAR Officials are Exchange employees or independent contractors 
whom the Exchange may designate as being responsible for operating a 
PAR workstation and effecting proper executions placed with them. The 
Exchange notes that in 2011 it implemented PAR Official fees in order 
to help offset the Exchange's costs of providing PAR Official services 
(e.g., salaries, etc.).\5\ Today, PAR Officials no longer maintain many 
of their responsibilities as they did when the Exchange implemented PAR 
Official fees; among other things, PAR Officials no longer maintain the 
book with respect to assigned classes, as the electronic book manages 
electronic orders and quotes, no longer have responsibilities with 
respect to routed orders under the current linkage plan,\6\ and (with 
the migration of Cboe Options trading platform to that of the 
technology of its affiliated exchanges, Cboe C2 Exchange, Inc. 
(``C2''), Cboe EDGX Exchange, Inc. (``EDGX Options''), and Cboe BZX 
Exchange, Inc. (``BZX Options''), in the fourth quarter of 2019) order 
routed through PAR will no longer be automatically routed for manual 
handling by a PAR Official. As a result, the Exchange has determined 
that PAR Official fees are no longer necessary to assist the Exchange 
in offsetting its costs of providing PAR Official services, and now 
proposes to eliminate its PAR Official fees.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 67301 (January 11, 
2011), 76 FR 2934 (January 18, 2011) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Related to Exchange Fees for 
Fiscal Year 2011) (SR-CBOE-2010-116); and Securities Exchange Act 
Release No. 64834 (July 7, 2011), 76 FR 41839 (July 15, 2011) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to PAR Official Fees in Volatility Index Options) 
(SR-CBOE-2011-057).
    \6\ See Cboe Options Rules, Chapter VI, Section E which 
describes Exchange responsibilities pursuant to the current linkage 
plan, the Options Order Protection and Locked/Crossed Market Plan.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\7\ in general, and furthers the requirements 
of Section 6(b)(4),\8\ in particular, as it is designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that its proposed fee for Customer 
transactions in XSP is consistent with Section 6(b)(4) of the Act in 
that the proposal is reasonable, equitable and not unfairly 
discriminatory. The Exchange believes that it is reasonable and 
equitable to assess fees for Customer transactions in XSP because the 
Exchange currently assesses fees for Customer transactions in other 
index products, including other proprietary products. In addition to 
this, the Exchange notes that the proposed XSP Customer transaction fee 
is less than Customer transaction fees for other index products. To 
reiterate the example above, assessment of Customer transaction fees in 
most other index products (including other proprietary products like 
that of XSP) is $0.18 per contract, as well as $0.25 per contract for 
certain MSCI index options.\9\
---------------------------------------------------------------------------

    \9\ See Cboe Options Fee Schedule, ``Index Options Rate Table--
All Index Products Excluding Underlying Symbol List A and Sector 
Indexes.''
---------------------------------------------------------------------------

    The Exchange believes that raising the Customer Large Trade 
Discount threshold for XSP is reasonable because customers will still 
be receiving a discount for large trades that they would not otherwise 
receive. The Exchange believes that notwithstanding the proposed 
increase, the Customer Large Trade Discount will continue to 
incentivize larger Customer XSP executions. As stated, Customer order 
flow enhances liquidity on the Exchange for the benefit of 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 potentially increases order 
flow from other market participants. This change is equitable and not 
unfairly discriminatory because all customers whose large trades 
qualify for the Discount will still receive it.
    Moreover, the Exchange notes that while the proposed Customer fee 
assessed is lower as compared to other market participants \10\ and the 
large trade discount in XSP is Customer specific, the Exchange believes 
that the proposed fee and discount is equitable and not unfairly 
discriminatory because, as described above, Customer order flow 
enhances liquidity on the Exchange for the benefit of all market 
participants. Moreover, the options industry has a long history of 
providing preferential pricing to Customers, and the Exchange's current 
Fee Schedule currently does so in many places, as do the fees 
structures of multiple other exchanges.\11\ The Exchange notes that all 
fee amounts applicable to Customers will be applied equally to all 
Customers, i.e., all Customers will be assessed the same amount.
---------------------------------------------------------------------------

    \10\ See supra note 9. Firms are assessed a transaction fee 
between $0.20 and $0.70, depending on the transaction type, and 
Market-Makers, as proposed, are assessed a transaction fee of $0.23.
    \11\ See MIAX Options Fee Schedule, Transaction Fees, SPIKES, 
which gives preferential Customer treatment for transaction in MIAX 
Option's proprietary product, SPIKES.
---------------------------------------------------------------------------

