Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule in Connection With Migration, 69428-69444 [2019-27194]
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69428
Federal Register / Vol. 84, No. 243 / Wednesday, December 18, 2019 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–27206 Filed 12–17–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87727; File No. SR–CBOE–
2019–111)]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend its Fees
Schedule in Connection With Migration
December 12, 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 November
29, 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.
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I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Fees Schedule in connection with
migration. 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/
AboutCBOE/CBOELegalRegulatory
Home.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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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
addition to providing a consistent
technology offering across the Cboe
Affiliated Exchanges, the migration also
provided market participants a latency
equalized infrastructure, improved
system performance, and increased
sustained order and quote per second
capacity, as discussed more fully below.
Accordingly, in connection with the
migration and in order to more closely
align the Exchange’s fee structure with
that of its Affiliated Exchanges, the
Exchange intends to update and
simplify its fee structure with respect to
access and connectivity and adopt new
access and connectivity fees.6
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.)
(‘‘Cboe Global’’), which is also the
parent company of Cboe C2 Exchange,
Inc. (‘‘C2’’), acquired Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX
Options’’), Cboe BZX Exchange, Inc.
(‘‘BZX’’ or ‘‘BZX Options’’), and Cboe
BYX Exchange, Inc. (‘‘BYX’’ and,
together with Cboe Options, C2, EDGX,
EDGA, and BZX, the ‘‘Affiliated
Exchanges’’). The Cboe Affiliated
Exchanges recently aligned certain
system functionality, including with
respect to connectivity, retaining only
intended differences between the
Affiliated Exchanges, in the context of a
technology migration. The Exchange
migrated its trading platform to the
same system used by the Affiliated
Exchanges, which the Exchange
completed on October 7, 2019 (the
‘‘migration’’). As a result of this
migration, the Exchange’s pre-migration
connectivity architecture was rendered
obsolete, and as such, the Exchange now
offers new functionality, including new
logical connectivity, and therefore
proposes to adopt corresponding fees.3
In determining the proposed fee
changes, the Exchange assessed the
impact on market participants to ensure
that the proposed fees would not create
an undue financial burden on any
market participants, including smaller
market participants. While the Exchange
has no way of predicting with certainty
the impact of the proposed changes, the
Exchange had anticipated its postmigration connectivity revenue 4 to be
approximately 1.75% lower than
connectivity revenue pre-migration.5 In
Physical Connectivity
A physical port is utilized by a
Trading Permit Holder (‘‘TPH’’) or nonTPH to connect to the Exchange at the
data centers where the Exchange’s
servers are located. The Exchange
currently assesses fees for Network
Access Ports for these physical
connections to the Exchange.
Specifically, TPHs and non-TPHs can
elect to connect to Cboe Options’
trading system via either a 1 gigabit per
second (‘‘Gb’’) Network Access Port or
a 10 Gb Network Access Port. Premigration the Exchange assessed a
monthly fee of $1,500 per port for 1 Gb
Network Access Ports and a monthly fee
of $5,000 per port for 10 Gb Network
Access Ports for access to Cboe Options
primary system. Through January 31,
2020, Cboe Options market participants
will continue to have the ability to
connect to Cboe Options’ trading system
via the current Network Access Ports.
As of October 7, 2019, in connection
with the migration, TPHs and non-TPHs
may alternatively elect to connect to
Cboe Options via new latency equalized
Physical Ports.7 The new Physical Ports
similarly allow TPHs and non-TPHs the
ability to connect to the Exchange at the
data center where the Exchange’s
servers are located and TPHs and nonTPHs have the option to connect via 1
Gb or 10 Gb Physical Ports. As noted
above, both the new 1 Gb and 10 Gb
Physical Ports provide latency
3 As of October 7, 2019, market participants no
longer have the ability to connect to the old
Exchange architecture.
4 Connectivity revenue post-migration includes
revenue from physical port fees (other than for
disaster recovery), Cboe Data Services Port Fee,
logical port fees, Trading Permit Fees, MarketMaker EAP Appointment Unit fees, Tier
Appointment Surcharges and Floor Broker Trading
Surcharges, less the Floor Broker ADV discounts
and discounts on BOE Bulk Ports via the Affiliate
Volume Plan and the Market-Maker Access Credit
program.
5 The Exchange does not anticipate realizing the
projected revenue reduction prior to February 2020,
as the Exchange’s legacy physical ports will not be
decommissioned until January 31, 2020 and firms
may still be in the process of transitioning their
connectivity. As such, the Exchange believes any
changes in revenue until such time are not
reflective of the predicted and modeled impact.
6 The Exchange initially filed the proposed fee
changes on October 1, 2019 (SR–CBOE–2019–077).
On business date October 2, 2019, the Exchange
withdrew that filing and submitted SR–CBOE–
2019–082, See Securities Exchange Act Release No.
87304 (October 15, 2019), 84 FR 56240, (October 21,
2019). On business date November 29, 2019, the
Exchange withdrew that filing and submitted this
filing.
7 As previously noted, market participants will
continue to have the option of connecting to Cboe
Options via a 1 Gbps or 10 Gbps Network Access
Port at the same rates as proposed, respectively.
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equalization, meaning that each market
participant will be afforded the same
latency for 1 Gb or 10 Gb Physical Ports
in the primary data center to the
Exchange’s customer-facing switches
regardless of location of the market
participant’s cage 8 in the primary data
center relative to the Exchange’s servers.
Conversely, the legacy Network Access
Ports are not latency equalized, meaning
the location of a market participant’s
cage within the data center may affect
latency. For example, in the legacy
system, a cage located further from the
Exchange’s servers may experience
higher latency than those located closer
to the Exchange’s servers.9 As such, the
proposed Physical Ports ensure all
market participants connected to the
Exchange via the new Physical Ports
will receive the same respective latency
for each port size and ensure that no
market participant has a latency
advantage over another market
participant within the primary data
center.10 Additionally, the new
infrastructure utilizes new and faster
switches resulting in lower overall
latency.
The Exchange proposes to assess the
following fees for any physical port,
regardless of whether the TPH or nonTPH connects via the current Network
Access Ports or the new Physical Ports.
Specifically, the Exchange proposes to
continue to assess a monthly fee of
$1,500 per port for 1 Gb Network Access
Ports and new Physical Ports and
increase the monthly fee for 10 Gb
Network Access Ports and new Physical
Ports to $7,000 per port. Physical port
fees will be prorated based on the
remaining trading days in the calendar
month. The proposed fee for 10 Gb
Physical Ports is in line with the
amounts assessed by other exchanges
for similar connections by its Affiliated
Exchanges and other Exchanges that
utilize the same connectivity
infrastructure.11
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8A
market participant’s ‘‘cage’’ is the cage within
the data center that contains a market participant’s
servers, switches and cabling.
9 The Exchange equalizes physical connectivity in
the data center for its primary system by taking the
farthest possible distance that a Cboe market
participant cage may exist from the Exchange’s
customer-facing switches and using that distance as
the cable length for any cross-connect.
10 The Exchange notes that 10 Gb Physical Ports
have an 11 microsecond latency advantage over 1
Gb Physical Ports. Other than this difference, there
are no other means to receive a latency advantage
as compared to another market participant in the
new connectivity structure.
11 See Cboe EDGA U.S. Equities Exchange Fee
Schedule, Physical Connectivity Fees; Cboe EDGX
U.S. Equities Exchange Fee Schedule, Physical
Connectivity Fees; Cboe BZX U.S. Equities
Exchange Fee Schedule, Physical Connectivity
Fees; Cboe BYX U.S. Equities Exchange Fee
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In addition to the benefits resulting
from the new Physical Ports providing
latency equalization and new switches
(i.e., improved latency), TPHs and nonTPHs may be able to reduce their overall
physical connectivity fees. Particularly,
Network Access Port fees are assessed
for unicast (orders, quotes) and
multicast (market data) connectivity
separately. More specifically, Network
Access Ports may only receive one type
of connectivity each (thus requiring a
market participant to maintain two ports
if that market participant desires both
types of connectivity). The new Physical
Ports however, allow access to both
unicast and multicast connectivity with
a single physical connection to the
Exchange. Therefore, TPHs and nonTPHs that currently purchase two legacy
Network Access Ports for the purpose of
receiving each type of connectivity now
have the option to purchase only one
new Physical Port to accommodate their
connectivity needs, which may result in
reduced costs for physical
connectivity.12
Cboe Data Services—Port Fees
The Exchange proposes to amend the
‘‘Port Fee’’ under the Cboe Data Services
(‘‘CDS’’) Fees Schedule. Currently, the
Port Fee is payable by any Customer 13
Schedule, Physical Connectivity Fees; Cboe EDGX
Options Exchange Fee Schedule, Physical
Connectivity Fees; and Cboe BZX Options Exchange
Fee Schedule, Physical Connectivity Fees
(collectively, ‘‘Affiliated Exchange Fee Schedules’’).
See e.g., Nasdaq PHLX and ISE Rules, General
Equity and Options Rules, General 8. Phlx and ISE
each charge a monthly fee of $2,500 for each 1Gb
connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection. See also
Nasdaq Price List—Trading Connectivity. Nasdaq
charges a monthly fee of $7,500 for each 10Gb
direct connection to Nasdaq and $2,500 for each
direct connection that supports up to 1Gb. See also
NYSE American Fee Schedule, Section V.B, and
Arca Fees and Charges, Co-Location Fees. NYSE
American and Arca each charge a monthly fee of
$5,000 for each 1Gb circuit, $14,000 for each 10Gb
circuit and $22,000 for each 10Gb LX circuit.
12 The Exchange proposes to eliminate the current
Cboe Command Connectivity Charges table in its
entirety and create and relocate such fees in a new
table in the Fees Schedule that addresses fees for
physical connectivity, including fees for the current
Network Access Ports, the new Physical Ports and
Disaster Recovery (‘‘DR’’) Ports. The Exchange notes
that it is not proposing any changes with respect to
DR Ports other than renaming the DR ports from
‘‘Network Access Ports’’ to ‘‘Physical Ports’’ to
conform to the new Physical Port terminology. The
Exchange also notes that subsequent to the initial
filings that proposed these fee changes on October
1 and 2, 2019 (SR–CBOE–2019–077 and SR–CBOE–
2019–082), the Exchange amended the proposed
port fees to waive fees for ports used for PULSe in
filing No. SR–CBOE–2019–105. The additions
proposed by filing SR–CBOE–2019–105 are double
underlined in Exhibit 5A and the deletions are
doubled bracketed in Exhibit 5A.
13 A Customer is any person, company or other
entity that, pursuant to a market data agreement
with CDS, is entitled to receive data, either directly
from CDS or through an authorized redistributor
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that receives data through two types of
sources; a direct connection to CDS
(‘‘direct connection’’) or through a
connection to CDS provided by an
extranet service provider (‘‘extranet
connection’’). The Port Fee applies to
receipt of any Cboe Options data feed
but is only assessed once per data port.
The Exchange proposes to amend the
monthly CDS Port Fee to provide that it
is payable ‘‘per source’’ used to receive
data, instead of ‘‘per data port’’. The
Exchange also proposes to increase the
fee from $500 per data port/month to
$1,000 per data source/month.14 The
Exchange notes the proposed change in
assessing the fee (i.e., per source vs per
port) and the proposed fee amount are
the same as the corresponding fee on its
affiliate C2.15
In connection with the proposed
change, the Exchange also proposes to
rename the ‘‘Port Fee’’ to ‘‘Direct Data
Access Fee’’. As the fee will be payable
‘‘per data source’’ used to receive data,
instead of ‘‘per data port’’, the Exchange
believes the proposed name is more
appropriate and that eliminating the
term ‘‘port’’ from the fee will eliminate
confusion as to how the fee is assessed.
Logical Connectivity
Next, the Exchange proposes to
amend its login fees. By way of
background, Cboe Options market
participants were able to access Cboe
Command via either a CMI or a FIX
Port, depending on how their systems
are configured. Effective October 7,
2019, market participants are no longer
able to use CMI and FIX Login IDs.
Rather, the Exchange utilizes a variety
of logical connectivity ports as further
described below. Both a legacy CMI/FIX
Login ID and logical port represent a
technical port established by the
Exchange within the Exchange’s trading
system for the delivery and/or receipt of
trading messages—i.e., orders, accepts,
(i.e., a Customer or extranet service provider),
whether that data is distributed externally or used
internally.
14 For example, under the pre-migration ‘‘per
port’’ methodology, if a TPH maintained 4 ports
that receive market data, that TPH would be
assessed $2,000 per month (i.e., $500 × 4 ports),
regardless of how many sources it used to receive
data. Under the proposed ‘‘per source’’
methodology, if a TPH maintains 4 ports that
receive market data, but receives data through only
one source (e.g., a direct connection) that TPH
would be assessed $1,000 per month (i.e., $1,000 ×
1 source). If that TPH maintains 4 ports but receives
data from both a direct connection and an extranet
connection, that TPH would be assessed $2,000 per
month (i.e., $1,000 × 2 sources). Similarly, if that
TPH maintains 4 ports and receives data from two
separate extranet providers, that TPH would be
assessed $2,000 per month (i.e., $1,000 × 2).
15 See Cboe C2 Options Exchange Fee Schedule,
Cboe Data Services, LLC Fees, Section IV, Systems
Fees.
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cancels, transactions, etc. Market
participants that wish to connect
directly to the Exchange can request a
number of different types of ports,
including ports that support order entry,
customizable purge functionality, or the
receipt of market data. Market
participants can also choose to connect
indirectly through a number of different
third-party providers, such as another
broker-dealer or service bureau that the
Exchange permits through specialized
access to the Exchange’s trading system
and that may provide additional
services or operate at a lower
mutualized cost by providing access to
multiple members. In light of the
discontinuation of CMI and FIX Login
IDs, the Exchange proposes to eliminate
the fees associated with the CMI and
FIX login IDs and adopt the below
pricing for logical connectivity in its
place.
Service
Cost per month
Logical Ports (BOE, FIX) 1 to 5 ..................................................................................................................
Logical Ports (BOE, FIX) >5 .......................................................................................................................
Logical Ports (Drop) ....................................................................................................................................
BOE Bulk Ports 1 to 5 ................................................................................................................................
BOE Bulk Ports 6 to 30 ..............................................................................................................................
BOE Bulk Ports >30 ...................................................................................................................................
Purge ports .................................................................................................................................................
GRP Ports ...................................................................................................................................................
Multicast PITCH/Top Spin Server Ports .....................................................................................................
The Exchange proposes to provide for
each of the logical connectivity fees that
new requests will be prorated for the
first month of service. Cancellation
requests are billed in full month
increments as firms are required to pay
for the service for the remainder of the
month, unless the session is terminated
within the first month of service. The
Exchange notes that the proration policy
is the same on its Affiliated
Exchanges.16
Logical Ports (BOE, FIX, Drop): The
new Logical Ports represent ports
established by the Exchange within the
Exchange’s system for trading purposes.
Each Logical Port established is specific
to a TPH or non-TPH and grants that
TPH or non-TPH the ability to operate
a specific application, such as order/
quote 17 entry (FIX and BOE Logical
Ports) or drop copies (Drop Logical
Ports). Similar to CMI and FIX Login
IDs, each Logical Port will entitle a firm
to submit message traffic of up to
specified number of orders per
second.18 The Exchange proposes to
assess $750 per port per month for all
$750 per port.
$800 per port.
$750 per port.
$1,500 per port.
$2,500 per port.
$3,000 per port.
$850 per port.
$750/primary (A or C Feed).
$750/set of primary (A or C feed).
Drop Logical Ports and also assess $750
per port per month (which is the same
amount currently assessed per CMI/FIX
Login ID per month), for the first 5 FIX/
BOE Logical Ports and thereafter assess
$800 per port, per month for each
additional FIX/BOE Logical Port. While
the proposed ports will be assessed the
same monthly fees as current CMI/FIX
Login IDs (for the first five logical ports),
the proposed logical ports provide for
significantly more message traffic as
shown below:
CMI/FIX login Ids
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Bandwidth Limit per login ..............
Cost ................................................
Cost per Quote/Order Sent @Limit
BOE/FIX logical ports
Quotes
Orders
Quotes/orders
5,000 quotes/3 sec 19 ...................
$750 each .....................................
$0.15 per quote/3 sec ..................
30 orders/sec ................................
$750 each .....................................
$25.00 per order/sec ....................
15,000 quotes/orders/3 sec.
$750/$800 each.
$0.05/$0.053 per quote/order/3
sec.
Logical Port fees will be limited to
Logical Ports in the Exchange’s primary
data center and no Logical Port fees will
be assessed for redundant secondary
data center ports. Each BOE or FIX
Logical Port will incur the logical port
fee indicated in the table above when
used to enter up to 70,000 orders per
trading day per logical port as measured
on average in a single month. Each
incremental usage of up to 70,000 per
day per logical port will incur an
additional logical port fee of $800 per
month. Incremental usage will be
determined on a monthly basis based on
the average orders per day entered in a
single month across all of a market
participant’s subscribed BOE and FIX
Logical Ports. The Exchange believes
that the pricing implications of going
beyond 70,000 orders per trading day
per Logical Port encourage users to
mitigate message traffic as necessary.
The Exchange notes that the proposed
fee of $750 per port is the same amount
assessed not only for current CMI and
FIX Login Ids, but also similar ports
available on an affiliate exchange.20
The Exchange also proposes to
provide that the fee for one FIX Logical
Port connection to PULSe and one FIX
Logical Port connection to Cboe Silexx
(for FLEX trading purposes) will be
waived per TPH. The Exchange notes
that only one FIX Logical Port
connection is required to support a
firm’s access through each of PULSe and
Cboe Silexx FLEX.
BOE Bulk Logical Ports: The Exchange
also offers BOE Bulk Logical Ports,
which provide users with the ability to
submit single and bulk order messages
16 See Affiliated Exchange Fee Schedules, Logical
Port Fees.
17 As of October 7, 2019, the definition of quote
in Cboe Options Rule 1.1 means a firm bid or offer
a Market-Maker (a) submits electronically as an
order or bulk message (including to update any bid
or offer submitted in a previous order or bulk
message) or (b) represents in open outcry on the
trading floor.
18 Login Ids restrict the maximum number of
orders and quotes per second in the same way
logical ports do, and Users may similarly have
multiple logical ports as they may have Trading
Permits and/or bandwidth packets to accommodate
their order and quote entry needs.
19 Each Login ID has a bandwidth limit of 80,000
quotes per 3 seconds. However, in order to place
such bandwidth onto a single Login ID, a TPH or
non-TPH would need to purchase a minimum of 15
Market-Maker Permits or Bandwidth Packets (each
Market-Maker Permit and Bandwidth Packet
provides 5,000 quotes/3 sec). For purposes of
comparing ‘‘quote’’ bandwidth, the provided
example assumes only 1 Market-Maker Permit or
Bandwidth Packet has been purchased.
20 See Cboe BZX Options Exchange Fee Schedule,
Options Logical Port Fees.
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to enter, modify, or cancel orders
designated as Post Only Orders with a
Time-in-Force of Day or GTD with an
expiration time on that trading day.
While BOE Bulk Ports will be available
to all market participants, the Exchange
anticipates they will be used primarily
by Market-Makers or firms that conduct
similar business activity, as the primary
purpose of the proposed bulk message
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Bandwidth Limit ..................................................
Cost ....................................................................
Cost per Quote/Order Sent @Limit ....................
functionality is to encourage marketmaker quoting on exchanges. As
indicated above, BOE Bulk Logical Ports
are assessed $1,500 per port, per month
for the first 5 BOE Bulk Logical Ports,
assessed $2,500 per port, per month
thereafter up to 30 ports and thereafter
assessed $3,000 per port, per month for
each additional BOE Bulk Logical Port.
Like CMI and FIX Login IDs, and FIX/
BOE bulk ports
Quotes
Quotes 22
Each BOE Bulk Logical Port will incur
the logical port fee indicated in the table
above when used to enter up to
30,000,000 orders per trading day per
logical port as measured on average in
a single month. Each incremental usage
of up to 30,000,000 orders per day per
BOE Bulk Logical Port will incur an
additional logical port fee of $3,000 per
month. Incremental usage will be
determined on a monthly basis based on
the average orders per day entered in a
single month across all of a market
participant’s subscribed BOE Bulk
Logical Ports. The Exchange believes
that the pricing implications of going
beyond 30,000,000 orders per trading
day per BOE Bulk Logical Port
encourage users to mitigate message
traffic as necessary. The Exchange notes
that the proposed BOE Bulk Logical Port
fees are similar to the fees assessed for
these ports by BZX Options.24
Purge Ports: As part of the migration,
the Exchange introduced Purge Ports to
provide TPHs additional risk
management and open order control
functionality. Purge ports were designed
to assist TPHs, in the management of,
and risk control over, their quotes,
particularly if the TPH is dealing with
a large number of options. Particularly,
Purge Ports allow TPHs to submit a
cancelation for all open orders, or a
subset thereof, across multiple sessions
under the same Executing Firm ID
(‘‘EFID’’). This would allow TPHs to
seamlessly avoid unintended
executions, while continuing to evaluate
the direction of the market. While Purge
Ports are available to all market
participants, the Exchange anticipates
they will be used primarily by MarketMakers or firms that conduct similar
business activity and are therefore
exposed to a large amount of risk across
a number securities. The Exchange
notes that market participants are also
able to cancel orders through FIX/BOE
Logical Ports and as such a dedicated
Purge Port is not required nor necessary.
Rather, Purge Ports were specially
developed as an optional service to
further assist firms in effectively
managing risk. As indicated in the table
above, the Exchange proposes to assess
a monthly charge of $850 per Purge
Port. The Exchange notes that the
proposed fee is in line with the fee
assessed by other exchanges, including
its Affiliated Exchanges, for Purge
Ports.25
Multicast PITCH/Top Spin Server and
GRP Ports: In connection with the
migration, the Exchange also offers
optional Multicast PITCH/Top Spin
Server (‘‘Spin’’) and GRP ports and
proposes to assess $750 per month, per
port. Spin Ports and GRP Ports are used
to request and receive a retransmission
21 The Exchange notes that while technically
there is no bandwidth limit per BOE Bulk Port,
there may be possible performance degradation at
15,000 messages per second (which is the
equivalent of 225,000 quotes/orders per 3 seconds).
As such, the Exchange uses the number at which
performance may be degraded for purposes of
comparison.
22 See Cboe Options Rule 1.1.
23 Each Login ID has a bandwidth limit of 80,000
quotes per 3 seconds. However, in order to place
such bandwidth onto a single Login ID, a TPH or
non-TPH would need to purchase a minimum of 15
Market-Maker Permits or Bandwidth Packets (each
Market-Maker Permit and Bandwidth Packet
provides 5,000 quotes/3 sec). For purposes of
comparing ‘‘quote’’ bandwidth, the provided
example assumes only 1 Market-Maker Permit or
Bandwidth Packet has been purchased.
24 See Cboe BZX Options Exchange Fee Schedule,
Options Logical Port Fees.
25 See e.g., Nasdaq ISE Options Pricing Schedule,
Section 7(C), Ports and Other Services. See also
Cboe EDGX Options Exchange Fee Schedule,
Options Logical Port Fees; Cboe C2 Options
Exchange Fee Schedule, Options Logical Port Fees
and Cboe BZX Options Exchange Fee Schedule,
Options Logical Port Fees.
26 See Cboe BZX Options Exchange Fee Schedule,
Options Logical Port Fees.
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BOX Logical Ports, BOE Bulk Ports will
also entitle a firm to submit message
traffic of up to specified number of
quotes/orders per second.21 The
proposed BOE Bulk ports also provide
for significantly more message traffic as
compared to current CMI/FIX Login IDs,
as shown below:
CMI/FIX login Ids
5,000 quotes/3 sec 23 .......................................
$750 each ........................................................
$0.15 per quote/3 sec ......................................
Fmt 4703
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69431
225,000 quotes 3 sec.
$1,500/$2,500/$3,000 each.
$0.006/$0.011/$0.013 per quote/3 sec.
of data from the Exchange’s Multicast
PITCH/Top data feeds. The Exchange’s
Multicast PITCH/Top data feeds are
available from two primary feeds,
identified as the ‘‘A feed’’ and the ‘‘C
feed’’, which contain the same
information but differ only in the way
such feeds are received. The Exchange
also offers two redundant feeds,
identified as the ‘‘B feed’’ and the ‘‘D
feed.’’ All secondary feed Spin and GRP
Ports will be provided for redundancy at
no additional cost. The Exchange notes
a dedicated Spin and GRP Port is not
required nor necessary. Rather, Spin
ports enable a market participant to
receive a snapshot of the current book
quickly in the middle of the trading
session without worry of gap request
limits and GRP Ports were specially
developed to request and receive
retransmission of data in the event of
missed or dropped message. The
Exchange notes that the proposed fee is
in line with the fee assessed for the
same ports on BZX Options.26
Access Credits
The Exchange next proposes to amend
its Affiliate Volume Plan (‘‘AVP’’) to
provide Market-Makers an opportunity
to obtain credits on their monthly BOE
Bulk Port Fees.27 By way of background,
under AVP, if a TPH Affiliate 28 or
Appointed OFP 29 (collectively, an
27 As noted above, while BOE Bulk Ports will be
available to all market participants, the Exchange
anticipates they will be used primarily by Market
Makers or firms that conduct similar business
activity.
28 For purposes of AVP, ‘‘Affiliate’’ is defined as
having at least 75% common ownership between
the two entities as reflected on each entity’s Form
BD, Schedule A.
29 See Cboe Options Fees Schedule Footnote 23.
Particularly, a Market-Maker may designate an
Order Flow Provider (‘‘OFP’’) as its ‘‘Appointed
OFP’’ and an OFP may designate a Market-Maker
to be its ‘‘Appointed Market-Maker’’ for purposes of
qualifying for credits under AVP.
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‘‘affiliate’’) of a Market-Maker qualifies
under the Volume Incentive Program
(‘‘VIP’’) (i.e., achieves VIP Tiers 2–5),
that Market-Maker will also qualify for
a discount on that Market-Maker’s
Liquidity Provider (‘‘LP’’) Sliding Scale
transaction fees and Trading Permit
fees. The Exchange proposes to amend
AVP to provide that qualifying MarketMakers will receive a discount on Bulk
Port fees (instead of Trading Permits)
where an affiliate achieves VIP Tiers 4
or 5. As discussed more fully below, the
Exchange is amending its Trading
Permit structure, such that off-floor
Market-Makers no longer need to hold
more than one Market-Maker Trading
Permit. As such, in place of credits for
Trading Permits, the Exchange will
provide credits for BOE Bulk Ports.30
The proposed credits are as follows:
Market maker affiliate access credit
Credit Tier ................................................................................................................................................................
The Exchange believes the proposed
change to AVP continues to allow the
Exchange to provide TPHs that have
both Market-Maker and agency
operations reduced Market-Maker costs
via the credits, albeit credits on BOE
Bulk Port fees instead of Trading Permit
fees. AVP also continues to provide
incremental incentives for TPHs to
strive for the higher tier levels, which
provide increasingly higher benefits for
satisfying increasingly more stringent
criteria.
In addition to the opportunity to
receive credits via AVP, the Exchange
proposes to provide an additional
opportunity for Market-Makers to obtain
credits on their monthly BOE Bulk Port
fees based on the previous month’s
make rate percentage. By way of
background, the Liquidity Provider
Sliding Scale Adjustment Table
provides that Taker fees be applied to
electronic ‘‘Taker’’ volume and a Maker
rebate be applied to electronic ‘‘Maker’’
volume, in addition to the transaction
fees assessed under the Liquidity
Provider Sliding Scale.31 The amount of
the Taker fee (or Maker rebate) is
determined by the Liquidity Provider’s
percentage of volume from the previous
month that was Maker (‘‘Make Rate’’).32
1
2
3
4
5
0
0
0
15
25
Market-Makers are given a Performance
Tier based on their Make Rate
percentage which currently provides
adjustments to transaction fees. Thus,
the program is designed to attract
liquidity from traditional MarketMakers. The Exchange proposes to now
also provide BOE Bulk Port fee credits
if Market-Makers satisfy the thresholds
of certain Performance Tiers.
Particularly, the Performance Tier
earned will also determine the
percentage credit applied to a MarketMaker’s monthly BOE Bulk Port fees, as
shown below:
Liquidity
provider
sliding scale
adjustment
performance
tier
Market maker access credit
Credit Tier ....................................................................................................................................
khammond on DSKJM1Z7X2PROD with NOTICES
% Credit on
monthly BOE
bulk port fees
VIP tier
Make rate
(% based on
prior month)
1
2
3
4
5
0–50 ...............
Above 50–60
Above 60–75
Above 75–90
Above 90 .......
% Credit on
monthly BOE
bulk port fees
0
0
0
40
40
The Exchange believes the proposal
mitigates costs incurred by traditional
Market-Makers that focus on adding
liquidity to the Exchange (as opposed to
those that provide and take, or just
take). The Exchange lastly notes that
both the Market-Maker Affiliate Access
Credit under AVP and the Market-Maker
Access Credit tied to Performance Tiers
can both be earned by a TPH, and these
credits will each apply to the total
monthly BOE Bulk Port Fees including
any incremental BOE Bulk Port fees
incurred, before any credits/adjustments
have been applied (i.e., an electronic
MM can earn a credit from 15% to
65%).
Bandwidth Packets
30 The Exchange notes that Trading Permits
currently each include a set bandwidth allowance
and 3 logins. Current logins and bandwidth are akin
to the proposed logical ports, including BOE Bulk
Ports which will primarily be used by MarketMakers.
31 See Cboe Options Exchange Fees Schedule,
Liquidity Provider Sliding Scale Adjustment Table.
32 More specifically, the Make Rate is derived
from a Liquidity Provider’s electronic volume the
previous month in all symbols excluding
Underlying Symbol List A using the following
formula: (i) The Liquidity Provider’s total electronic
automatic execution (‘‘auto-ex’’) volume (i.e.,
volume resulting from that Liquidity Provider’s
resting quotes or single sided quotes/orders that
were executed by an incoming order or quote),
divided by (ii) the Liquidity Provider’s total autoex volume (i.e., volume that resulted from the
Liquidity Provider’s resting quotes/orders and
volume that resulted from that LP’s quotes/orders
that removed liquidity). For example, a TPH’s
electronic Make volume in September 2019 is
2,500,000 contracts and its total electronic auto-ex
volume is 3,000,000 contracts, resulting in a Make
Rate of 83% (Performance Tier 4). As such, the TPH
would receive a 40% credit on its monthly Bulk
Port fees for the month of October 2019. For the
month of October 2019, the Exchange will be billing
certain incentive programs separately, including the
Liquidity Provider Sliding Scale Adjustment Table,
for the periods of October 1–October 4 and October
7–October 31 in light of the migration of its billing
system. As such, a Market-Maker’s Performance
Tier for November 2019 will be determined by the
Market-Maker’s percentage of volume that was
Maker from the period of October 7–October 31,
2019.
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As described above, post-migration,
the Exchange utilizes a variety of logical
ports. Part of this functionality is similar
to bandwidth packets that were
previously available on the Exchange.
Bandwidth packets restricted the
maximum number of orders and quotes
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per second. Post-migration, market
participants may similarly have
multiple Logical Ports and/or BOE Bulk
Ports as they may have had bandwidth
packets to accommodate their order and
quote entry needs. As such, the
Exchange proposes to eliminate all of
the current Bandwidth Packet fees.33
The Exchange believes that the
proposed pricing implications of going
beyond specified bandwidth described
above in the logical connectivity fees
section will be able to otherwise
mitigate message traffic as necessary.
CAS Servers
By way of background, in order to
connect to the legacy Cboe Command,
which allowed a TPH to trade on the
Cboe Options System, a TPH had to
connect via either a CMI or FIX interface
(depending on the configuration of the
TPH’s own systems). For TPHs that
connected via a CMI interface, they had
to use CMI CAS Servers. In order to
ensure that a CAS Server was not
overburdened by quoting activity for
Market-Makers, the Exchange allotted
each Market-Maker a certain number of
CASs (in addition to the shared
backups) based on the amount of
quoting bandwidth that they had. The
Exchange no longer uses CAS Servers,
post-migration. In light of the
elimination of CAS Servers, the
Exchange proposes to eliminate the CAS
Server allotment table and extra CAS
Server fee.
khammond on DSKJM1Z7X2PROD with NOTICES
Trading Permit Fees
By way of background, the Exchange
may issue different types of Trading
Permits and determine the fees for those
Trading Permits.34 Pre-migration, the
Exchange issued the following three
types of Trading Permits: (1) MarketMaker Trading Permits, which were
assessed a monthly fee of $5,000 per
permit; (2) Floor Broker Trading
Permits, which were assessed a monthly
fee of $9,000 per permit; and (3)
Electronic Access Permits (‘‘EAPs’’),
which were assessed a monthly fee of
$1,600 per. The Exchange also offered
separate Market-Maker and Electronic
Access Permits for the Global Trading
Hours (‘‘GTH’’) session, which were
assessed a monthly fee of $1,000 per
permit and $500 per permit
33 See Cboe Options Fees Schedule, Bandwidth
Packet Fees.
34 See Cboe Options Rules 3.1(a)(iv)–(v).
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respectively.35 For further color, a
Market-Maker Trading Permit entitled
the holder to act as a Market-Maker,
including a Market-Maker trading
remotely, DPM, eDPM, or LMM, and
also provided an appointment credit of
1.0, a quoting and order entry
bandwidth allowance, up to three
logins, trading floor access and TPH
status.36 A Floor Broker Trading Permit
entitled the holder to act as a Floor
Broker, provided an order entry
bandwidth allowance, up to 3 logins,
trading floor access and TPH status.37
Lastly, an EAP entitled the holder to
electronic access to the Exchange.
Holders of EAPs must have been brokerdealers registered with the Exchange in
one or more of the following capacities:
(a) Clearing TPH, (b) TPH organization
approved to transact business with the
public, (c) Proprietary TPHs and (d)
order service firms. The permit did not
provide access to the trading floor. An
EAP also provided an order entry
bandwidth allowance, up to 3 logins
and TPH status.38 The Exchange also
provided an opportunity for TPHs to
pay reduced rates for Trading Permits
via the Market Maker and Floor Broker
Trading Permit Sliding Scale Programs
(‘‘TP Sliding Scales’’). Particularly, the
TP Sliding Scales allowed MarketMakers and Floor Brokers to pay
reduced rates for their Trading Permits
if they committed in advance to a
specific tier that includes a minimum
number of eligible Market-Maker and
Floor Broker Trading Permits,
respectively, for each calendar year.39
As noted above, Trading Permits were
tied to bandwidth allocation, logins and
appointment costs, and as such, TPH
organizations may hold multiple
Trading Permits of the same type in
order to meet their connectivity and
appointment cost needs. Post-Migration,
bandwidth allocation, logins and
appointment costs are no longer tied to
a Trading Permit, and as such, the
Exchange proposes to modify its
Trading Permit structure. Particularly,
35 The fees were waived through September 2019
for the first Market-Maker and Electronic Access
GTH Trading Permits.
36 See Cboe Options Fees Schedule.
37 Id.
38 Id.
39 Due to the October 7 migration, the Exchange
had amended the TP Sliding Scale Programs to
provide that any commitment to Trading Permits
under the TP Sliding Scales shall be in place
through September 2019, instead of the calendar
year. See Cboe Options Fees Schedule, Footnotes 24
and 25.
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69433
in connection with the migration, the
Exchange adopted separate on-floor and
off-floor Trading Permits for MarketMakers and Floor Brokers, adopted a
new Clearing TPH Permit, and proposes
to modify the corresponding fees and
discounts. As was the case premigration, the proposed access fees
discussed below will continue to be
non-refundable and will be assessed
through the integrated billing system
during the first week of the following
month. If a Trading Permit is issued
during a calendar month after the first
trading day of the month, the access fee
for the Trading Permit for that calendar
month is prorated based on the
remaining trading days in the calendar
month. Trading Permits will be renewed
automatically for the next month unless
the Trading Permit Holder submits
written notification to the Membership
Services Department by 4 p.m. CT on
the second-to-last business day of the
prior month to cancel the Trading
Permit effective at or prior to the end of
the applicable month. Trading Permit
Holders will only be assessed a single
monthly fee for each type of electronic
Trading Permit it holds.
First, TPHs no longer need to hold
multiple permits for each type of
electronic Trading Permit (i.e.,
electronic Market-Maker Trading
Permits and/or and Electronic Access
Permits). Rather, for electronic access to
the Exchange, a TPH need only
purchase one of the following permit
types for each trading function the TPH
intends to perform: Market-Maker
Electronic Access Permit (‘‘MM EAP’’)
in order to act as an off-floor MarketMaker and which will continue to be
assessed a monthly fee of $5,000,
Electronic Access Permit (‘‘EAP’’) in
order to submit orders electronically to
the Exchange 40 and which will be
assessed a monthly fee of $3,000, and a
Clearing TPH Permit, for TPHs acting
solely as a Clearing TPH, which will be
assessed a monthly fee of $2,000 (and is
more fully described below). For
example, a TPH organization that
wishes to act as a Market-Maker and
also submit orders electronically in a
non-Market Maker capacity would have
to purchase one MM EAP and one EAP.
TPHs will be assessed the monthly fee
for each type of Permit once per
electronic access capacity.
40 EAPs may be purchased by TPHs that both
clear transactions for other TPHs (i.e., a ‘‘Clearing
TPH’’) and submit orders electronically.
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khammond on DSKJM1Z7X2PROD with NOTICES
Next, the Exchange proposes to adopt
a new Trading Permit, exclusively for
Clearing TPHs that are approved to act
solely as a Clearing TPH (as opposed to
those that are also approved in a
capacity that allows them to submit
orders electronically). Currently any
TPH that is registered to act as a
Clearing TPH must purchase an EAP,
whether or not that Clearing TPH acts
solely as a Clearing TPH or acts as a
Clearing TPH and submits orders
electronically. The Exchange proposes
to adopt a new Trading Permit, for any
TPH that is registered to act solely as
Clearing TPH at a discounted rate of
$2,000 per month.41
Additionally, the Exchange proposes
to eliminate its fees for Global Trading
Hours Trading Permits. Particularly, the
Exchange proposes to provide that any
Market-Maker EAP, EAP and Clearing
TPH Permit provides access (at no
additional cost) to the GTH session.42
Additionally, the Exchange proposes to
amend Footnote 37 of the Fees Schedule
regarding GTH in connection with the
migration. Currently Footnote 37
provides that separate access permits
and connectivity is needed for the GTH
session. The Exchange proposes to
eliminate this language as that is no
longer the case post-migration (i.e., an
electronic Trading Permits will grant
access to both sessions and physical and
logical ports may be used in both
sessions, eliminating the need to
purchase separate connectivity). The
Exchange also notes that in connection
with migration, the Book used during
Regular Trading Hours (‘‘RTH’’) will be
the same Book used during GTH (as
compared to pre-migration where the
Exchange maintained separate Books for
each session). The Exchange therefore
also proposes to eliminate language in
Footnote 37 stating that GTH is a
segregated trading session and that there
is no market interaction between the
two sessions.
The Exchange next proposes to adopt
MM EAP Appointment fees. By way of
background, a registered Market-Maker
may currently create a Virtual Trading
Crowd (‘‘VTC’’) Appointment, which
confers the right to quote electronically
in an appropriate number of classes
selected from ‘‘tiers’’ that have been
structured according to trading volume
statistics, except for the AA tier.43 Each
Trading Permit historically held by a
Market-Maker had an appointment
credit of 1.0. A Market-Maker could
select for each Trading Permit the
Market-Maker held any combination of
classes whose aggregate appointment
cost did not exceed 1.0. A Market-Maker
could not hold a combination of
appointments whose aggregate
appointment cost was greater than the
number of Trading Permits that MarketMaker held.44
As discussed, post-migration,
bandwidth allocation, logins and
appointment costs are no longer tied to
a single Trading Permit and therefore
TPHs no longer need to have multiple
permits for each type of electronic
Trading Permit. Market-Makers must
still select class appointments in the
classes they seek to make markets
electronically.45 Particularly, a MarketMaker firm will only be required to have
one permit and will thereafter be
charged for one or more ‘‘Appointment
Units’’ (which will scale from 1 ‘‘unit’’
to more than 5 ‘‘units’’), depending on
which classes they elect appointments
in. Appointment Units will replace the
standard 1.0 appointment cost, but
function in the same manner.
Appointment weights (formerly known
as ‘‘appointment costs’’) for each
appointed class will be set forth in Cboe
Options Rule 5.50(g) and will be
summed for each Market-Maker in order
to determine the total appointment
units, to which fees will be assessed.
This was the manner in which the tier
costs per class appointment were
summed to meet the 1.0 appointment
cost, the only difference being that if a
Market-Maker exceeds this ‘‘unit’’, then
their fees will be assessed under the
‘‘unit’’ that corresponds to the total of
their appointment weights, as opposed
to holding another Trading Permit
because it exceeded the 1.0 ‘‘unit’’.
Particularly, the Exchange proposes to
adopt a new MM EAP Appointment
Sliding Scale. Appointment Units for
each assigned class will be aggregated
for each Market-Maker and MarketMaker affiliate. If the sum of
appointments is a fractional amount, the
total will be rounded up to the next
highest whole Appointment Unit. The
following lists the progressive monthly
fees for Appointment Units: 46
Market-maker EAP appointments
Quantity
Appointment Units ...................................................................................................................................................
1 .....................
2 .....................
3 to 5 .............
>5 ...................