    Furthermore, the Exchange believes that the proposed elimination of 
the sliding-scale fee structure for Market-Maker transactions in XSP 
and, instead, the assessment of the flat-rate fee of $0.23 per contract 
for Market-Maker transactions in XSP options, is consistent with 
Section 6(b)(4) of the Act in that the proposal is reasonable, 
equitable and not unfairly discriminatory. The Exchange believes that 
the proposed fee change in connection with Market-Maker transactions in 
XSP is reasonable and equitable because it better reflects the current 
trend in Market-Maker volume in XSP. As stated, in recent months, the 
average percentage of volume per Market-Maker in XSP options has 
hovered around the lowest two volume threshold tiers (which assess a 
transaction fee of $0.23 per contract or $0.17 per contract). 
Therefore, the Exchange believes that the change from assessing a 
sliding-scale fee to a flat-rate fee of $0.23 is reasonably related to 
the overall levels and patterns of Market-Maker market activity. 
Moreover, because Market-Maker volume on average has remained within 
bottom two tiers, the proposed flat-fee will not significantly impact 
or alter the current cost for executions in XSP that Market-Makers 
incur today. Additionally, the Exchange notes that various other index 
products, including other proprietary products like that of XSP 
options, are also excluded from the sliding-scale scale transaction fee 
table and assessed a flat-rate fee that is commensurate with

[[Page 33292]]

the proposed flat-rate fee assessed for Market-Maker transactions in 
XSP.\12\
---------------------------------------------------------------------------

    \12\ See supra note 4.
---------------------------------------------------------------------------

    The Exchange also believes the proposed flat-fee for Market-Maker 
transactions in XSP is equitable and not unfairly discriminatory 
because they will apply equally to all Market-Maker transactions in 
XSP, i.e., all Market-Makers will be assessed the same amount. Though 
Market-Maker transactions in XSP will be assessed a lower fee than 
other market participants,\13\ the Exchange believes that the proposed 
fee is equitable and not unfairly discriminatory because Market-Makers, 
unlike other market participants, take on a number of obligations, 
including quoting obligations that other market participants do not 
have. Further, Market-Makers have added market making and regulatory 
requirements, which normally do not apply to other market participants. 
For example, Market-Makers have obligations to maintain continuous 
markets, engage in a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and to not 
make bids or offers or enter into transactions that are inconsistent 
with a course of dealing.
---------------------------------------------------------------------------

    \13\ See supra note 10.
---------------------------------------------------------------------------

    Finally, the Exchange believes that the proposed fee schedule 
change to remove PAR Official fees from the fee schedule is equitable 
and reasonable because, today, PAR Officials no longer maintain many of 
their responsibilities as they did when the Exchange implemented PAR 
Official fees in order to help offset the Exchange's costs of providing 
PAR Official services (e.g., salaries, etc.).\14\ As a result, the 
Exchange has determined that PAR Official fees are no longer necessary 
to assist the Exchange in offsetting its costs of providing PAR 
Official services. In addition to this, the Exchange believes that 
removing PAR Official fees from the fee schedule is equitable and not 
unfairly discriminatory because all orders routed through a PAR 
Official will no longer be assessed a PAR Official fee.
---------------------------------------------------------------------------

    \14\ See supra note 5.
---------------------------------------------------------------------------

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. Specifically, the Exchange 
does not believe that the proposed change will impose any burden on 
intramarket competitions that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed fee 
assessed for Customers (as well as the proposed change to the Customer 
Large Trade Discount) and Market-Makers in XSP will be assessed equally 
to all such participants, respectively. As described above, while 
different fees are assessed to different market participants in some 
circumstances, these different market participants have different 
obligations and different circumstances. For example, Market Makers 
have quoting obligations that other market participants do not have, 
whereas preferential pricing to Customers is a long-standing options 
industry practice which serves to enhance Customer order flow, thereby 
attracting Marker-Makers to facilitate tight spreads and trading 
opportunities to the benefit of all market participants. In addition to 
this, the Exchange notes that it currently assesses fees for Customers 
and Market-Maker transactions in other index products, including 
proprietary products.
    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 
propose fees assessed and discount apply to an Exchange proprietary 
product, which are traded exclusively on the Exchange and the 
Exchange's affiliate, Cboe EDGX Exchange, Inc.
    In addition to this, the Exchange notes that the proposed change to 
remove the PAR Official fees from its fee schedule will not impose an 
burden on intramarket or intermarket competition, as it is not intended 
as a competitive pricing change, but rather as a change to reflect the 
reduction in PAR Officials' responsibilities and the correlated 
reduction in revenue necessary to assist the Exchange in compensating 
PAR Officials for such responsibilities.

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 shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2019-032 on the subject line.

Paper Comments

     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-2019-032. 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 (https://www.sec.gov/rules/sro.shtml). 
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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit

[[Page 33293]]

personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2019-032 and should be 
submitted on or before August 2, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14815 Filed 7-11-19; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.