Monthly fees
(per unit)
$0
6,000
4,000
3,100
As noted above, upon migration the
Exchange required separate Trading
Permits for on-floor and off-floor
activity. As such, the Exchange
proposes to maintain a Floor Broker
Trading Permit and adopt a new MarketMaker Floor Permit for on-floor MarketMakers. In addition, RUT, SPX, and VIX
Tier Appointment fees will be charged
separately for Permit, as discussed more
fully below.
As briefly described above, the
Exchange currently maintains TP
Sliding Scales, which allow MarketMakers and Floor Brokers to pay
reduced rates for their Trading Permits
if they commit in advance to a specific
tier that includes a minimum number of
eligible Market-Maker and Floor Broker
Trading Permits, respectively, for each
calendar year. The Exchange proposes
to eliminate the current TP Sliding
Scales, including the requirement to
commit to a specific tier, and replace it
41 Cboe Option Rules provides the Exchange
authority to issue different types of Trading Permits
which allows holders, among other things, to act in
one or more trading functions authorized by the
Rules. See Cboe Options Rule 3.1(a)(iv). The
Exchange notes that currently 17 out of 38 Clearing
TPHs are acting solely as a Clearing TPH on the
Exchange.
42 The Exchange notes that Clearing TPHs must be
properly authorized by the Options Clearing
Corporation (‘‘OCC’’) to operate during the Global
Trading Hours session and all TPHs must have a
Letter of Guarantee to participate in the GTH
session (as is the case today).
43 See Cboe Options Rule 5.50 (Appointment of
Market-Makers).
44 For example, if a Market-Maker selected a
combination of appointments that has an aggregate
appointment cost of 2.5, that Market-Maker must
hold at least 3 Market-Maker Trading Permits.
45 See Cboe Options Rule 5.50(a).
46 For example, if a Market-Maker’s total
appointment costs amount to 3.5 unites, the Market-
Maker will be assessed a total monthly fee of
$14,000 (1 appointment unit at $0, 1 appointment
unit at $6,000 and 2 appointment units at $4,000)
as and for appointment fees and $5,000 for a
Market-Maker Trading Permit, for a total monthly
sum of $19,000, where a Market-Maker currently
(i.e., prior to migration) with a total appointment
cost of 3.5 would need to hold 4 Trading Permits
and would therefore be assessed a monthly fee of
$20,000.
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69435
with new TP Sliding Scales as
follows: 47
Current
permit qty
Market-Maker Floor Permit .............................
1–10 ...............................................................
11–20 .............................................................
21 or more ......................................................
$5,000
3,700
1,800
Floor Broker Permit .........................................
1 .....................................................................
2–5 .................................................................
6 or more ........................................................
9,000
5,000
3,000
Floor Broker ADV Discount
Footnote 25, which governs rebates on
Floor Broker Trading Permits, currently
provides that any Floor Broker that
executes a certain average of customer
or professional customer/voluntary
customer (collectively ‘‘customer’’)
open-outcry contracts per day over the
course of a calendar month in all
underlying symbols excluding
Underlying Symbol List A (except RLG,
RLV, RUI, and UKXM), DJX, XSP, and
subcabinet trades (‘‘Qualifying
Symbols’’), will receive a rebate on that
TPH’s Floor Broker Trading Permit Fees.
khammond on DSKJM1Z7X2PROD with NOTICES
Current
monthly fee
(per permit)
Floor TPH permits
Specifically, any Floor Broker Trading
Permit Holder that executes an average
of 15,000 customer (‘‘C’’ origin code)
and/or professional customer and
voluntary customer (‘‘W’’ origin code)
open-outcry contracts per day over the
course of a calendar month in
Qualifying Symbols will receive a rebate
of $9,000 on that TPH’s Floor Broker
Trading Permit fees. Additionally, any
Floor Broker that executes an average of
25,000 customer open-outcry contracts
per day over the course of a calendar
month in Qualifying Symbols will
receive a rebate of $14,000 on that
Proposed permit qty
1
2 to 5
6 to 10
>10
1
2 to 3
4 to 5
>5
Proposed
monthly fee
(per permit)
$6,000
4,500
3,500
2,000
7,500
5,700
4,500
3,200
TPH’s Floor Broker Trading Permit fees.
The Exchange proposes to maintain, but
modify, its discount for Floor Broker
Trading Permit fees. First, the
measurement criteria to qualify for a
rebate will be modified to only include
customer (‘‘C’’ origin code) open-outcry
contracts executed per day over the
course of a calendar month in all
underlying symbols, while the rebate
amount will be modified to be a
percentage of the TPH’s Floor Broker
Permit total costs, instead of a straight
rebate.48 The criteria and corresponding
percentage rebates are noted below.49
Floor broker ADV discount tier
ADV
1 ..............................................................................................................................................................
2 ..............................................................................................................................................................
3 ..............................................................................................................................................................
0 to 99,999 .....................
100,000 to 174,999 ........
>174,999 ........................
Floor broker
permit rebate
(percent)
0
15
25
Next, the Exchange proposes to
modify its SPX, VIX and RUT Tier
Appointment Fees. Currently, these fees
are assessed to any Market-Maker TPH
that either (i) has the respective SPX,
VIX or RUT appointment at any time
during a calendar month and trades a
specified number of contracts or (ii)
trades a specified number of contracts in
open outcry during a calendar month.
More specifically, the Fees Schedule
provides that the $3,000 per month SPX
Tier Appointment is assessed to any
Market-Maker Trading Permit Holder
that either (i) has an SPX Tier
Appointment at any time during a
calendar month and trades at least 100
SPX contracts while that appointment is
active or (ii) conducts any open outcry
transaction in SPX or SPX Weeklys at
any time during the month. The $2,000
per month VIX Tier Appointment is
assessed to any Market-Maker Trading
Permit Holder that either (i) has an SPX
Tier Appointment at any time during a
calendar month and trades at least 100
VIX contracts while that appointment is
active or (ii) conducts at least 1,000
open outcry transaction in VIX at any
time during the month. Lastly, the
$1,000 RUT Tier Appointment is
assessed to any Market-Maker Trading
Permit Holder that either (i) has an RUT
Tier Appointment at any time during a
calendar month and trades at least 100
RUT contracts while that appointment
is active or (ii) conducts at least 1,000
open outcry transaction in RUT at any
time during the month.
Because the Exchange is separating
Market-Maker Trading Permits for
electronic and open-outcry marketmaking, the Exchange will be assessing
separate Tier Appointment Fees for each
type of Market-Maker Trading Permit.
The Exchange proposes that a MM EAP
will be assessed the Tier Appointment
Fee whenever the Market-Maker
executes the corresponding specified
number of contracts, if any. The
Exchange also proposes to modify the
threshold number of contracts a MarketMaker must execute in a month to
trigger the fee for SPX, VIX and RUT.
Particularly, for SPX, the Exchange
proposes to eliminate the 100 contract
threshold for electronic SPX executions.
The Exchange notes that historically, all
TPHs that trade SPX electronically
executed more than 100 contracts
electronically each month (i.e., no TPH
electronically traded between 1 and 100
contracts of SPX). As no TPH would
currently be negatively impacted by this
change, the Exchange proposes to
eliminate the threshold for SPX and
align the electronic SPX Tier
Appointment Fee with that of the floor
SPX Tier Appointment Fee, which is
47 In light of the proposed change to eliminate the
TP Sliding Scale, the Exchange proposes to
eliminate Footnote 24 in its entirety.
48 As is the case today, the Floor Broker ADV
Discount will be available for all Floor Broker
Trading Permits held by affiliated Trading Permit
Holders and TPH organizations.
49 In light of the proposal to eliminate the TP
Sliding Scales and the Floor Broker rebates
currently set forth under Footnote 25, the Exchange
proposes to eliminate Footnote 25 in its entirety.
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not subject to any executed volume
threshold. For the VIX and RUT Tier
appointments, the Exchange proposes to
increase the threshold from 100
contracts a month to 1,000 contracts a
month. The Exchange notes the Tier
Appointment Fee amounts are not
changing.50 In connection with the
proposed changes, the Exchange
proposes to relocate the Tier
Appointment Fees to a new table and
eliminate the language in the current
respective notes sections of each Tier
Appointment Fee as it is no longer
necessary.
Trading Permit Holder Regulatory Fee
The Fees Schedule provides for a
Trading Permit Holder Regulatory Fee of
$90 per month, per RTH Trading Permit,
applicable to all TPHs, which fee helps
more closely cover the costs of
regulating all TPHs and performing
regulatory responsibilities. In light of
the changes to the Exchange’s Trading
Permit structure, the Exchange proposes
to eliminate the TPH Regulatory Fee.
The Exchange notes that there is no
regulatory requirement to maintain this
fee.
2. Statutory Basis
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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.51 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 52 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,53 which
requires that Exchange rules provide for
50 Floor Broker Trading Surcharges for SPX/
SPXW and VIX are also not changing. The Exchange
however, is creating a new table for Floor Broker
Trading Surcharges and relocating such fees in the
Fees Schedule in connection with the proposal to
eliminate fees currently set forth in the ‘‘Trading
Permit and Tier Appointment Fees’’ Table.
51 15 U.S.C. 78f(b).
52 15 U.S.C. 78f(b)(5).
53 15 U.S.C. 78f(b)(4).
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the equitable allocation of reasonable
dues, fees, and other charges among its
Trading Permit Holders and other
persons using its facilities. Additionally,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 54 requirement that the rules of
an exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange first notes that the
proposed changes were not designed
with the objective to generate an overall
increase in access fee revenue, as
demonstrated by the anticipated loss of
revenue discussed above. Rather, the
proposed changes were prompted by the
Exchange’s technology migration and
the adoption of a new (and improved)
connectivity infrastructure, rendering
the pre-migration structure obsolete.
Such changes accordingly necessitated
an overhaul of the Exchange’s previous
access fee structure and corresponding
fees. Moreover, the proposed changes
more closely aligns the Exchange’s
access fees to those of its Affiliated
Exchanges, and reasonably so, as the
Affiliated Exchanges offer substantially
similar connectivity and functionality
and are on the same platform that the
Exchange has now migrated to.
The Exchange also notes that it
operates in a highly competitive
environment. Indeed, there are currently
16 registered options exchanges that
trade options. There is also no
regulatory requirement that any market
participant connect to any one options
exchange, or that any market participant
connect at a particular connection speed
or act in a particular capacity on the
Exchange. Moreover, membership is not
a requirement to participate on the
Exchange. Indeed, the Exchange is
unaware of any one options exchange
whose membership includes every
registered broker-dealer. Even the
number of members between the
Exchange and its 3 other options
exchange affiliates vary. Indeed, a
number of firms currently do not
participate on the Exchange, or
participate on the Exchange through
sponsored access arrangements rather
than by becoming a member.
Particularly, the Exchange notes that as
of August 2019, the Exchange had 97
members (TPH organizations), of which
only 45 directly connected to the
Exchange. The Exchange notes that in
November 2019, the Exchange had 96
members (TPH organizations), of which
only 43 directly connected to the
Exchange. The Exchange notes the 43
TPH organizations connecting directly
to the Exchange in November accounts
54 15
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for approximately 75% of the
Exchange’s volume in November. The
remaining 55 members connect
indirectly to the Exchange and account
for approximately 25% of the
Exchange’s volume in November. The
Exchange notes that multiple types of
members connect indirectly to the
Exchange including Clearing firms,
Floor Brokers, order flow provides, and
on-floor and off-floor Market-Makers. In
addition, of those market participants
that do connect to the Exchange, it is the
individual needs of each market
participant that determine the amount
and type of Trading Permits and
physical and logical connections to the
Exchange.55
Moreover, the Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Particularly, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 56 The
number of available exchanges to
connect to ensures increased
competition in the marketplace, and
constrains the ability of exchanges to
charge supracompetitive fees for access
to its market. Additionally, the
Exchange notes that non-TPHs such as
Service Bureaus and Extranets resell
Cboe Options connectivity.57 This
indirect connectivity is another viable
alternative that is already being used by
non-TPHs, further constraining the price
that the Exchange is able to charge for
connectivity to its Exchange.
Accordingly, in the event that a market
participant views one exchange’s direct
connectivity and access fees as more or
55 To assist market participants that are connected
or considering connecting to the Exchange, the
Exchange provides detailed information and
specifications about its available connectivity
alternatives in the Cboe C1 Options Exchange
Connectivity Manual, as well as the various
technical specifications. See https://
markets.cboe.com/us/options/support/technical/.
56 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
57 Prior to migration, there were 13 firms that
resold Cboe Options connectivity. Post-migration,
the Exchange anticipated that there would be 19
firms that resell Cboe Options connectivity (both
physical and logical) and currently there are in fact
17 firms that resell Cboe Options connectivity. The
Exchange does not receive any connectivity revenue
when connectivity is resold by a third-party, which
often is resold to multiple customers, some of
whom are agency broker-dealers that have
numerous customers of their own.
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less attractive than the competition they
can choose to connect to that exchange
indirectly or may choose not to connect
to that exchange and connect instead to
one or more of the other 15 options
markets. For example, two TPHs that
connected directly to the Exchange premigration, now connect indirectly via
an extranet provider. The Exchange
notes that it has not received any
comments or evidence to suggest the
two TPHs that transitioned from direct
connections to an indirect connections
post-migration were the result of an
undue financial burden resulting from
the proposed fee changes. Rather, the
Exchange believes the transitions
demonstrate that indirect connectivity is
in fact a viable option for market
participants, therefore reflecting a
competitive environment.
Moreover, the Commission itself has
recognized that while some exchanges
may have a unique business model that
is not currently offered by competitors,
it believes a competitor could create
similar business models if demand were
adequate, and if they did not do so, the
Commission believes it would be likely
that new entrants would do so if the
exchange with that unique business
model was otherwise profitable.58
Similarly, while some exchanges may
have exclusively-listed proprietary
products, such Exchanges are still
subject to competitive constraints as
such products may compete with other
multi-listed products or alternative
proprietary products on other
exchanges, as well as alternative Overthe-Counter (OTC) products. For
example, singly-listed XSP options may
compete with the multiply-listed SPY
options. Additionally, market
participants may still trade an
Exchange’s proprietary products
through a third-party without directly or
indirectly connecting to the Exchange.
The proposed fees therefore reflect a
competitive environment, as the
Exchange seeks to amend its access fees
in connection with the migration of its
technology platform, while still
attracting market participants to
continue to be, or become, connected to
the Exchange.
In determining the proposed fee
changes discussed above, the Exchange
reviewed the current competitive
landscape, considered the fees
historically paid by market participants
for connectivity to the pre-migration
system, and also assessed the impact on
market participants to ensure that the
proposed fees would not create an
58 See
Securities Exchange Act Release No. 86901
(September 9, 2019), 84 FR 48458 (September 13,
2019) (File No. S7–13–19).
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undue financial burden on any market
participants, including smaller market
participants. Indeed, the Exchange
received no comments from any TPH
suggesting they were unduly burdened
by the proposed changes described
herein, which were first announced via
Exchange Notice nearly two months in
advance of the migration, nor were any
timely comment letters received by the
Commission by the comment period
submission deadline of November 12,
2019.59
The proposed connectivity structure
and corresponding fees, like the premigration connectivity structure and
fees, provide market participants
flexibility with respect to how to
connect to the Exchange based on each
market participants’ respective business
needs. For example, the amount and
type of physical and logical ports are
determined by factors relevant and
specific to each market participant,
including its business model, costs of
connectivity, how its business is
segmented and allocated and volume of
messages sent to the Exchange.
Moreover, the proposed connectivity
structure is designed to encourage
market participants to be efficient with
their physical and logical port usage.
While the Exchange has no way of
predicting with certainty the amount or
type of connections market participants
will in fact purchase, if any, the
Exchange anticipates that like today,
some market participants will continue
to decline to connect and participate on
the Exchange, some will participate on
the Exchange via indirect connectivity,
some will only purchase one physical
connection and/or logical port
connection, and others will purchase
multiple connections.
Physical Ports
The Exchange believes increasing the
fee for the new 10 Gb Physical Port is
reasonable because unlike, the current
10 Gb Network Access Ports, the new
Physical Ports provides a connection
through a latency equalized
infrastructure with faster switches and
also allows access to both unicast order
entry and multicast market data with a
single physical connection. As
discussed above, legacy Network Access
Ports do not permit market participants
to receive unicast and multicast
connectivity. As such, in order to
receive both connectivity types premigration, a market participant needed
to purchase and maintain at least two 10
59 See Exchange Notice ‘‘Cboe Options Exchange
Access and Capacity Fee Schedule Changes
Effective October 1, 2019 and November 1, 2019’’
Reference ID C2019081900.
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69437
Gb Network Access Ports. The proposed
Physical Ports not only provide latency
equalization (i.e., eliminate latency
advantages between market participants
based on location) as compared to the
legacy ports, but also alleviate the need
to pay for two physical ports as a result
of needing unicast and multicast
connectivity. Accordingly, market
participants who historically had to
purchase two separate ports for each of
multicast and unicast activity, will be
able to purchase only one port, and
consequently pay lower fees overall. For
example, pre-migration if a TPH had
two 10 Gb legacy Network Access Ports,
one of which received unicast traffic
and the other of which received
multicast traffic, that TPH would have
been assessed $10,000 per month
($5,000 per port). Under the proposed
rule change, using the new Physical
Ports, that TPH has the option of
utilizing one single port, instead of two
ports, to receive both unicast and
multicast traffic, therefore paying only
$7,000 per month for a port that
provides both connectivity types. The
Exchange notes that pre-migration,
approximately 50% of TPHs maintained
two or more 10 Gb Network Access
Ports. While the Exchange has no way
of predicting with certainty the amount
or type of connections market
participants will in fact purchase postmigration, the Exchange anticipated
approximately 50% of the TPHs with
two or more 10 Gb Network Access
Ports to reduce the number of 10 Gb
Physical Ports that they purchase and
expected the remaining 50% of TPHs to
maintain their current 10 Gb Physical
Ports, but reduce the number of 1 Gb
Physical Ports. Particularly, premigration, a number of TPHs
maintained two 10 Gb Network Access
Ports to receive multicast data and two
1 Gb Network Access Ports for order
entry (unicast connectivity). As the new
10 Gb Physical Ports are able to
accommodate unicast connectivity
(order entry), TPHs may choose to
eliminate their 1 Gb Network Access
Ports and utilize the new 10 Gb Physical
Ports for both multicast and unicast
connectivity. The Exchange notes that
many market participants are still
transitioning to the new connectivity
structure and as such, the Exchange
does not expect its projections regarding
port purchases to be realized prior to
February 2020.
As discussed above, if a TPH deems
a particular exchange as charging
excessive fees for connectivity, such
market participants may opt to
terminate their connectivity
arrangements with that exchange, and
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adopt a possible range of alternative
strategies, including routing to the
applicable exchange through another
participant or market center or taking
that exchange’s data indirectly.
Accordingly, if the Exchange charges
excessive fees, it would stand to lose not
only connectivity revenues but also
revenues associated with the execution
of orders routed to it, and, to the extent
applicable, market data revenues. The
Exchange believes that this competitive
dynamic imposes powerful restraints on
the ability of any exchange to charge
unreasonable fees for physical
connectivity. The Exchange also notes
that the proposal represents an equitable
allocation of reasonable dues, fees and
other charges as its fees for physical
connectivity are reasonably constrained
by competitive alternatives, as
discussed above. The proposed amounts
are in line with, and in some cases
lower than, the costs of physical
connectivity at other Exchanges,60
including the Cboe Affiliated Exchanges
which have the same connectivity
infrastructure the Exchange has
migrated to.61 The Exchange does not
believe it is unreasonable to assess fees
that are in line with fees that have
already been established for the same
physical ports used to connect to the
same connectivity infrastructure and
common platform. The Exchange
believes the proposed Physical Port fees
are equitable and not unreasonably
discriminatory as the connectivity
pricing is associated with relative usage
of the various market participants and
the Exchange has not been presented
with any evidence to suggest its
proposed fee changes would impose a
barrier to entry for participants,
including smaller participants. In fact,
as noted above, the Exchange is
unaware of any market participant that
has terminated direct connectivity
solely as a result of the proposed fee
changes. The Exchange also believes
increasing the fee for 10 Gb Physical
Ports and charging a higher fee as
60 See e.g., Nasdaq PHLX and ISE Rules, General
Equity and Options Rules, General 8. Phlx and ISE
each charge a monthly fee of $2,500 for each 1Gb
connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection. See also
Nasdaq Price List—Trading Connectivity. Nasdaq
charges a monthly fee of $7,500 for each 10Gb
direct connection to Nasdaq and $2,500 for each
direct connection that supports up to 1Gb. See also
NYSE American Fee Schedule, Section V.B, and
Arca Fees and Charges, Co-Location Fees. NYSE
American and Arca each charge a monthly fee of
$5,000 for each 1Gb circuit, $14,000 for each 10Gb
circuit and $22,000 for each 10Gb LX circuit.
61 See e.g., Affiliated Exchange Fee Schedules,
Physical Connectivity Fees. For example, Cboe
BZX, Cboe EDGX and C2 each charge a monthly fee
of $2,500 for each 1Gb connection and $7,500 for
each 10Gb connection.
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compared to the 1 Gb Physical Port is
equitable as the 1 Gb Physical Port is 1/
10th the size of the 10 Gb Physical Port
and therefore does not offer access to
many of the products and services
offered by the Exchange (e.g., ability to
receive certain market data products).
Thus the value of the 1 Gb alternative
is lower than the value of the 10 Gb
alternative, when measured based on
the type of Exchange access it offers.
Moreover, market participants that
purchase 10 Gb Physical Ports utilize
the most bandwidth and therefore
consume the most resources from the
network. As such, the Exchange believes
the proposed fees for the 1 and 10 Gb
Physical Ports, respectively are
reasonably and appropriately allocated.
Data Port Fees
The Exchange believes assessing the
data port fee per data source, instead of
per port, is reasonable because it may
allow for market participants to
maintain more ports at a lower cost and
applies uniformly to all market
participants. The Exchange believes the
proposed increase is reasonable
because, as noted above, market
participants may pay lower fees as a
result of charging per data source and
not per data port. Indeed, while the
Exchange has no way of predicting with
certainty the impact of the proposed
changes, the Exchange had anticipated
approximately 76% of the 51 market
participants who pay data port fees to
pay the same or lower fees upon
implementation of the proposed change.
Currently, 46 market participants 62 pay
the proposed data port fees, of which
approximately 78% market participants
are paying the same or lower fees in
connection with the proposed change.
Monthly savings for firms paying lower
fees range from $500 to $6,000 per
month. The Exchange also anticipated
that 19% of TPHs who pay data port
fees would pay a modest increase of
only $500 per month. To date,
approximately 22% market participants
pay higher fees, with the majority of
those market participants paying a
modest monthly increase of $500 and
only 3 firms paying either $1,000 or
$1,500 more per month. Additionally as
discussed above, the Exchange’s affiliate
C2 has the same fee which is also
assessed at the proposed rate and
assessed by data source instead of per
port. The proposed name change is also
appropriate in light of the Exchange’s
62 The
Exchange notes the reduction in market
participants that pay the data port fee is due to firm
consolidations and acquisitions.
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proposed changes and may alleviate
potential confusion.
Logical Connectivity
Port Fees
The Exchange believes it’s reasonable
to eliminate certain fees associated with
legacy options for connecting to the
Exchange and to replace them with fees
associated with new options for
connecting to the Exchange that are
similar to those offered at its Affiliated
Exchanges. In particular, the Exchange
believes it’s reasonable to no longer
assess fees for CMI and FIX Login IDs
because the Login IDs were retired and
rendered obsolete upon migration and
because the Exchange is proposing to
replace them with fees associated with
the new logical connectivity options.
The Exchange believes that it is
reasonable to harmonize the Exchange’s
logical connectivity options and
corresponding connectivity fees now
that the Exchange is on a common
platform as its Affiliated Exchanges.
Additionally, the Exchange notes the
proposed fees are the same as, or in line
with, the fees assessed on its Affiliated
Exchanges for similar connectivity.63
The proposed logical connectivity fees
are also equitable and not unfairly
discriminatory because the Exchange
will apply the same fees to all market
participants that use the same respective
connectivity options.
The Exchange believes the proposed
Logical Port fees are reasonable as it is
the same fee for Drop Ports and the first
five BOE/FIX Ports that is assessed for
CMI and FIX Logins, which the
Exchange is eliminating in lieu of
logical ports. Additionally, while the
proposed ports will be assessed the
same monthly fees as current CMI/FIX
Login IDs, the proposed logical ports
provide for significantly more message
traffic. Specifically, the proposed BOE/
FIX Logical Ports will provide for 3
times the amount of quoting 64 capacity
and approximately 165 times order
entry capacity. Similarly, the Exchange
believes the proposed BOE Bulk Port
fees are reasonable because while the
fees are higher than the CMI and FIX
Login Id fees and the proposed Logical
Port fees, BOE Bulk Ports offer
significantly more bandwidth capacity
than both CMI and FIX Login Ids and
Logical Ports. Particularly, a single BOE
Bulk Port offers 45 times the amount of
quoting bandwidth than CMI/FIX Login
63 See Affiliated Exchange Fee Schedules, Logical
Port Fees.
64 Based on the purchase of a single Market-Maker
Trading Permit or Bandwidth Packet.
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Ids 65 and 5 times the amount of quoting
bandwidth than Logical Ports will offer.
Additionally, the Exchange believes that
its fees for logical connectivity are
reasonable, equitable, and not unfairly
discriminatory as they are designed to
ensure that firms that use the most
capacity pay for that capacity, rather
than placing that burden on market
participants that have more modest
needs. Although the Exchange charges a
‘‘per port’’ fee for logical connectivity, it
notes that this fee is in effect a capacity
fee as each FIX, BOE or BOE Bulk port
used for order/quote entry supports a
specified capacity (i.e., messages per
second) in the matching engine, and
firms purchase additional logical ports
when they require more capacity due to
their business needs.
An obvious driver for a market
participant’s decision to purchase
multiple ports will be their desire to
send or receive additional levels of
message traffic in some manner, either
by increasing their total amount of
message capacity available, or by
segregating order flow for different
trading desks and clients to avoid
latency sensitive applications from
competing for a single thread of
resources. For example, a TPH may
purchase one or more ports for its
market making business based on the
amount of message traffic needed to
support that business, and then
purchase separate ports for proprietary
trading or customer facing businesses so
that those businesses have their own
distinct connection, allowing the firm to
send multiple messages into the
Exchange’s trading system in parallel
rather than sequentially. Some TPHs
that provide direct market access to
their customers may also choose to
purchase separate ports for different
clients as a service for latency sensitive
customers that desire the lowest
possible latency to improve trading
performance. Thus, while a smaller TPH
that demands more limited message
traffic may connect through a service
bureau or other service provider, or may
choose to purchase one or two logical
ports that are billed at a rate of $750 per
month each, a larger market participant
with a substantial and diversified U.S.
options business may opt to purchase
additional ports to support both the
volume and types of activity that they
conduct on the Exchange. While the
Exchange has no way of predicting with
certainty the amount or type of logical
ports market participants will in fact
purchase post-migration, the Exchange
anticipated approximately 16% of TPHs
65 Based on the purchase of a single Market-Maker
Trading Permit or Bandwidth Packet.
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to purchase one to two logical ports, and
approximately 22% of TPHs to not
purchase any logical ports. To date,
13% of TPHs purchased one to two
logical ports and 27% have not
purchased any logical ports. At the same
time, market participants that desire
more total capacity due to their business
needs, or that wish to segregate order
flow by purchasing separate capacity
allocations to reduce latency or for other
operational reasons, would be permitted
to choose to purchase such additional
capacity at the same marginal cost. The
Exchange believes the proposal to assess
an additional Logical and BOE Bulk port
fee for incremental usage per logical
port is reasonable because the proposed
fees are modestly higher than the
proposed Logical Port and BOE Bulk
fees and encourage users to mitigate
message traffic as necessary. The
Exchange notes one of its Affiliated
Exchanges has similar implied port
fees.66
In sum, the Exchange believes that the
proposed BOE/FIX Logical Port and
BOE Bulk Port fees are appropriate as
these fees would ensure that market
participants continue to pay for the
amount of capacity that they request,
and the market participants that pay the
most are the ones that demand the most
resources from the Exchange. The
Exchange also believes that its logical
connectivity fees are aligned with the
goals of the Commission in facilitating
a competitive market for all firms that
trade on the Exchange and of ensuring
that critical market infrastructure has
‘‘levels of capacity, integrity, resiliency,
availability, and security adequate to
maintain their operational capability
and promote the maintenance of fair
and orderly markets.’’ 67
The Exchange believes waiving the
FIX/BOE Logical Port fee for one FIX
Logical Port used to access PULSe and
Silexx (for FLEX Trading) is reasonable
because it will allow all TPHs using
PULSe and Silexx to avoid having to
pay a fee that they would otherwise
have to pay. The waiver is equitable and
not unfairly discriminatory because
TPHs using PULSe are already subject to
a monthly fee for the PULSe
Workstation, which the Exchange views
as inclusive of fees to access the
Exchange. Moreover, while PULSe users
today do not require a FIX/CMI Login
Id, post-migration, due to changes to the
connectivity infrastructure, PULSe users
will be required to maintain a FIX
66 See e.g., Cboe C2 Options Exchange Fees
Schedule, Logical Connectivity Fees.
67 See Securities Exchange Act Release No. 73639
(November 19, 2014), 79 FR 72251 (December 5,
2014) (File No. S7–01–13) (Regulation SCI Adopting
Release).
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69439
Logical Port and as such incur a fee they
previously would not have been subject
to. Similarly, the Exchange believes that
the waiver for Silexx (for FLEX trading)
will encourage TPHs to transact
business using FLEX Options using the
new Silexx System and encourage
trading of FLEX Options. Additionally,
the Exchange notes that it currently
waives the Login Id fees for Login IDs
used to access the CFLEX system.
The Exchange believes its proposed
fee for Purge Ports is reasonable as it is
also in line with the amount assessed
for purge ports offered by its Affiliated
Exchanges, as well as other exchanges.68
Moreover, the Exchange believes that
offering purge port functionality at the
Exchange level promotes robust risk
management across the industry, and
thereby facilitates investor protection.
Some market participants, and, in
particular, larger firms, could build
similar risk functionality on their
trading systems that permit the flexible
cancellation of orders entered on the
Exchange. Offering Exchange level
protections however, ensures that such
functionality is widely available to all
firms, including smaller firms that may
otherwise not be willing to incur the
costs and development work necessary
to support their own customized mass
cancel functionality. The Exchange
operates in a highly competitive market
in which exchanges offer connectivity
and related services as a means to
facilitate the trading activities of TPHs
and other participants. As the proposed
Purge Ports provide voluntary risk
management functionality, excessive
fees would simply serve to reduce
demand for this optional product. The
Exchange also believes that the
proposed Purge Port fees are not
unfairly discriminatory because they
will apply uniformly to all TPHs that
choose to use dedicated Purge Ports.
The proposed Purge Ports are
completely voluntary and, as they relate
solely to optional risk management
functionality, no TPH is required or
under any regulatory obligation to
utilize them. The Exchange believes that
adopting separate fees for these ports
ensures that the associated costs are
borne exclusively by TPHs that
determine to use them based on their
business needs, including MarketMakers or similarly situated market
participants. Similar to Purge Ports,
Spin and GRP Ports are optional
products that provide an alternative
means for market participants to receive
68 See Affiliated Exchange Fee Schedules, Logical
Port Fees. See also; Nasdaq ISE Pricing Schedule,
Section 7(C). ISE charges a fee of $1,100 per month
for SQF Purge Ports.
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multicast data and request and receive
a retransmission of such data. As such
excessive fees would simply serve to
reduce demand for these products,
which TPHs are under no regulatory
obligation to utilize. All TPHs that
voluntarily select these service options
(i.e., Purge Ports, Spin Ports or GRP
Ports) will be charged the same amount
for the same respective services. All
TPHs have the option to select any
connectivity option, and there is no
differentiation among TPHs with regard
to the fees charged for the services
offered by the Exchange.
Access Credits
The Exchange believes the proposal to
adopt credits for BOE Bulk Ports is
reasonable, equitable and not unfairly
discriminatory because it provides an
opportunity for TPHs to pay lower fees
for logical connectivity. The Exchange
notes that the proposed credits are in
lieu of the current credits that MarketMakers are eligible to receive today for
Trading Permits fees. Although only
Market-Makers may receive the
proposed BOE Bulk Port credits,
Market-Makers are valuable market
participants that provide liquidity in the
marketplace and incur costs that other
market participants do not incur. For
example, Market-Makers have a number
of obligations, including quoting
obligations and fees associated with
appointments that other market
participants do not have. The Exchange
also believes that the proposals provide
incremental incentives for TPHs to
strive for the higher tier levels, which
provide increasingly higher benefits for
satisfying increasingly more stringent
criteria, including criteria to provide
more liquidity to the Exchange. The
Exchange believes the value of the
proposed credits is commensurate with
the difficulty to achieve the
corresponding tier thresholds of each
program.
First, the Exchange believes the
proposed BOE Bulk Port fee credits
provided under AVP will incentivize
the routing of orders to the Exchange by
TPHs that have both Market-Maker and
agency operations, as well as incent
Market-Makers to continue to provide
critical liquidity notwithstanding the
costs incurred with being a MarketMaker. More specifically, in the options
industry, many options orders are
routed by consolidators, which are firms
that have both order router and MarketMaker operations. The Exchange is
aware not only of the importance of
providing credits on the order routing
side in order to encourage the
submission of orders, but also of the
operations costs on the Market-Maker
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side. The Exchange believes the
proposed change to AVP continues to
allow the Exchange to provide relief to
the Market-Maker side via the credits,
albeit credits on BOE Bulk Port fees
instead of Trading Permit fees.
Additionally, the proposed credits may
incentivize and attract more volume and
liquidity to the Exchange, which will
benefit all Exchange participants
through increased opportunities to trade
as well as enhancing price discovery.
While the Exchange has no way of
predicting with certainty how many and
which TPHs will satisfy the required
criteria to receive the credits, the
Exchange had anticipated
approximately two TPHs (out of
approximately 5 TPHs that are eligible
for AVP) to reach VIP Tiers 4 or 5 and
consequently earn the BOE Bulk Port fee
credits for their respective MarketMaker affiliate. For the month of
October 2019, two TPHs received access
credits under Tier 5 and no TPHs
received credits under Tier 4. The
Exchange notes that it believes its
reasonable, equitable and not unfairly
discriminatory to no longer provider
access credits for Market-Makers whose
affiliates achieve VIP Tiers 2 or 3 as the
Exchange has adopted another
opportunity for all Market-Makers, not
just Market-Makers that are part of a
consolidator, to receive credits on BOE
Bulk Port fees (i.e., credits available via
the proposed Market-Maker Access
Credit Program). More specifically,
limiting the credits under AVP to the
top two tiers enables the Exchange to
provide further credits under the new
Market-Maker Access Credit Program.
Furthermore, the Exchange notes that it
is not required to provide any credits at
any tier level.
The Exchange believes the proposed
BOE Bulk Port fee credits available for
TPHs that reach certain Performance
Tiers under the Liquidity Provider
Sliding Scale Adjustment Table is
reasonable as the credits provide for
reduced connectivity costs for those
Market-Makers that reach the required
thresholds. The Exchange believe it’s
reasonable, equitable and not unfairly
discriminatory to provide credits to
those Market-Makers that primarily
provide and post liquidity to the
Exchange, as the Exchange wants to
continue to encourage Market-Makers
with significant Make Rates to continue
to participate on the Exchange and add
liquidity. Greater liquidity benefits all
market participants by providing more
trading opportunities and tighter
spreads.
Moreover, the Exchange notes that
Market-Makers with a high Make Rate
percentage generally require higher
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amounts of capacity than other MarketMakers. Particularly, Market-Makers
with high Make Rates are generally
streaming significantly more quotes
than those with lower Make Rates. As
such, Market-Makers with high Make
Rates may incur more costs than other
Market-Makers as they may need to
purchase multiple BOE Bulk Ports in
order to accommodate their capacity
needs. The Exchange believes the
proposed credits for BOE Bulk Ports
encourages Market-Makers to continue
to provide liquidity for the Exchange,
notwithstanding the costs incurred by
purchasing multiple ports. Particularly,
the proposal is intended to mitigate the
costs incurred by traditional MarketMakers that focus on adding liquidity to
the Exchange (as opposed to those that
provide and take, or just take). While
the Exchange cannot predict with
certainty which Market-Makers will
reach Performance Tiers 4 and 5 each
month, based on historical performance
it anticipated approximately 10 MarketMakers would achieve Tiers 4 or 5. In
October 2019, 12 Market-Makers
achieved Tiers 4 or 5. Lastly, the
Exchange notes that it is common
practice among options exchanges to
differentiate fees for adding liquidity
and fees for removing liquidity.69
Bandwidth Packets and CMI CAS Server
Fees
The Exchange believes it’s reasonable
to eliminate Bandwidth Packet fees and
the CMI CAS Server fee because TPHs
will not pay fees for these connectivity
options and because Bandwidth Packets
and CAS Servers have been retired and
rendered obsolete as part of the
migration. The Exchange believes that
even though it will be discontinuing
Bandwidth Packets, the proposed
incremental pricing for Logical Ports
and BOE Bulk Ports will continue to
encourage users to mitigate message
traffic. The proposed change is equitable
and not unfairly discriminatory because
it will apply uniformly to all TPHs.
Access Fees
The Exchange believes the
restructuring of its Trading Permits is
reasonable in light of the changes to the
Exchange’s connectivity infrastructure
in connection with the migration and
the resulting separation of bandwidth
allowance, logins and appointment
costs from each Trading Permit. The
Exchange also believes that it is
reasonable to harmonize the Exchange’s
Trading Permit structure and
corresponding connectivity options to
69 See e.g., MIAX Options Fees Schedule, Section
1(a), Market Maker Transaction Fees.
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more closely align with the structures
offered at its Affiliated Exchanges once
the Exchange is on a common platform
as its Affiliated Exchanges.70 The
proposed Trading Permit structure and
corresponding fees are also in line with
the structure and fees provided by other
exchanges. The proposed Trading
Permit fees are also equitable and not
unfairly discriminatory because the
Exchange will apply the same fees to all
market participants that use the same
type and number of Trading Permits.
With respect to electronic Trading
Permits, the Exchange notes that TPHs
previously requested multiple Trading
Permits because of bandwidth, login or
appointment cost needs. As described
above, in connection with migration,
bandwidth, logins and appointment
costs are no longer tied to Trading
Permits or Bandwidth Packets and as
such, the need to hold multiple permits
and/or Bandwidth Packets is obsolete.
As such, the Exchange believes the
structure to require only one of each
type of applicable electronic Trading
Permit is appropriate. Moreover, the
Exchange believes offering separate
marketing making permits for off-floor
and on-floor Market-Makers provides for
a cleaner, more streamlined approach to
trading permits and corresponding fees.
Other exchanges similarly provide
separate and distinct fees for MarketMakers that operate on-floor vs off-floor
and their corresponding fees are similar
to those proposed by the Exchange.71
The Exchange believes the proposed
fee for its MM EAP Trading Permits is
reasonable as it is the same fee it assess
today for Market-Maker Trading Permits
(i.e., $5,000 per month per permit).
Additionally, the proposed fee is in line
with, and in some cases even lower
than, the amounts assessed for similar
access fees at other exchanges,
including its affiliate C2.72 The
Exchange believes the proposed EAP fee
is also reasonable, and in line with the
fees assessed by other Exchanges for
non-Market-Maker electronic access.73
69441
The Exchange notes that while the
Trading Permit fee is increasing, TPHs
overall cost to access the Exchange may
be reduced in light of the fact that a TPH
no longer must purchase multiple
Trading Permits, Bandwidth Packets
and Login Ids in order to receive
sufficient bandwidth and logins to meet
their respective business needs. To
illustrate the value of the new
connectivity infrastructure, the
Exchange notes that the cost that would
be incurred by a TPH today in order to
receive the same amount of order
capacity that will be provided by a
single Logical Port post-migration (i.e.,
5,000 orders per second), is
approximately 98% higher than the cost
for the same capacity post-migration.
The following examples further
demonstrate potential cost savings/
value added for an EAP holder with
modest capacity needs and an EAP
holder with larger capacity needs:
TPH THAT HOLDS 1 EAP, NO BANDWIDTH PACKETS AND 1 CMI LOGIN
Current fee structure
EAP ................................................................................................................................
CMI Login/Logical Port ..................................................................................................
Bandwidth Packets ........................................................................................................
Total Bandwidth Available .............................................................................................
Total Cost ......................................................................................................................
Total Cost per message ................................................................................................
$1,600 ................................
$750 ...................................
0 .........................................
30 orders/sec .....................
$2,350 ................................
$78.33/order/sec ................
Post-migration fee structure
$3,000.
$750.
N/A.
5,000 orders/sec.
$3,750.
$0.75/order/sec.
TPH THAT HOLDS 1 EAP, 4 BANDWIDTH PACKETS AND 15 CMI LOGINS
Current fee structure
khammond on DSKJM1Z7X2PROD with NOTICES
EAP ................................................................................................................................
CMI Login/Logical Port ..................................................................................................
Bandwidth Packets ........................................................................................................
Total Bandwidth Available .............................................................................................
Total Cost ......................................................................................................................
Total Cost per message ................................................................................................
$1,600 ................................
$11,250 (15@750) .............
$6,400 (4@$1,600) ............
150 orders/sec ...................
$19,250 ..............................
$128.33/order/sec ..............
Post-migration fee structure
$3,000.
$750.
N/A.
5,000 orders/sec.
$3,750.
$0.75/order/sec.
The Exchange believes the proposal to
adopt a new Clearing TPH Permit is
reasonable because it offers TPHs that
only clear transactions of TPHs a
discount. Particularly, Clearing TPHs
that also submit orders electronically to
the Exchange would purchase the
proposed EAP at $3,000 per permit. The
Exchange believe it’s reasonable to
provide a discount to Clearing TPHs
that only clear transactions and do not
otherwise submit electronic orders to
the Exchange. The Exchange notes that
another exchange similarly charges a
separate fee for clearing firms.74
The Exchange believes the proposed
fee structure for on-floor Market-Makers
is reasonable as the fees are in line with
those offered at other Exchanges.75 The
Exchange believes that the proposed fee
70 For example, the Exchange’s affiliate, C2,
similarly provides for Trading Permits that are not
tied to connectivity, and similar physical and
logical port options at similar pricings. See Cboe C2
Options Exchange Fees Schedule. Physical
connectivity and logical connectivity are also not
tied to any type of permits on the Exchange’s other
options exchange affiliates.
71 See e.g., PHLX Section 8A, Permit and
Registration Fees. See also, BOX Options Fee
Schedule, Section IX Participant Fees; NYSE
American Options Fees Schedule, Section III(A)
Monthly ATP Fees and NYSE Arca Options Fees
and Charges, OTP Trading Participant Rights. For
similar Trading Floor Permits for Floor Market
Makers, Nasdaq PHLX charges $6,000; BOX charges
up to $5,500 for 3 registered permits in addition to
a $1,500 Participant Fee, NYSE Arca charges up to
$6,000; and NYSE American charges up to $8,000.
72 See e.g., Cboe C2 Options Exchange Fees
Schedule. See also, NYSE Arca Options Fees and
Charges, General Options and Trading Permit (OTP)
Fees, which assesses up to $6,000 per Market Maker
OTP and NYSE American Options Fee Schedule,
Section III. Monthly ATP Fees, which assess up to
$8,000 per Market Maker ATP. See also, PHLX
Section 8A, Permit and Registration Fees, which
assesses up to $4,000 per Market Maker Permit.
73 See e.g., PHLX Section 8A, Permit and
Registration Fees, which assesses up to $4,000 per
Permit for all member and member organizations
other than Floor Specialists and Market Makers.
74 See e.g., NYSE Arca Options Fees and Charges,
General Options and Trading Permit (OTP) Fees
and NYSE American Options Fee Schedule, Section
III. Monthly ATP Fees.
75 See e.g., PHLX Section 8A, Permit and
Registration Fees, which assesses $6,000 per permit
for Floor Specialists and Market Makers.
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for MM Floor Permits as compared to
MM EAPs is reasonable because it is
only modestly higher than MM EAPs
and Floor MMs don’t have other costs
that MM EAP holders have, such as MM
EAP Appointment fees.
The Exchange believes its proposed
fees for Floor Broker Permits are
reasonable because the fees are similar
to, and in some cases lower than, the
fees the Exchange currently assesses for
such permits. Specifically, based on the
number of Trading Permits TPHs held
upon migration, 60% of TPHs that hold
Floor Broker Trading Permits will pay
lower Trading Permit fees. Particularly,
any Floor Broker holding ten or less
Floor Broker Trading Permits will pay
lower fees under the proposed tiers as
compared to what they pay today. While
the remaining 40% of TPHs holding
Floor Broker Trading Permits (who each
hold between 12–21 Floor Broker
Trading Permits) will pay higher fees,
the Exchange notes the monthly
increase is de minimis, ranging from an
increase of 0.6%—2.72%.76
The Exchange believes the proposed
ADV Discount is reasonable because it
provides an opportunity for Floor
Brokers to pay lower FB Trading Permit
fees, similar to the current rebate
program offered to Floor Brokers. The
Exchange notes that while the new ADV
Discount program includes only
customer volume (‘‘C’’ origin code) as
compared to Customer and Professional
Customer/Voluntary Professional, the
amount of Professional Customer/
Voluntary Professional volume was de
minimis and the Exchange does not
believe the absence of such volume will
have a significant impact.77
Additionally, the Exchange notes that
while the ADV requirements under the
proposed ADV Discount program are
higher than are required under the
current rebate program, the proposed
ADV Discount counts volume from all
products towards the thresholds as
compared to the current rebate program
which excludes volume from
Underlying Symbol List A (except RLG,
RLV, RUI, and UKXM), DJX, XSP, and
subcabinet trades. Moreover, the ADV
Discount is designed to encourage the
execution of orders in all classes via
open outcry, which may increase
volume, which would benefit all market
participants (including Floor Brokers
who do not hit the ADV thresholds)
trading via open outcry (and indeed,
this increased volume could make it
possible for some Floor Brokers to hit
the ADV thresholds). The Exchange
believes the proposed discounts are
equitable and not unfairly
discriminatory because all Floor Brokers
are eligible. While the Exchange has no
way of predicting with certainty how
many and which TPHs will satisfy the
various thresholds under the ADV
Discount, the Exchange anticipated
approximately 3 Floor Brokers to
receive a rebate under the program. To
date, 2 Floor Brokers have received a
rebate under the program.
The Exchange believes its proposed
MM EAP Appointment fees are
reasonable in light of the Exchange’s
elimination of appointment costs tied to
Trading Permits. Other exchanges also
offer a similar structure with respect to
fees for appointment classes.78
Additionally, the proposed MM EAP
Appointment fee structure results in
approximately 36% electronic MMs
paying lower fees for trading permit and
appointment costs. For example, in
order to have the ability to make
electronic markets in every class on the
Exchange, a Market-Maker would need
1 Market-Maker Trading Permit and 37
Appointment Units post-migration.
Under, the current pricing structure, in
order for a Market-Maker to quote the
entire universe of available classes, a
Market-Maker would need 33
Appointment Credits, thus necessitating
33 Market-Maker Trading Permits. With
respect to fees for Trading Permits and
Appointment Unit Fees, under the
proposed pricing structure, the cost for
a TPH wishing to quote the entire
universe of available classes is
approximately 29% less (if they are not
eligible for the MM TP Sliding Scale) or
approximately 2% less (if they are
eligible for the MM TP Sliding Scale).
To further demonstrate the potential
cost savings/value added, the Exchange
is providing the following examples
comparing current Market-Maker
connectivity and access fees to projected
connectivity and access fees for
different scenarios. The Exchange notes
that the below examples not only
compare Trading Permit and
Appointment Unit costs, but also the
cost incurred for logical connectivity
and bandwidth. Particularly, the first
example demonstrates the total
minimum cost that would be incurred
today in order for a Market-Maker to
have the same amount of capacity as a
Market-Maker post-migration that
would have only 1 MM EAP and 1
Logical Port (i.e., 15,000 quotes/3 sec).
The Exchange is also providing
examples that demonstrate the costs of
(i) a Market-Maker with small capacity
needs and appointment unit of 1.0 and
(ii) a Market-Maker with large capacity
needs and appointment cost/unit of
30.0:
Current fee structure
Post-migration fee structure
Market-Maker That Needs Capacity of 15,000/Quotes/3 Seconds
MM Permit/MM EAP ...........................................
Appointment Unit Cost .......................................
CMI Login/Logical Port .......................................
Bandwidth Packets .............................................
Total Bandwidth Available ..................................
Total Cost ...........................................................
Total Cost per message allowed ........................
$5,000 ..............................................................
N/A (1 appointment cost) .................................
$750 79 .............................................................
$5,500 (2@$2,750) ..........................................
15,000 quotes/3 sec ........................................
$11,250 ............................................................
$0.75/quote/3 sec ............................................
$5,000.
$0 (1 appointment unit).
$750.
N/A.
15,000 quotes/3 sec.
$5,750.
$0.38/quote/3 sec.
khammond on DSKJM1Z7X2PROD with NOTICES
Market Maker That Needs Capacity of No More Than 5,000 Quotes/3 Secs
MM Permit/MM EAP ...........................................
Appointment Unit Cost .......................................
CMI Login/Logical Port .......................................
Bandwidth Packets .............................................
Total Bandwidth Available ..................................
Total Cost ...........................................................
76 The Floor Brokers whose fees are increasing
have each committed to a minimum number of
permits and therefore currently receive the rates set
forth in the current Floor Broker TP Sliding Scale.
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$5,000 ..............................................................
N/A (1 appointment cost) .................................
$750 .................................................................
0 .......................................................................
5,000 quotes/3 sec ..........................................
$5,750 ..............................................................
77 Furthermore, post-migration the Exchange will
not have Voluntary Professionals.
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$5,000.
$0 (1 appointment unit).
$750.
N/A.
15,000 quotes/3 sec.
$5,750.
78 See e.g., PHLX Section 8. Membership Fees, B,
Streaming Quote Trader (‘‘SQT’’) Fees and C.
Remote Market Maker Organization (RMO) Fee.
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Current fee structure
Total Cost per message allowed ........................
69443
Post-migration fee structure
$1.15/quote/3 sec ............................................
$0.38/quote/3 sec.
Market-Maker That Needs 30 Appointment Units and Capacity of 300,000 Quotes/3 Sec
MM Permits/MM EAP .........................................
Appointment Units Cost .....................................
CMI Logins/BOE Bulk Port .................................
Bandwidth Packets .............................................
Total Bandwidth Available ..................................
Total Cost ...........................................................
Total Cost per message allowed ........................
$105,000 (30 MM Permits assumes eligible
for MM TP Sliding Scale). 80
N/A (30 appointment costs) .............................
$3,000 (4@$750) 81 .........................................
$82,500 (30@$2750) .......................................
300,000 quotes/3 sec ......................................
$190,500 ..........................................................
$0.63/quotes/3 sec ...........................................
$5,000.
$95,500 (30 appointment units).
$3,000 (2 BOE Bulk@$1,500).
N/A.
* 450,000 quotes/3 sec.
$103,500.
$0.23/quote/3 sec.
* Possible performance degradation at 15,000 messages per second.
The Exchange believes its proposal to
provide separate fees for Tier
Appointments for MM EAPs and MM
Floor Permits as the Exchange will be
issuing separate Trading Permits for onfloor and off-floor market making as
discussed above. The proposal to
eliminate the volume threshold for the
electronic SPX Tier Appointment fee is
reasonable as no TPHs in the past
several months have electronically
traded more than 1 SPX contract or less
than 100 SPX contracts per month and
therefore will not be negatively
impacted by the proposed change, and
because it aligns the electronic SPX Tier
Appointment with the floor SPX Tier
Appointment, which has no volume
threshold. The Exchange believes the
proposal to increase the electronic
volume thresholds for VIX and RUT are
reasonable as those that do not regularly
trade VIX or RUT in open-outcry will
continue to not be assessed the fee. In
fact, any TPH that executes more than
100 contracts but less than 1,000 in the
respective classes will no longer have to
pay the proposed Tier Appointment fee.
As noted above, the Exchange is not
proposing to change the amounts
assessed for each Tier Appointment Fee.
The proposed change is equitable and
not unfairly discriminatory because it
will apply uniformly to all TPHs.
khammond on DSKJM1Z7X2PROD with NOTICES
Trading Permit Holder Regulatory Fee
The Exchange believes it’s reasonable
to eliminate the Trading Permit Holder
Regulatory fee because TPHs will not
pay this fee and because the Exchange
is restructuring its Trading Permit
structure. The Exchange notes that
although it will less closely be covering
the costs of regulating all TPHs and
79 The maximum quoting bandwidth that may be
applied to a single Login Id is 80,000 quotes/3 sec.
80 For simplicity of the comparison, this assumes
no appointments in SPX, VIX, RUT, XEO or OEX
(which are not included in the TP Sliding Scale).
81 Given the bandwidth limit per Login Id of
80,000 quotes/3 sec, example assumes MarketMaker purchases minimum amount of Login IDs to
accommodate 300,000 quotes/3 sec.
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performing its regulatory
responsibilities, it still has sufficient
funds to do so. The proposed change is
equitable and not unfairly
discriminatory because it will apply
uniformly to all TPHs.
The Exchange believes corresponding
changes to eliminate obsolete language
in connection with the proposed
changes described above and to relocate
and reorganize its fees in connection
with the proposed changes maintain
clarity in the Fees Schedule and
alleviate potential confusion, thereby
removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, and, in general, protecting
investors and the public interest.
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.
With respect to intra-market
competition, the Exchange does not
believe that the proposed rule change
would place certain market participants
at the Exchange at a relative
disadvantage compared to other market
participants or affect the ability of such
market participants to compete. As
stated above, the Exchange does not
believe its proposed pricing will impose
a barrier to entry to smaller participants
and notes that its proposed connectivity
pricing is associated with relative usage
of the various market participants. For
example, market participants with
modest capacity needs can buy the less
expensive 1 Gb Physical Port and utilize
only one Logical Port. Moreover, the
pricing for 1 Gb Physical Ports and FIX/
BOE Logical Ports are no different than
are assessed today (i.e., $1,500 and $750
per port, respectively), yet the capacity
and access associated with each is
greatly increasing. While pricing may be
increased for larger capacity physical
and logical ports, such options provide
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far more capacity and are purchased by
those that consume more resources from
the network. Accordingly, the proposed
connectivity fees do not favor certain
categories of market participants in a
manner that would impose a burden on
competition; rather, the allocation
reflects the network resources
consumed by the various size of market
participants—lowest bandwidth
consuming members pay the least, and
highest bandwidth consuming members
pays the most, particularly since higher
bandwidth consumption translates to
higher costs to the Exchange.
The Exchange also does not believe
that the proposed rule change will result
in any burden on inter-market
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. As discussed in the
Statutory Basis section above, options
market participants are not forced to
connect to (or purchase market data
from) all options exchanges, as shown
by the number of TPHs at Cboe and
shown by the fact that there are varying
number of members across each of
Cboe’s Affiliated Exchanges. The
Exchange operates in a highly
competitive environment, and its ability
to price access and connectivity is
constrained by competition among
exchanges and third parties. As
discussed, there are other options
markets of which market participants
may connect to trade options. There is
also a possible range of alternative
strategies, including routing to the
exchange through another participant or
market center or taking the exchange’s
data indirectly. For example, there are
15 other U.S. options exchanges, which
the Exchange must consider in its
pricing discipline in order to compete
for market participants. In this
competitive environment, market
participants are free to choose which
competing exchange or reseller to use to
satisfy their business needs. As a result,
the Exchange believes this proposed
rule change permits fair competition
E:\FR\FM\18DEN1.SGM
18DEN1
69444
Federal Register / Vol. 84, No. 243 / Wednesday, December 18, 2019 / Notices
among national securities exchanges.
Accordingly, the Exchange does not
believe its proposed fee change imposes
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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 82 and paragraph (f) of Rule
19b–4 83 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.
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:
khammond on DSKJM1Z7X2PROD with NOTICES
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–2019–111 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–2019–111. 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 such
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
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–2019–111, and
should be submitted on or before
January 8,2020.
5, 2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II 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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.84
J. Matthew DeLesDernier,
Assistant Secretary.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2019–27194 Filed 12–17–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87726; File No. SR–
NASDAQ–2019–092]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
Exchange Rule 5515 Which Governs
the Listing of Warrants on the Nasdaq
Capital Market To Replace the Current
Requirement That a Warrant Have 400
Round-Lot Holders With a Revised
Requirement of 100 Holders That Are
Both Public Holders and Round-Lot
Holders
December 12, 2019.
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 December
84 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
82 15
U.S.C. 78s(b)(3)(A).
83 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
16:40 Dec 17, 2019
1 15
Jkt 250001
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 5515 which governs the
listing of warrants on the Nasdaq
Capital Market. Specifically, Nasdaq
proposes to replace the current
requirement that a warrant have 400
Round-Lot Holders with a revised
requirement of 100 Holders that are both
Public Holders and Round-Lot Holders,
which is substantially similar to a longstanding requirement for listing
warrants on the NYSE American
Exchange.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
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
Nasdaq Exchange Rule 5515 governs
the initial listing of warrants on the
Nasdaq Capital Market. Among the
requirements for listing warrants on the
Nasdaq Capital Market is that each
warrant to be listed must have 400
Round-Lot Holders.3 The corresponding
3 Specifically, Rule 5515(a) currently provides
that for initial listing on the Nasdaq Capital Market,
‘‘rights, warrants and put warrants (that is,
instruments that grant the holder the right to sell
to the issuing company a specified number of
E:\FR\FM\18DEN1.SGM
18DEN1
]]>Agencies
[Federal Register Volume 84, Number 243 (Wednesday, December 18, 2019)]
[Notices]
[Pages 69428-69444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27194]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87727; File No. SR-CBOE-2019-111)]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Fees Schedule in Connection With Migration
December 12, 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 November 29, 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 the
Substance of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule in connection with migration. 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/AboutCBOE/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
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Affiliated Exchanges'').
The Cboe Affiliated Exchanges recently aligned certain system
functionality, including with respect to connectivity, retaining only
intended differences between the Affiliated Exchanges, in the context
of a technology migration. The Exchange migrated its trading platform
to the same system used by the Affiliated Exchanges, which the Exchange
completed on October 7, 2019 (the ``migration''). As a result of this
migration, the Exchange's pre-migration connectivity architecture was
rendered obsolete, and as such, the Exchange now offers new
functionality, including new logical connectivity, and therefore
proposes to adopt corresponding fees.\3\ In determining the proposed
fee changes, the Exchange assessed the impact on market participants to
ensure that the proposed fees would not create an undue financial
burden on any market participants, including smaller market
participants. While the Exchange has no way of predicting with
certainty the impact of the proposed changes, the Exchange had
anticipated its post-migration connectivity revenue \4\ to be
approximately 1.75% lower than connectivity revenue pre-migration.\5\
In addition to providing a consistent technology offering across the
Cboe Affiliated Exchanges, the migration also provided market
participants a latency equalized infrastructure, improved system
performance, and increased sustained order and quote per second
capacity, as discussed more fully below. Accordingly, in connection
with the migration and in order to more closely align the Exchange's
fee structure with that of its Affiliated Exchanges, the Exchange
intends to update and simplify its fee structure with respect to access
and connectivity and adopt new access and connectivity fees.\6\
---------------------------------------------------------------------------
\3\ As of October 7, 2019, market participants no longer have
the ability to connect to the old Exchange architecture.
\4\ Connectivity revenue post-migration includes revenue from
physical port fees (other than for disaster recovery), Cboe Data
Services Port Fee, logical port fees, Trading Permit Fees, Market-
Maker EAP Appointment Unit fees, Tier Appointment Surcharges and
Floor Broker Trading Surcharges, less the Floor Broker ADV discounts
and discounts on BOE Bulk Ports via the Affiliate Volume Plan and
the Market-Maker Access Credit program.
\5\ The Exchange does not anticipate realizing the projected
revenue reduction prior to February 2020, as the Exchange's legacy
physical ports will not be decommissioned until January 31, 2020 and
firms may still be in the process of transitioning their
connectivity. As such, the Exchange believes any changes in revenue
until such time are not reflective of the predicted and modeled
impact.
\6\ The Exchange initially filed the proposed fee changes on
October 1, 2019 (SR-CBOE-2019-077). On business date October 2,
2019, the Exchange withdrew that filing and submitted SR-CBOE-2019-
082, See Securities Exchange Act Release No. 87304 (October 15,
2019), 84 FR 56240, (October 21, 2019). On business date November
29, 2019, the Exchange withdrew that filing and submitted this
filing.
---------------------------------------------------------------------------
Physical Connectivity
A physical port is utilized by a Trading Permit Holder (``TPH'') or
non-TPH to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently assesses fees
for Network Access Ports for these physical connections to the
Exchange. Specifically, TPHs and non-TPHs can elect to connect to Cboe
Options' trading system via either a 1 gigabit per second (``Gb'')
Network Access Port or a 10 Gb Network Access Port. Pre-migration the
Exchange assessed a monthly fee of $1,500 per port for 1 Gb Network
Access Ports and a monthly fee of $5,000 per port for 10 Gb Network
Access Ports for access to Cboe Options primary system. Through January
31, 2020, Cboe Options market participants will continue to have the
ability to connect to Cboe Options' trading system via the current
Network Access Ports. As of October 7, 2019, in connection with the
migration, TPHs and non-TPHs may alternatively elect to connect to Cboe
Options via new latency equalized Physical Ports.\7\ The new Physical
Ports similarly allow TPHs and non-TPHs the ability to connect to the
Exchange at the data center where the Exchange's servers are located
and TPHs and non-TPHs have the option to connect via 1 Gb or 10 Gb
Physical Ports. As noted above, both the new 1 Gb and 10 Gb Physical
Ports provide latency
[[Page 69429]]
equalization, meaning that each market participant will be afforded the
same latency for 1 Gb or 10 Gb Physical Ports in the primary data
center to the Exchange's customer-facing switches regardless of
location of the market participant's cage \8\ in the primary data
center relative to the Exchange's servers. Conversely, the legacy
Network Access Ports are not latency equalized, meaning the location of
a market participant's cage within the data center may affect latency.
For example, in the legacy system, a cage located further from the
Exchange's servers may experience higher latency than those located
closer to the Exchange's servers.\9\ As such, the proposed Physical
Ports ensure all market participants connected to the Exchange via the
new Physical Ports will receive the same respective latency for each
port size and ensure that no market participant has a latency advantage
over another market participant within the primary data center.\10\
Additionally, the new infrastructure utilizes new and faster switches
resulting in lower overall latency.
---------------------------------------------------------------------------
\7\ As previously noted, market participants will continue to
have the option of connecting to Cboe Options via a 1 Gbps or 10
Gbps Network Access Port at the same rates as proposed,
respectively.
\8\ A market participant's ``cage'' is the cage within the data
center that contains a market participant's servers, switches and
cabling.
\9\ The Exchange equalizes physical connectivity in the data
center for its primary system by taking the farthest possible
distance that a Cboe market participant cage may exist from the
Exchange's customer-facing switches and using that distance as the
cable length for any cross-connect.
\10\ The Exchange notes that 10 Gb Physical Ports have an 11
microsecond latency advantage over 1 Gb Physical Ports. Other than
this difference, there are no other means to receive a latency
advantage as compared to another market participant in the new
connectivity structure.
---------------------------------------------------------------------------
The Exchange proposes to assess the following fees for any physical
port, regardless of whether the TPH or non-TPH connects via the current
Network Access Ports or the new Physical Ports. Specifically, the
Exchange proposes to continue to assess a monthly fee of $1,500 per
port for 1 Gb Network Access Ports and new Physical Ports and increase
the monthly fee for 10 Gb Network Access Ports and new Physical Ports
to $7,000 per port. Physical port fees will be prorated based on the
remaining trading days in the calendar month. The proposed fee for 10
Gb Physical Ports is in line with the amounts assessed by other
exchanges for similar connections by its Affiliated Exchanges and other
Exchanges that utilize the same connectivity infrastructure.\11\
---------------------------------------------------------------------------
\11\ See Cboe EDGA U.S. Equities Exchange Fee Schedule, Physical
Connectivity Fees; Cboe EDGX U.S. Equities Exchange Fee Schedule,
Physical Connectivity Fees; Cboe BZX U.S. Equities Exchange Fee
Schedule, Physical Connectivity Fees; Cboe BYX U.S. Equities
Exchange Fee Schedule, Physical Connectivity Fees; Cboe EDGX Options
Exchange Fee Schedule, Physical Connectivity Fees; and Cboe BZX
Options Exchange Fee Schedule, Physical Connectivity Fees
(collectively, ``Affiliated Exchange Fee Schedules''). See e.g.,
Nasdaq PHLX and ISE Rules, General Equity and Options Rules, General
8. Phlx and ISE each charge a monthly fee of $2,500 for each 1Gb
connection, $10,000 for each 10Gb connection and $15,000 for each
10Gb Ultra connection. See also Nasdaq Price List--Trading
Connectivity. Nasdaq charges a monthly fee of $7,500 for each 10Gb
direct connection to Nasdaq and $2,500 for each direct connection
that supports up to 1Gb. See also NYSE American Fee Schedule,
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE
American and Arca each charge a monthly fee of $5,000 for each 1Gb
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX
circuit.
---------------------------------------------------------------------------
In addition to the benefits resulting from the new Physical Ports
providing latency equalization and new switches (i.e., improved
latency), TPHs and non-TPHs may be able to reduce their overall
physical connectivity fees. Particularly, Network Access Port fees are
assessed for unicast (orders, quotes) and multicast (market data)
connectivity separately. More specifically, Network Access Ports may
only receive one type of connectivity each (thus requiring a market
participant to maintain two ports if that market participant desires
both types of connectivity). The new Physical Ports however, allow
access to both unicast and multicast connectivity with a single
physical connection to the Exchange. Therefore, TPHs and non-TPHs that
currently purchase two legacy Network Access Ports for the purpose of
receiving each type of connectivity now have the option to purchase
only one new Physical Port to accommodate their connectivity needs,
which may result in reduced costs for physical connectivity.\12\
---------------------------------------------------------------------------
\12\ The Exchange proposes to eliminate the current Cboe Command
Connectivity Charges table in its entirety and create and relocate
such fees in a new table in the Fees Schedule that addresses fees
for physical connectivity, including fees for the current Network
Access Ports, the new Physical Ports and Disaster Recovery (``DR'')
Ports. The Exchange notes that it is not proposing any changes with
respect to DR Ports other than renaming the DR ports from ``Network
Access Ports'' to ``Physical Ports'' to conform to the new Physical
Port terminology. The Exchange also notes that subsequent to the
initial filings that proposed these fee changes on October 1 and 2,
2019 (SR-CBOE-2019-077 and SR-CBOE-2019-082), the Exchange amended
the proposed port fees to waive fees for ports used for PULSe in
filing No. SR-CBOE-2019-105. The additions proposed by filing SR-
CBOE-2019-105 are double underlined in Exhibit 5A and the deletions
are doubled bracketed in Exhibit 5A.
---------------------------------------------------------------------------
Cboe Data Services--Port Fees
The Exchange proposes to amend the ``Port Fee'' under the Cboe Data
Services (``CDS'') Fees Schedule. Currently, the Port Fee is payable by
any Customer \13\ that receives data through two types of sources; a
direct connection to CDS (``direct connection'') or through a
connection to CDS provided by an extranet service provider (``extranet
connection''). The Port Fee applies to receipt of any Cboe Options data
feed but is only assessed once per data port. The Exchange proposes to
amend the monthly CDS Port Fee to provide that it is payable ``per
source'' used to receive data, instead of ``per data port''. The
Exchange also proposes to increase the fee from $500 per data port/
month to $1,000 per data source/month.\14\ The Exchange notes the
proposed change in assessing the fee (i.e., per source vs per port) and
the proposed fee amount are the same as the corresponding fee on its
affiliate C2.\15\
---------------------------------------------------------------------------
\13\ A Customer is any person, company or other entity that,
pursuant to a market data agreement with CDS, is entitled to receive
data, either directly from CDS or through an authorized
redistributor (i.e., a Customer or extranet service provider),
whether that data is distributed externally or used internally.
\14\ For example, under the pre-migration ``per port''
methodology, if a TPH maintained 4 ports that receive market data,
that TPH would be assessed $2,000 per month (i.e., $500 x 4 ports),
regardless of how many sources it used to receive data. Under the
proposed ``per source'' methodology, if a TPH maintains 4 ports that
receive market data, but receives data through only one source
(e.g., a direct connection) that TPH would be assessed $1,000 per
month (i.e., $1,000 x 1 source). If that TPH maintains 4 ports but
receives data from both a direct connection and an extranet
connection, that TPH would be assessed $2,000 per month (i.e.,
$1,000 x 2 sources). Similarly, if that TPH maintains 4 ports and
receives data from two separate extranet providers, that TPH would
be assessed $2,000 per month (i.e., $1,000 x 2).
\15\ See Cboe C2 Options Exchange Fee Schedule, Cboe Data
Services, LLC Fees, Section IV, Systems Fees.
---------------------------------------------------------------------------
In connection with the proposed change, the Exchange also proposes
to rename the ``Port Fee'' to ``Direct Data Access Fee''. As the fee
will be payable ``per data source'' used to receive data, instead of
``per data port'', the Exchange believes the proposed name is more
appropriate and that eliminating the term ``port'' from the fee will
eliminate confusion as to how the fee is assessed.
Logical Connectivity
Next, the Exchange proposes to amend its login fees. By way of
background, Cboe Options market participants were able to access Cboe
Command via either a CMI or a FIX Port, depending on how their systems
are configured. Effective October 7, 2019, market participants are no
longer able to use CMI and FIX Login IDs. Rather, the Exchange utilizes
a variety of logical connectivity ports as further described below.
Both a legacy CMI/FIX Login ID and logical port represent a technical
port established by the Exchange within the Exchange's trading system
for the delivery and/or receipt of trading messages--i.e., orders,
accepts,
[[Page 69430]]
cancels, transactions, etc. Market participants that wish to connect
directly to the Exchange can request a number of different types of
ports, including ports that support order entry, customizable purge
functionality, or the receipt of market data. Market participants can
also choose to connect indirectly through a number of different third-
party providers, such as another broker-dealer or service bureau that
the Exchange permits through specialized access to the Exchange's
trading system and that may provide additional services or operate at a
lower mutualized cost by providing access to multiple members. In light
of the discontinuation of CMI and FIX Login IDs, the Exchange proposes
to eliminate the fees associated with the CMI and FIX login IDs and
adopt the below pricing for logical connectivity in its place.
----------------------------------------------------------------------------------------------------------------
Service Cost per month
----------------------------------------------------------------------------------------------------------------
Logical Ports (BOE, FIX) 1 to 5.............. $750 per port.
Logical Ports (BOE, FIX) >5.................. $800 per port.
Logical Ports (Drop)......................... $750 per port.
BOE Bulk Ports 1 to 5........................ $1,500 per port.
BOE Bulk Ports 6 to 30....................... $2,500 per port.
BOE Bulk Ports >30........................... $3,000 per port.
Purge ports.................................. $850 per port.
GRP Ports.................................... $750/primary (A or C Feed).
Multicast PITCH/Top Spin Server Ports........ $750/set of primary (A or C feed).
----------------------------------------------------------------------------------------------------------------
The Exchange proposes to provide for each of the logical
connectivity fees that new requests will be prorated for the first
month of service. Cancellation requests are billed in full month
increments as firms are required to pay for the service for the
remainder of the month, unless the session is terminated within the
first month of service. The Exchange notes that the proration policy is
the same on its Affiliated Exchanges.\16\
---------------------------------------------------------------------------
\16\ See Affiliated Exchange Fee Schedules, Logical Port Fees.
---------------------------------------------------------------------------
Logical Ports (BOE, FIX, Drop): The new Logical Ports represent
ports established by the Exchange within the Exchange's system for
trading purposes. Each Logical Port established is specific to a TPH or
non-TPH and grants that TPH or non-TPH the ability to operate a
specific application, such as order/quote \17\ entry (FIX and BOE
Logical Ports) or drop copies (Drop Logical Ports). Similar to CMI and
FIX Login IDs, each Logical Port will entitle a firm to submit message
traffic of up to specified number of orders per second.\18\ The
Exchange proposes to assess $750 per port per month for all Drop
Logical Ports and also assess $750 per port per month (which is the
same amount currently assessed per CMI/FIX Login ID per month), for the
first 5 FIX/BOE Logical Ports and thereafter assess $800 per port, per
month for each additional FIX/BOE Logical Port. While the proposed
ports will be assessed the same monthly fees as current CMI/FIX Login
IDs (for the first five logical ports), the proposed logical ports
provide for significantly more message traffic as shown below:
---------------------------------------------------------------------------
\17\ As of October 7, 2019, the definition of quote in Cboe
Options Rule 1.1 means a firm bid or offer a Market-Maker (a)
submits electronically as an order or bulk message (including to
update any bid or offer submitted in a previous order or bulk
message) or (b) represents in open outcry on the trading floor.
\18\ Login Ids restrict the maximum number of orders and quotes
per second in the same way logical ports do, and Users may similarly
have multiple logical ports as they may have Trading Permits and/or
bandwidth packets to accommodate their order and quote entry needs.
----------------------------------------------------------------------------------------------------------------
CMI/FIX login Ids BOE/FIX logical ports
--------------------------------------------------------------------------
Quotes Orders Quotes/orders
----------------------------------------------------------------------------------------------------------------
Bandwidth Limit per login............ 5,000 quotes/3 sec \19\ 30 orders/sec.......... 15,000 quotes/orders/3
sec.
Cost................................. $750 each.............. $750 each.............. $750/$800 each.
Cost per Quote/Order Sent @Limit..... $0.15 per quote/3 sec.. $25.00 per order/sec... $0.05/$0.053 per quote/
order/3 sec.
----------------------------------------------------------------------------------------------------------------
Logical Port fees will be limited to Logical Ports in the
Exchange's primary data center and no Logical Port fees will be
assessed for redundant secondary data center ports. Each BOE or FIX
Logical Port will incur the logical port fee indicated in the table
above when used to enter up to 70,000 orders per trading day per
logical port as measured on average in a single month. Each incremental
usage of up to 70,000 per day per logical port will incur an additional
logical port fee of $800 per month. Incremental usage will be
determined on a monthly basis based on the average orders per day
entered in a single month across all of a market participant's
subscribed BOE and FIX Logical Ports. The Exchange believes that the
pricing implications of going beyond 70,000 orders per trading day per
Logical Port encourage users to mitigate message traffic as necessary.
The Exchange notes that the proposed fee of $750 per port is the same
amount assessed not only for current CMI and FIX Login Ids, but also
similar ports available on an affiliate exchange.\20\
---------------------------------------------------------------------------
\19\ Each Login ID has a bandwidth limit of 80,000 quotes per 3
seconds. However, in order to place such bandwidth onto a single
Login ID, a TPH or non-TPH would need to purchase a minimum of 15
Market-Maker Permits or Bandwidth Packets (each Market-Maker Permit
and Bandwidth Packet provides 5,000 quotes/3 sec). For purposes of
comparing ``quote'' bandwidth, the provided example assumes only 1
Market-Maker Permit or Bandwidth Packet has been purchased.
\20\ See Cboe BZX Options Exchange Fee Schedule, Options Logical
Port Fees.
---------------------------------------------------------------------------
The Exchange also proposes to provide that the fee for one FIX
Logical Port connection to PULSe and one FIX Logical Port connection to
Cboe Silexx (for FLEX trading purposes) will be waived per TPH. The
Exchange notes that only one FIX Logical Port connection is required to
support a firm's access through each of PULSe and Cboe Silexx FLEX.
BOE Bulk Logical Ports: The Exchange also offers BOE Bulk Logical
Ports, which provide users with the ability to submit single and bulk
order messages
[[Page 69431]]
to enter, modify, or cancel orders designated as Post Only Orders with
a Time-in-Force of Day or GTD with an expiration time on that trading
day. While BOE Bulk Ports will be available to all market participants,
the Exchange anticipates they will be used primarily by Market-Makers
or firms that conduct similar business activity, as the primary purpose
of the proposed bulk message functionality is to encourage market-maker
quoting on exchanges. As indicated above, BOE Bulk Logical Ports are
assessed $1,500 per port, per month for the first 5 BOE Bulk Logical
Ports, assessed $2,500 per port, per month thereafter up to 30 ports
and thereafter assessed $3,000 per port, per month for each additional
BOE Bulk Logical Port. Like CMI and FIX Login IDs, and FIX/BOX Logical
Ports, BOE Bulk Ports will also entitle a firm to submit message
traffic of up to specified number of quotes/orders per second.\21\ The
proposed BOE Bulk ports also provide for significantly more message
traffic as compared to current CMI/FIX Login IDs, as shown below:
---------------------------------------------------------------------------
\21\ The Exchange notes that while technically there is no
bandwidth limit per BOE Bulk Port, there may be possible performance
degradation at 15,000 messages per second (which is the equivalent
of 225,000 quotes/orders per 3 seconds). As such, the Exchange uses
the number at which performance may be degraded for purposes of
comparison.
------------------------------------------------------------------------
CMI/FIX login Ids BOE bulk ports
-------------------------------------------
Quotes Quotes \22\
------------------------------------------------------------------------
Bandwidth Limit............. 5,000 quotes/3 sec 225,000 quotes 3
\23\. sec.
Cost........................ $750 each........... $1,500/$2,500/$3,000
each.
Cost per Quote/Order Sent $0.15 per quote/3 $0.006/$0.011/$0.013
@Limit. sec. per quote/3 sec.
------------------------------------------------------------------------
Each BOE Bulk Logical Port will incur the logical port fee
indicated in the table above when used to enter up to 30,000,000 orders
per trading day per logical port as measured on average in a single
month. Each incremental usage of up to 30,000,000 orders per day per
BOE Bulk Logical Port will incur an additional logical port fee of
$3,000 per month. Incremental usage will be determined on a monthly
basis based on the average orders per day entered in a single month
across all of a market participant's subscribed BOE Bulk Logical Ports.
The Exchange believes that the pricing implications of going beyond
30,000,000 orders per trading day per BOE Bulk Logical Port encourage
users to mitigate message traffic as necessary. The Exchange notes that
the proposed BOE Bulk Logical Port fees are similar to the fees
assessed for these ports by BZX Options.\24\
---------------------------------------------------------------------------
\22\ See Cboe Options Rule 1.1.
\23\ Each Login ID has a bandwidth limit of 80,000 quotes per 3
seconds. However, in order to place such bandwidth onto a single
Login ID, a TPH or non-TPH would need to purchase a minimum of 15
Market-Maker Permits or Bandwidth Packets (each Market-Maker Permit
and Bandwidth Packet provides 5,000 quotes/3 sec). For purposes of
comparing ``quote'' bandwidth, the provided example assumes only 1
Market-Maker Permit or Bandwidth Packet has been purchased.
\24\ See Cboe BZX Options Exchange Fee Schedule, Options Logical
Port Fees.
---------------------------------------------------------------------------
Purge Ports: As part of the migration, the Exchange introduced
Purge Ports to provide TPHs additional risk management and open order
control functionality. Purge ports were designed to assist TPHs, in the
management of, and risk control over, their quotes, particularly if the
TPH is dealing with a large number of options. Particularly, Purge
Ports allow TPHs to submit a cancelation for all open orders, or a
subset thereof, across multiple sessions under the same Executing Firm
ID (``EFID''). This would allow TPHs to seamlessly avoid unintended
executions, while continuing to evaluate the direction of the market.
While Purge Ports are available to all market participants, the
Exchange anticipates they will be used primarily by Market-Makers or
firms that conduct similar business activity and are therefore exposed
to a large amount of risk across a number securities. The Exchange
notes that market participants are also able to cancel orders through
FIX/BOE Logical Ports and as such a dedicated Purge Port is not
required nor necessary. Rather, Purge Ports were specially developed as
an optional service to further assist firms in effectively managing
risk. As indicated in the table above, the Exchange proposes to assess
a monthly charge of $850 per Purge Port. The Exchange notes that the
proposed fee is in line with the fee assessed by other exchanges,
including its Affiliated Exchanges, for Purge Ports.\25\
---------------------------------------------------------------------------
\25\ See e.g., Nasdaq ISE Options Pricing Schedule, Section
7(C), Ports and Other Services. See also Cboe EDGX Options Exchange
Fee Schedule, Options Logical Port Fees; Cboe C2 Options Exchange
Fee Schedule, Options Logical Port Fees and Cboe BZX Options
Exchange Fee Schedule, Options Logical Port Fees.
---------------------------------------------------------------------------
Multicast PITCH/Top Spin Server and GRP Ports: In connection with
the migration, the Exchange also offers optional Multicast PITCH/Top
Spin Server (``Spin'') and GRP ports and proposes to assess $750 per
month, per port. Spin Ports and GRP Ports are used to request and
receive a retransmission of data from the Exchange's Multicast PITCH/
Top data feeds. The Exchange's Multicast PITCH/Top data feeds are
available from two primary feeds, identified as the ``A feed'' and the
``C feed'', which contain the same information but differ only in the
way such feeds are received. The Exchange also offers two redundant
feeds, identified as the ``B feed'' and the ``D feed.'' All secondary
feed Spin and GRP Ports will be provided for redundancy at no
additional cost. The Exchange notes a dedicated Spin and GRP Port is
not required nor necessary. Rather, Spin ports enable a market
participant to receive a snapshot of the current book quickly in the
middle of the trading session without worry of gap request limits and
GRP Ports were specially developed to request and receive
retransmission of data in the event of missed or dropped message. The
Exchange notes that the proposed fee is in line with the fee assessed
for the same ports on BZX Options.\26\
---------------------------------------------------------------------------
\26\ See Cboe BZX Options Exchange Fee Schedule, Options Logical
Port Fees.
---------------------------------------------------------------------------
Access Credits
The Exchange next proposes to amend its Affiliate Volume Plan
(``AVP'') to provide Market-Makers an opportunity to obtain credits on
their monthly BOE Bulk Port Fees.\27\ By way of background, under AVP,
if a TPH Affiliate \28\ or Appointed OFP \29\ (collectively, an
[[Page 69432]]
``affiliate'') of a Market-Maker qualifies under the Volume Incentive
Program (``VIP'') (i.e., achieves VIP Tiers 2-5), that Market-Maker
will also qualify for a discount on that Market-Maker's Liquidity
Provider (``LP'') Sliding Scale transaction fees and Trading Permit
fees. The Exchange proposes to amend AVP to provide that qualifying
Market-Makers will receive a discount on Bulk Port fees (instead of
Trading Permits) where an affiliate achieves VIP Tiers 4 or 5. As
discussed more fully below, the Exchange is amending its Trading Permit
structure, such that off-floor Market-Makers no longer need to hold
more than one Market-Maker Trading Permit. As such, in place of credits
for Trading Permits, the Exchange will provide credits for BOE Bulk
Ports.\30\ The proposed credits are as follows:
---------------------------------------------------------------------------
\27\ As noted above, while BOE Bulk Ports will be available to
all market participants, the Exchange anticipates they will be used
primarily by Market Makers or firms that conduct similar business
activity.
\28\ For purposes of AVP, ``Affiliate'' is defined as having at
least 75% common ownership between the two entities as reflected on
each entity's Form BD, Schedule A.
\29\ See Cboe Options Fees Schedule Footnote 23. Particularly, a
Market-Maker may designate an Order Flow Provider (``OFP'') as its
``Appointed OFP'' and an OFP may designate a Market-Maker to be its
``Appointed Market-Maker'' for purposes of qualifying for credits
under AVP.
\30\ The Exchange notes that Trading Permits currently each
include a set bandwidth allowance and 3 logins. Current logins and
bandwidth are akin to the proposed logical ports, including BOE Bulk
Ports which will primarily be used by Market-Makers.
------------------------------------------------------------------------
% Credit on
Market maker affiliate access credit VIP tier monthly BOE
bulk port fees
------------------------------------------------------------------------
Credit Tier............................. 1 0
2 0
3 0
4 15
5 25
------------------------------------------------------------------------
The Exchange believes the proposed change to AVP continues to allow
the Exchange to provide TPHs that have both Market-Maker and agency
operations reduced Market-Maker costs via the credits, albeit credits
on BOE Bulk Port fees instead of Trading Permit fees. AVP also
continues to provide incremental incentives for TPHs to strive for the
higher tier levels, which provide increasingly higher benefits for
satisfying increasingly more stringent criteria.
In addition to the opportunity to receive credits via AVP, the
Exchange proposes to provide an additional opportunity for Market-
Makers to obtain credits on their monthly BOE Bulk Port fees based on
the previous month's make rate percentage. By way of background, the
Liquidity Provider Sliding Scale Adjustment Table provides that Taker
fees be applied to electronic ``Taker'' volume and a Maker rebate be
applied to electronic ``Maker'' volume, in addition to the transaction
fees assessed under the Liquidity Provider Sliding Scale.\31\ The
amount of the Taker fee (or Maker rebate) is determined by the
Liquidity Provider's percentage of volume from the previous month that
was Maker (``Make Rate'').\32\ Market-Makers are given a Performance
Tier based on their Make Rate percentage which currently provides
adjustments to transaction fees. Thus, the program is designed to
attract liquidity from traditional Market-Makers. The Exchange proposes
to now also provide BOE Bulk Port fee credits if Market-Makers satisfy
the thresholds of certain Performance Tiers. Particularly, the
Performance Tier earned will also determine the percentage credit
applied to a Market-Maker's monthly BOE Bulk Port fees, as shown below:
---------------------------------------------------------------------------
\31\ See Cboe Options Exchange Fees Schedule, Liquidity Provider
Sliding Scale Adjustment Table.
\32\ More specifically, the Make Rate is derived from a
Liquidity Provider's electronic volume the previous month in all
symbols excluding Underlying Symbol List A using the following
formula: (i) The Liquidity Provider's total electronic automatic
execution (``auto-ex'') volume (i.e., volume resulting from that
Liquidity Provider's resting quotes or single sided quotes/orders
that were executed by an incoming order or quote), divided by (ii)
the Liquidity Provider's total auto-ex volume (i.e., volume that
resulted from the Liquidity Provider's resting quotes/orders and
volume that resulted from that LP's quotes/orders that removed
liquidity). For example, a TPH's electronic Make volume in September
2019 is 2,500,000 contracts and its total electronic auto-ex volume
is 3,000,000 contracts, resulting in a Make Rate of 83% (Performance
Tier 4). As such, the TPH would receive a 40% credit on its monthly
Bulk Port fees for the month of October 2019. For the month of
October 2019, the Exchange will be billing certain incentive
programs separately, including the Liquidity Provider Sliding Scale
Adjustment Table, for the periods of October 1-October 4 and October
7-October 31 in light of the migration of its billing system. As
such, a Market-Maker's Performance Tier for November 2019 will be
determined by the Market-Maker's percentage of volume that was Maker
from the period of October 7-October 31, 2019.
----------------------------------------------------------------------------------------------------------------
Liquidity
provider
sliding scale % Credit on
Market maker access credit adjustment Make rate (% based on prior month) monthly BOE
performance bulk port fees
tier
----------------------------------------------------------------------------------------------------------------
Credit Tier................................. 1 0-50.............................. 0
2 Above 50-60....................... 0
3 Above 60-75....................... 0
4 Above 75-90....................... 40
5 Above 90.......................... 40
----------------------------------------------------------------------------------------------------------------
The Exchange believes the proposal mitigates costs incurred by
traditional Market-Makers that focus on adding liquidity to the
Exchange (as opposed to those that provide and take, or just take). The
Exchange lastly notes that both the Market-Maker Affiliate Access
Credit under AVP and the Market-Maker Access Credit tied to Performance
Tiers can both be earned by a TPH, and these credits will each apply to
the total monthly BOE Bulk Port Fees including any incremental BOE Bulk
Port fees incurred, before any credits/adjustments have been applied
(i.e., an electronic MM can earn a credit from 15% to 65%).
Bandwidth Packets
As described above, post-migration, the Exchange utilizes a variety
of logical ports. Part of this functionality is similar to bandwidth
packets that were previously available on the Exchange. Bandwidth
packets restricted the maximum number of orders and quotes
[[Page 69433]]
per second. Post-migration, market participants may similarly have
multiple Logical Ports and/or BOE Bulk Ports as they may have had
bandwidth packets to accommodate their order and quote entry needs. As
such, the Exchange proposes to eliminate all of the current Bandwidth
Packet fees.\33\ The Exchange believes that the proposed pricing
implications of going beyond specified bandwidth described above in the
logical connectivity fees section will be able to otherwise mitigate
message traffic as necessary.
---------------------------------------------------------------------------
\33\ See Cboe Options Fees Schedule, Bandwidth Packet Fees.
---------------------------------------------------------------------------
CAS Servers
By way of background, in order to connect to the legacy Cboe
Command, which allowed a TPH to trade on the Cboe Options System, a TPH
had to connect via either a CMI or FIX interface (depending on the
configuration of the TPH's own systems). For TPHs that connected via a
CMI interface, they had to use CMI CAS Servers. In order to ensure that
a CAS Server was not overburdened by quoting activity for Market-
Makers, the Exchange allotted each Market-Maker a certain number of
CASs (in addition to the shared backups) based on the amount of quoting
bandwidth that they had. The Exchange no longer uses CAS Servers, post-
migration. In light of the elimination of CAS Servers, the Exchange
proposes to eliminate the CAS Server allotment table and extra CAS
Server fee.
Trading Permit Fees
By way of background, the Exchange may issue different types of
Trading Permits and determine the fees for those Trading Permits.\34\
Pre-migration, the Exchange issued the following three types of Trading
Permits: (1) Market-Maker Trading Permits, which were assessed a
monthly fee of $5,000 per permit; (2) Floor Broker Trading Permits,
which were assessed a monthly fee of $9,000 per permit; and (3)
Electronic Access Permits (``EAPs''), which were assessed a monthly fee
of $1,600 per. The Exchange also offered separate Market-Maker and
Electronic Access Permits for the Global Trading Hours (``GTH'')
session, which were assessed a monthly fee of $1,000 per permit and
$500 per permit respectively.\35\ For further color, a Market-Maker
Trading Permit entitled the holder to act as a Market-Maker, including
a Market-Maker trading remotely, DPM, eDPM, or LMM, and also provided
an appointment credit of 1.0, a quoting and order entry bandwidth
allowance, up to three logins, trading floor access and TPH status.\36\
A Floor Broker Trading Permit entitled the holder to act as a Floor
Broker, provided an order entry bandwidth allowance, up to 3 logins,
trading floor access and TPH status.\37\ Lastly, an EAP entitled the
holder to electronic access to the Exchange. Holders of EAPs must have
been broker-dealers registered with the Exchange in one or more of the
following capacities: (a) Clearing TPH, (b) TPH organization approved
to transact business with the public, (c) Proprietary TPHs and (d)
order service firms. The permit did not provide access to the trading
floor. An EAP also provided an order entry bandwidth allowance, up to 3
logins and TPH status.\38\ The Exchange also provided an opportunity
for TPHs to pay reduced rates for Trading Permits via the Market Maker
and Floor Broker Trading Permit Sliding Scale Programs (``TP Sliding
Scales''). Particularly, the TP Sliding Scales allowed Market-Makers
and Floor Brokers to pay reduced rates for their Trading Permits if
they committed in advance to a specific tier that includes a minimum
number of eligible Market-Maker and Floor Broker Trading Permits,
respectively, for each calendar year.\39\
---------------------------------------------------------------------------
\34\ See Cboe Options Rules 3.1(a)(iv)-(v).
\35\ The fees were waived through September 2019 for the first
Market-Maker and Electronic Access GTH Trading Permits.
\36\ See Cboe Options Fees Schedule.
\37\ Id.
\38\ Id.
\39\ Due to the October 7 migration, the Exchange had amended
the TP Sliding Scale Programs to provide that any commitment to
Trading Permits under the TP Sliding Scales shall be in place
through September 2019, instead of the calendar year. See Cboe
Options Fees Schedule, Footnotes 24 and 25.
---------------------------------------------------------------------------
As noted above, Trading Permits were tied to bandwidth allocation,
logins and appointment costs, and as such, TPH organizations may hold
multiple Trading Permits of the same type in order to meet their
connectivity and appointment cost needs. Post-Migration, bandwidth
allocation, logins and appointment costs are no longer tied to a
Trading Permit, and as such, the Exchange proposes to modify its
Trading Permit structure. Particularly, in connection with the
migration, the Exchange adopted separate on-floor and off-floor Trading
Permits for Market-Makers and Floor Brokers, adopted a new Clearing TPH
Permit, and proposes to modify the corresponding fees and discounts. As
was the case pre-migration, the proposed access fees discussed below
will continue to be non-refundable and will be assessed through the
integrated billing system during the first week of the following month.
If a Trading Permit is issued during a calendar month after the first
trading day of the month, the access fee for the Trading Permit for
that calendar month is prorated based on the remaining trading days in
the calendar month. Trading Permits will be renewed automatically for
the next month unless the Trading Permit Holder submits written
notification to the Membership Services Department by 4 p.m. CT on the
second-to-last business day of the prior month to cancel the Trading
Permit effective at or prior to the end of the applicable month.
Trading Permit Holders will only be assessed a single monthly fee for
each type of electronic Trading Permit it holds.
First, TPHs no longer need to hold multiple permits for each type
of electronic Trading Permit (i.e., electronic Market-Maker Trading
Permits and/or and Electronic Access Permits). Rather, for electronic
access to the Exchange, a TPH need only purchase one of the following
permit types for each trading function the TPH intends to perform:
Market-Maker Electronic Access Permit (``MM EAP'') in order to act as
an off-floor Market-Maker and which will continue to be assessed a
monthly fee of $5,000, Electronic Access Permit (``EAP'') in order to
submit orders electronically to the Exchange \40\ and which will be
assessed a monthly fee of $3,000, and a Clearing TPH Permit, for TPHs
acting solely as a Clearing TPH, which will be assessed a monthly fee
of $2,000 (and is more fully described below). For example, a TPH
organization that wishes to act as a Market-Maker and also submit
orders electronically in a non-Market Maker capacity would have to
purchase one MM EAP and one EAP. TPHs will be assessed the monthly fee
for each type of Permit once per electronic access capacity.
---------------------------------------------------------------------------
\40\ EAPs may be purchased by TPHs that both clear transactions
for other TPHs (i.e., a ``Clearing TPH'') and submit orders
electronically.
---------------------------------------------------------------------------
[[Page 69434]]
Next, the Exchange proposes to adopt a new Trading Permit,
exclusively for Clearing TPHs that are approved to act solely as a
Clearing TPH (as opposed to those that are also approved in a capacity
that allows them to submit orders electronically). Currently any TPH
that is registered to act as a Clearing TPH must purchase an EAP,
whether or not that Clearing TPH acts solely as a Clearing TPH or acts
as a Clearing TPH and submits orders electronically. The Exchange
proposes to adopt a new Trading Permit, for any TPH that is registered
to act solely as Clearing TPH at a discounted rate of $2,000 per
month.\41\
---------------------------------------------------------------------------
\41\ Cboe Option Rules provides the Exchange authority to issue
different types of Trading Permits which allows holders, among other
things, to act in one or more trading functions authorized by the
Rules. See Cboe Options Rule 3.1(a)(iv). The Exchange notes that
currently 17 out of 38 Clearing TPHs are acting solely as a Clearing
TPH on the Exchange.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to eliminate its fees for
Global Trading Hours Trading Permits. Particularly, the Exchange
proposes to provide that any Market-Maker EAP, EAP and Clearing TPH
Permit provides access (at no additional cost) to the GTH session.\42\
Additionally, the Exchange proposes to amend Footnote 37 of the Fees
Schedule regarding GTH in connection with the migration. Currently
Footnote 37 provides that separate access permits and connectivity is
needed for the GTH session. The Exchange proposes to eliminate this
language as that is no longer the case post-migration (i.e., an
electronic Trading Permits will grant access to both sessions and
physical and logical ports may be used in both sessions, eliminating
the need to purchase separate connectivity). The Exchange also notes
that in connection with migration, the Book used during Regular Trading
Hours (``RTH'') will be the same Book used during GTH (as compared to
pre-migration where the Exchange maintained separate Books for each
session). The Exchange therefore also proposes to eliminate language in
Footnote 37 stating that GTH is a segregated trading session and that
there is no market interaction between the two sessions.
---------------------------------------------------------------------------
\42\ The Exchange notes that Clearing TPHs must be properly
authorized by the Options Clearing Corporation (``OCC'') to operate
during the Global Trading Hours session and all TPHs must have a
Letter of Guarantee to participate in the GTH session (as is the
case today).
---------------------------------------------------------------------------
The Exchange next proposes to adopt MM EAP Appointment fees. By way
of background, a registered Market-Maker may currently create a Virtual
Trading Crowd (``VTC'') Appointment, which confers the right to quote
electronically in an appropriate number of classes selected from
``tiers'' that have been structured according to trading volume
statistics, except for the AA tier.\43\ Each Trading Permit
historically held by a Market-Maker had an appointment credit of 1.0. A
Market-Maker could select for each Trading Permit the Market-Maker held
any combination of classes whose aggregate appointment cost did not
exceed 1.0. A Market-Maker could not hold a combination of appointments
whose aggregate appointment cost was greater than the number of Trading
Permits that Market-Maker held.\44\
---------------------------------------------------------------------------
\43\ See Cboe Options Rule 5.50 (Appointment of Market-Makers).
\44\ For example, if a Market-Maker selected a combination of
appointments that has an aggregate appointment cost of 2.5, that
Market-Maker must hold at least 3 Market-Maker Trading Permits.
---------------------------------------------------------------------------
As discussed, post-migration, bandwidth allocation, logins and
appointment costs are no longer tied to a single Trading Permit and
therefore TPHs no longer need to have multiple permits for each type of
electronic Trading Permit. Market-Makers must still select class
appointments in the classes they seek to make markets
electronically.\45\ Particularly, a Market-Maker firm will only be
required to have one permit and will thereafter be charged for one or
more ``Appointment Units'' (which will scale from 1 ``unit'' to more
than 5 ``units''), depending on which classes they elect appointments
in. Appointment Units will replace the standard 1.0 appointment cost,
but function in the same manner. Appointment weights (formerly known as
``appointment costs'') for each appointed class will be set forth in
Cboe Options Rule 5.50(g) and will be summed for each Market-Maker in
order to determine the total appointment units, to which fees will be
assessed. This was the manner in which the tier costs per class
appointment were summed to meet the 1.0 appointment cost, the only
difference being that if a Market-Maker exceeds this ``unit'', then
their fees will be assessed under the ``unit'' that corresponds to the
total of their appointment weights, as opposed to holding another
Trading Permit because it exceeded the 1.0 ``unit''. Particularly, the
Exchange proposes to adopt a new MM EAP Appointment Sliding Scale.
Appointment Units for each assigned class will be aggregated for each
Market-Maker and Market-Maker affiliate. If the sum of appointments is
a fractional amount, the total will be rounded up to the next highest
whole Appointment Unit. The following lists the progressive monthly
fees for Appointment Units: \46\
---------------------------------------------------------------------------
\45\ See Cboe Options Rule 5.50(a).
\46\ For example, if a Market-Maker's total appointment costs
amount to 3.5 unites, the Market-Maker will be assessed a total
monthly fee of $14,000 (1 appointment unit at $0, 1 appointment unit
at $6,000 and 2 appointment units at $4,000) as and for appointment
fees and $5,000 for a Market-Maker Trading Permit, for a total
monthly sum of $19,000, where a Market-Maker currently (i.e., prior
to migration) with a total appointment cost of 3.5 would need to
hold 4 Trading Permits and would therefore be assessed a monthly fee
of $20,000.
------------------------------------------------------------------------
Monthly fees
Market-maker EAP appointments Quantity (per unit)
------------------------------------------------------------------------
Appointment Units............... 1..................... $0
2..................... 6,000
3 to 5................ 4,000
>5.................... 3,100
------------------------------------------------------------------------
As noted above, upon migration the Exchange required separate
Trading Permits for on-floor and off-floor activity. As such, the
Exchange proposes to maintain a Floor Broker Trading Permit and adopt a
new Market-Maker Floor Permit for on-floor Market-Makers. In addition,
RUT, SPX, and VIX Tier Appointment fees will be charged separately for
Permit, as discussed more fully below.
As briefly described above, the Exchange currently maintains TP
Sliding Scales, which allow Market-Makers and Floor Brokers to pay
reduced rates for their Trading Permits if they commit in advance to a
specific tier that includes a minimum number of eligible Market-Maker
and Floor Broker Trading Permits, respectively, for each calendar year.
The Exchange proposes to eliminate the current TP Sliding Scales,
including the requirement to commit to a specific tier, and replace it
[[Page 69435]]
with new TP Sliding Scales as follows: \47\
---------------------------------------------------------------------------
\47\ In light of the proposed change to eliminate the TP Sliding
Scale, the Exchange proposes to eliminate Footnote 24 in its
entirety.
----------------------------------------------------------------------------------------------------------------
Current Proposed
Floor TPH permits Current permit qty monthly fee Proposed monthly fee
(per permit) permit qty (per permit)
----------------------------------------------------------------------------------------------------------------
Market-Maker Floor Permit............. 1-10.................... $5,000 1 $6,000
11-20................... 3,700 2 to 5 4,500
21 or more.............. 1,800 6 to 10 3,500
>10 2,000
Floor Broker Permit................... 1....................... 9,000 1 7,500
2-5..................... 5,000 2 to 3 5,700
6 or more............... 3,000 4 to 5 4,500
>5 3,200
----------------------------------------------------------------------------------------------------------------
Floor Broker ADV Discount
Footnote 25, which governs rebates on Floor Broker Trading Permits,
currently provides that any Floor Broker that executes a certain
average of customer or professional customer/voluntary customer
(collectively ``customer'') open-outcry contracts per day over the
course of a calendar month in all underlying symbols excluding
Underlying Symbol List A (except RLG, RLV, RUI, and UKXM), DJX, XSP,
and subcabinet trades (``Qualifying Symbols''), will receive a rebate
on that TPH's Floor Broker Trading Permit Fees. Specifically, any Floor
Broker Trading Permit Holder that executes an average of 15,000
customer (``C'' origin code) and/or professional customer and voluntary
customer (``W'' origin code) open-outcry contracts per day over the
course of a calendar month in Qualifying Symbols will receive a rebate
of $9,000 on that TPH's Floor Broker Trading Permit fees. Additionally,
any Floor Broker that executes an average of 25,000 customer open-
outcry contracts per day over the course of a calendar month in
Qualifying Symbols will receive a rebate of $14,000 on that TPH's Floor
Broker Trading Permit fees. The Exchange proposes to maintain, but
modify, its discount for Floor Broker Trading Permit fees. First, the
measurement criteria to qualify for a rebate will be modified to only
include customer (``C'' origin code) open-outcry contracts executed per
day over the course of a calendar month in all underlying symbols,
while the rebate amount will be modified to be a percentage of the
TPH's Floor Broker Permit total costs, instead of a straight
rebate.\48\ The criteria and corresponding percentage rebates are noted
below.\49\
---------------------------------------------------------------------------
\48\ As is the case today, the Floor Broker ADV Discount will be
available for all Floor Broker Trading Permits held by affiliated
Trading Permit Holders and TPH organizations.
\49\ In light of the proposal to eliminate the TP Sliding Scales
and the Floor Broker rebates currently set forth under Footnote 25,
the Exchange proposes to eliminate Footnote 25 in its entirety.
----------------------------------------------------------------------------------------------------------------
Floor broker
Floor broker ADV discount tier ADV permit rebate
(percent)
----------------------------------------------------------------------------------------------------------------
1............................................. 0 to 99,999..................................... 0
2............................................. 100,000 to 174,999.............................. 15
3............................................. >174,999........................................ 25
----------------------------------------------------------------------------------------------------------------
Next, the Exchange proposes to modify its SPX, VIX and RUT Tier
Appointment Fees. Currently, these fees are assessed to any Market-
Maker TPH that either (i) has the respective SPX, VIX or RUT
appointment at any time during a calendar month and trades a specified
number of contracts or (ii) trades a specified number of contracts in
open outcry during a calendar month. More specifically, the Fees
Schedule provides that the $3,000 per month SPX Tier Appointment is
assessed to any Market-Maker Trading Permit Holder that either (i) has
an SPX Tier Appointment at any time during a calendar month and trades
at least 100 SPX contracts while that appointment is active or (ii)
conducts any open outcry transaction in SPX or SPX Weeklys at any time
during the month. The $2,000 per month VIX Tier Appointment is assessed
to any Market-Maker Trading Permit Holder that either (i) has an SPX
Tier Appointment at any time during a calendar month and trades at
least 100 VIX contracts while that appointment is active or (ii)
conducts at least 1,000 open outcry transaction in VIX at any time
during the month. Lastly, the $1,000 RUT Tier Appointment is assessed
to any Market-Maker Trading Permit Holder that either (i) has an RUT
Tier Appointment at any time during a calendar month and trades at
least 100 RUT contracts while that appointment is active or (ii)
conducts at least 1,000 open outcry transaction in RUT at any time
during the month.
Because the Exchange is separating Market-Maker Trading Permits for
electronic and open-outcry market-making, the Exchange will be
assessing separate Tier Appointment Fees for each type of Market-Maker
Trading Permit. The Exchange proposes that a MM EAP will be assessed
the Tier Appointment Fee whenever the Market-Maker executes the
corresponding specified number of contracts, if any. The Exchange also
proposes to modify the threshold number of contracts a Market-Maker
must execute in a month to trigger the fee for SPX, VIX and RUT.
Particularly, for SPX, the Exchange proposes to eliminate the 100
contract threshold for electronic SPX executions. The Exchange notes
that historically, all TPHs that trade SPX electronically executed more
than 100 contracts electronically each month (i.e., no TPH
electronically traded between 1 and 100 contracts of SPX). As no TPH
would currently be negatively impacted by this change, the Exchange
proposes to eliminate the threshold for SPX and align the electronic
SPX Tier Appointment Fee with that of the floor SPX Tier Appointment
Fee, which is
[[Page 69436]]
not subject to any executed volume threshold. For the VIX and RUT Tier
appointments, the Exchange proposes to increase the threshold from 100
contracts a month to 1,000 contracts a month. The Exchange notes the
Tier Appointment Fee amounts are not changing.\50\ In connection with
the proposed changes, the Exchange proposes to relocate the Tier
Appointment Fees to a new table and eliminate the language in the
current respective notes sections of each Tier Appointment Fee as it is
no longer necessary.
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\50\ Floor Broker Trading Surcharges for SPX/SPXW and VIX are
also not changing. The Exchange however, is creating a new table for
Floor Broker Trading Surcharges and relocating such fees in the Fees
Schedule in connection with the proposal to eliminate fees currently
set forth in the ``Trading Permit and Tier Appointment Fees'' Table.
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Trading Permit Holder Regulatory Fee
The Fees Schedule provides for a Trading Permit Holder Regulatory
Fee of $90 per month, per RTH Trading Permit, applicable to all TPHs,
which fee helps more closely cover the costs of regulating all TPHs and
performing regulatory responsibilities. In light of the changes to the
Exchange's Trading Permit structure, the Exchange proposes to eliminate
the TPH Regulatory Fee. The Exchange notes that there is no regulatory
requirement to maintain this fee.
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.\51\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \52\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\53\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its Trading Permit Holders and other persons using
its facilities. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \54\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\51\ 15 U.S.C. 78f(b).
\52\ 15 U.S.C. 78f(b)(5).
\53\ 15 U.S.C. 78f(b)(4).
\54\ 15 U.S.C. 78f(b)(5).
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The Exchange first notes that the proposed changes were not
designed with the objective to generate an overall increase in access
fee revenue, as demonstrated by the anticipated loss of revenue
discussed above. Rather, the proposed changes were prompted by the
Exchange's technology migration and the adoption of a new (and
improved) connectivity infrastructure, rendering the pre-migration
structure obsolete. Such changes accordingly necessitated an overhaul
of the Exchange's previous access fee structure and corresponding fees.
Moreover, the proposed changes more closely aligns the Exchange's
access fees to those of its Affiliated Exchanges, and reasonably so, as
the Affiliated Exchanges offer substantially similar connectivity and
functionality and are on the same platform that the Exchange has now
migrated to.
The Exchange also notes that it operates in a highly competitive
environment. Indeed, there are currently 16 registered options
exchanges that trade options. There is also no regulatory requirement
that any market participant connect to any one options exchange, or
that any market participant connect at a particular connection speed or
act in a particular capacity on the Exchange. Moreover, membership is
not a requirement to participate on the Exchange. Indeed, the Exchange
is unaware of any one options exchange whose membership includes every
registered broker-dealer. Even the number of members between the
Exchange and its 3 other options exchange affiliates vary. Indeed, a
number of firms currently do not participate on the Exchange, or
participate on the Exchange through sponsored access arrangements
rather than by becoming a member. Particularly, the Exchange notes that
as of August 2019, the Exchange had 97 members (TPH organizations), of
which only 45 directly connected to the Exchange. The Exchange notes
that in November 2019, the Exchange had 96 members (TPH organizations),
of which only 43 directly connected to the Exchange. The Exchange notes
the 43 TPH organizations connecting directly to the Exchange in
November accounts for approximately 75% of the Exchange's volume in
November. The remaining 55 members connect indirectly to the Exchange
and account for approximately 25% of the Exchange's volume in November.
The Exchange notes that multiple types of members connect indirectly to
the Exchange including Clearing firms, Floor Brokers, order flow
provides, and on-floor and off-floor Market-Makers. In addition, of
those market participants that do connect to the Exchange, it is the
individual needs of each market participant that determine the amount
and type of Trading Permits and physical and logical connections to the
Exchange.\55\
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\55\ To assist market participants that are connected or
considering connecting to the Exchange, the Exchange provides
detailed information and specifications about its available
connectivity alternatives in the Cboe C1 Options Exchange
Connectivity Manual, as well as the various technical
specifications. See https://markets.cboe.com/us/options/support/technical/.
---------------------------------------------------------------------------
Moreover, the Commission has repeatedly expressed its preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. Particularly, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \56\ The number
of available exchanges to connect to ensures increased competition in
the marketplace, and constrains the ability of exchanges to charge
supracompetitive fees for access to its market. Additionally, the
Exchange notes that non-TPHs such as Service Bureaus and Extranets
resell Cboe Options connectivity.\57\ This indirect connectivity is
another viable alternative that is already being used by non-TPHs,
further constraining the price that the Exchange is able to charge for
connectivity to its Exchange. Accordingly, in the event that a market
participant views one exchange's direct connectivity and access fees as
more or
[[Page 69437]]
less attractive than the competition they can choose to connect to that
exchange indirectly or may choose not to connect to that exchange and
connect instead to one or more of the other 15 options markets. For
example, two TPHs that connected directly to the Exchange pre-
migration, now connect indirectly via an extranet provider. The
Exchange notes that it has not received any comments or evidence to
suggest the two TPHs that transitioned from direct connections to an
indirect connections post-migration were the result of an undue
financial burden resulting from the proposed fee changes. Rather, the
Exchange believes the transitions demonstrate that indirect
connectivity is in fact a viable option for market participants,
therefore reflecting a competitive environment.
---------------------------------------------------------------------------
\56\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\57\ Prior to migration, there were 13 firms that resold Cboe
Options connectivity. Post-migration, the Exchange anticipated that
there would be 19 firms that resell Cboe Options connectivity (both
physical and logical) and currently there are in fact 17 firms that
resell Cboe Options connectivity. The Exchange does not receive any
connectivity revenue when connectivity is resold by a third-party,
which often is resold to multiple customers, some of whom are agency
broker-dealers that have numerous customers of their own.
---------------------------------------------------------------------------
Moreover, the Commission itself has recognized that while some
exchanges may have a unique business model that is not currently
offered by competitors, it believes a competitor could create similar
business models if demand were adequate, and if they did not do so, the
Commission believes it would be likely that new entrants would do so if
the exchange with that unique business model was otherwise
profitable.\58\ Similarly, while some exchanges may have exclusively-
listed proprietary products, such Exchanges are still subject to
competitive constraints as such products may compete with other multi-
listed products or alternative proprietary products on other exchanges,
as well as alternative Over-the-Counter (OTC) products. For example,
singly-listed XSP options may compete with the multiply-listed SPY
options. Additionally, market participants may still trade an
Exchange's proprietary products through a third-party without directly
or indirectly connecting to the Exchange. The proposed fees therefore
reflect a competitive environment, as the Exchange seeks to amend its
access fees in connection with the migration of its technology
platform, while still attracting market participants to continue to be,
or become, connected to the Exchange.
---------------------------------------------------------------------------
\58\ See Securities Exchange Act Release No. 86901 (September 9,
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
---------------------------------------------------------------------------
In determining the proposed fee changes discussed above, the
Exchange reviewed the current competitive landscape, considered the
fees historically paid by market participants for connectivity to the
pre-migration system, and also assessed the impact on market
participants to ensure that the proposed fees would not create an undue
financial burden on any market participants, including smaller market
participants. Indeed, the Exchange received no comments from any TPH
suggesting they were unduly burdened by the proposed changes described
herein, which were first announced via Exchange Notice nearly two
months in advance of the migration, nor were any timely comment letters
received by the Commission by the comment period submission deadline of
November 12, 2019.\59\
---------------------------------------------------------------------------
\59\ See Exchange Notice ``Cboe Options Exchange Access and
Capacity Fee Schedule Changes Effective October 1, 2019 and November
1, 2019'' Reference ID C2019081900.
---------------------------------------------------------------------------
The proposed connectivity structure and corresponding fees, like
the pre-migration connectivity structure and fees, provide market
participants flexibility with respect to how to connect to the Exchange
based on each market participants' respective business needs. For
example, the amount and type of physical and logical ports are
determined by factors relevant and specific to each market participant,
including its business model, costs of connectivity, how its business
is segmented and allocated and volume of messages sent to the Exchange.
Moreover, the proposed connectivity structure is designed to encourage
market participants to be efficient with their physical and logical
port usage. While the Exchange has no way of predicting with certainty
the amount or type of connections market participants will in fact
purchase, if any, the Exchange anticipates that like today, some market
participants will continue to decline to connect and participate on the
Exchange, some will participate on the Exchange via indirect
connectivity, some will only purchase one physical connection and/or
logical port connection, and others will purchase multiple connections.
Physical Ports
The Exchange believes increasing the fee for the new 10 Gb Physical
Port is reasonable because unlike, the current 10 Gb Network Access
Ports, the new Physical Ports provides a connection through a latency
equalized infrastructure with faster switches and also allows access to
both unicast order entry and multicast market data with a single
physical connection. As discussed above, legacy Network Access Ports do
not permit market participants to receive unicast and multicast
connectivity. As such, in order to receive both connectivity types pre-
migration, a market participant needed to purchase and maintain at
least two 10 Gb Network Access Ports. The proposed Physical Ports not
only provide latency equalization (i.e., eliminate latency advantages
between market participants based on location) as compared to the
legacy ports, but also alleviate the need to pay for two physical ports
as a result of needing unicast and multicast connectivity. Accordingly,
market participants who historically had to purchase two separate ports
for each of multicast and unicast activity, will be able to purchase
only one port, and consequently pay lower fees overall. For example,
pre-migration if a TPH had two 10 Gb legacy Network Access Ports, one
of which received unicast traffic and the other of which received
multicast traffic, that TPH would have been assessed $10,000 per month
($5,000 per port). Under the proposed rule change, using the new
Physical Ports, that TPH has the option of utilizing one single port,
instead of two ports, to receive both unicast and multicast traffic,
therefore paying only $7,000 per month for a port that provides both
connectivity types. The Exchange notes that pre-migration,
approximately 50% of TPHs maintained two or more 10 Gb Network Access
Ports. While the Exchange has no way of predicting with certainty the
amount or type of connections market participants will in fact purchase
post-migration, the Exchange anticipated approximately 50% of the TPHs
with two or more 10 Gb Network Access Ports to reduce the number of 10
Gb Physical Ports that they purchase and expected the remaining 50% of
TPHs to maintain their current 10 Gb Physical Ports, but reduce the
number of 1 Gb Physical Ports. Particularly, pre-migration, a number of
TPHs maintained two 10 Gb Network Access Ports to receive multicast
data and two 1 Gb Network Access Ports for order entry (unicast
connectivity). As the new 10 Gb Physical Ports are able to accommodate
unicast connectivity (order entry), TPHs may choose to eliminate their
1 Gb Network Access Ports and utilize the new 10 Gb Physical Ports for
both multicast and unicast connectivity. The Exchange notes that many
market participants are still transitioning to the new connectivity
structure and as such, the Exchange does not expect its projections
regarding port purchases to be realized prior to February 2020.
As discussed above, if a TPH deems a particular exchange as
charging excessive fees for connectivity, such market participants may
opt to terminate their connectivity arrangements with that exchange,
and
[[Page 69438]]
adopt a possible range of alternative strategies, including routing to
the applicable exchange through another participant or market center or
taking that exchange's data indirectly. Accordingly, if the Exchange
charges excessive fees, it would stand to lose not only connectivity
revenues but also revenues associated with the execution of orders
routed to it, and, to the extent applicable, market data revenues. The
Exchange believes that this competitive dynamic imposes powerful
restraints on the ability of any exchange to charge unreasonable fees
for physical connectivity. The Exchange also notes that the proposal
represents an equitable allocation of reasonable dues, fees and other
charges as its fees for physical connectivity are reasonably
constrained by competitive alternatives, as discussed above. The
proposed amounts are in line with, and in some cases lower than, the
costs of physical connectivity at other Exchanges,\60\ including the
Cboe Affiliated Exchanges which have the same connectivity
infrastructure the Exchange has migrated to.\61\ The Exchange does not
believe it is unreasonable to assess fees that are in line with fees
that have already been established for the same physical ports used to
connect to the same connectivity infrastructure and common platform.
The Exchange believes the proposed Physical Port fees are equitable and
not unreasonably discriminatory as the connectivity pricing is
associated with relative usage of the various market participants and
the Exchange has not been presented with any evidence to suggest its
proposed fee changes would impose a barrier to entry for participants,
including smaller participants. In fact, as noted above, the Exchange
is unaware of any market participant that has terminated direct
connectivity solely as a result of the proposed fee changes. The
Exchange also believes increasing the fee for 10 Gb Physical Ports and
charging a higher fee as compared to the 1 Gb Physical Port is
equitable as the 1 Gb Physical Port is 1/10th the size of the 10 Gb
Physical Port and therefore does not offer access to many of the
products and services offered by the Exchange (e.g., ability to receive
certain market data products). Thus the value of the 1 Gb alternative
is lower than the value of the 10 Gb alternative, when measured based
on the type of Exchange access it offers. Moreover, market participants
that purchase 10 Gb Physical Ports utilize the most bandwidth and
therefore consume the most resources from the network. As such, the
Exchange believes the proposed fees for the 1 and 10 Gb Physical Ports,
respectively are reasonably and appropriately allocated.
---------------------------------------------------------------------------
\60\ See e.g., Nasdaq PHLX and ISE Rules, General Equity and
Options Rules, General 8. Phlx and ISE each charge a monthly fee of
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection. See also Nasdaq Price List--
Trading Connectivity. Nasdaq charges a monthly fee of $7,500 for
each 10Gb direct connection to Nasdaq and $2,500 for each direct
connection that supports up to 1Gb. See also NYSE American Fee
Schedule, Section V.B, and Arca Fees and Charges, Co-Location Fees.
NYSE American and Arca each charge a monthly fee of $5,000 for each
1Gb circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb
LX circuit.
\61\ See e.g., Affiliated Exchange Fee Schedules, Physical
Connectivity Fees. For example, Cboe BZX, Cboe EDGX and C2 each
charge a monthly fee of $2,500 for each 1Gb connection and $7,500
for each 10Gb connection.
---------------------------------------------------------------------------
Data Port Fees
The Exchange believes assessing the data port fee per data source,
instead of per port, is reasonable because it may allow for market
participants to maintain more ports at a lower cost and applies
uniformly to all market participants. The Exchange believes the
proposed increase is reasonable because, as noted above, market
participants may pay lower fees as a result of charging per data source
and not per data port. Indeed, while the Exchange has no way of
predicting with certainty the impact of the proposed changes, the
Exchange had anticipated approximately 76% of the 51 market
participants who pay data port fees to pay the same or lower fees upon
implementation of the proposed change. Currently, 46 market
participants \62\ pay the proposed data port fees, of which
approximately 78% market participants are paying the same or lower fees
in connection with the proposed change. Monthly savings for firms
paying lower fees range from $500 to $6,000 per month. The Exchange
also anticipated that 19% of TPHs who pay data port fees would pay a
modest increase of only $500 per month. To date, approximately 22%
market participants pay higher fees, with the majority of those market
participants paying a modest monthly increase of $500 and only 3 firms
paying either $1,000 or $1,500 more per month. Additionally as
discussed above, the Exchange's affiliate C2 has the same fee which is
also assessed at the proposed rate and assessed by data source instead
of per port. The proposed name change is also appropriate in light of
the Exchange's proposed changes and may alleviate potential confusion.
---------------------------------------------------------------------------
\62\ The Exchange notes the reduction in market participants
that pay the data port fee is due to firm consolidations and
acquisitions.
---------------------------------------------------------------------------
Logical Connectivity
Port Fees
The Exchange believes it's reasonable to eliminate certain fees
associated with legacy options for connecting to the Exchange and to
replace them with fees associated with new options for connecting to
the Exchange that are similar to those offered at its Affiliated
Exchanges. In particular, the Exchange believes it's reasonable to no
longer assess fees for CMI and FIX Login IDs because the Login IDs were
retired and rendered obsolete upon migration and because the Exchange
is proposing to replace them with fees associated with the new logical
connectivity options. The Exchange believes that it is reasonable to
harmonize the Exchange's logical connectivity options and corresponding
connectivity fees now that the Exchange is on a common platform as its
Affiliated Exchanges. Additionally, the Exchange notes the proposed
fees are the same as, or in line with, the fees assessed on its
Affiliated Exchanges for similar connectivity.\63\ The proposed logical
connectivity fees are also equitable and not unfairly discriminatory
because the Exchange will apply the same fees to all market
participants that use the same respective connectivity options.
---------------------------------------------------------------------------
\63\ See Affiliated Exchange Fee Schedules, Logical Port Fees.
---------------------------------------------------------------------------
The Exchange believes the proposed Logical Port fees are reasonable
as it is the same fee for Drop Ports and the first five BOE/FIX Ports
that is assessed for CMI and FIX Logins, which the Exchange is
eliminating in lieu of logical ports. Additionally, while the proposed
ports will be assessed the same monthly fees as current CMI/FIX Login
IDs, the proposed logical ports provide for significantly more message
traffic. Specifically, the proposed BOE/FIX Logical Ports will provide
for 3 times the amount of quoting \64\ capacity and approximately 165
times order entry capacity. Similarly, the Exchange believes the
proposed BOE Bulk Port fees are reasonable because while the fees are
higher than the CMI and FIX Login Id fees and the proposed Logical Port
fees, BOE Bulk Ports offer significantly more bandwidth capacity than
both CMI and FIX Login Ids and Logical Ports. Particularly, a single
BOE Bulk Port offers 45 times the amount of quoting bandwidth than CMI/
FIX Login
[[Page 69439]]
Ids \65\ and 5 times the amount of quoting bandwidth than Logical Ports
will offer. Additionally, the Exchange believes that its fees for
logical connectivity are reasonable, equitable, and not unfairly
discriminatory as they are designed to ensure that firms that use the
most capacity pay for that capacity, rather than placing that burden on
market participants that have more modest needs. Although the Exchange
charges a ``per port'' fee for logical connectivity, it notes that this
fee is in effect a capacity fee as each FIX, BOE or BOE Bulk port used
for order/quote entry supports a specified capacity (i.e., messages per
second) in the matching engine, and firms purchase additional logical
ports when they require more capacity due to their business needs.
---------------------------------------------------------------------------
\64\ Based on the purchase of a single Market-Maker Trading
Permit or Bandwidth Packet.
\65\ Based on the purchase of a single Market-Maker Trading
Permit or Bandwidth Packet.
---------------------------------------------------------------------------
An obvious driver for a market participant's decision to purchase
multiple ports will be their desire to send or receive additional
levels of message traffic in some manner, either by increasing their
total amount of message capacity available, or by segregating order
flow for different trading desks and clients to avoid latency sensitive
applications from competing for a single thread of resources. For
example, a TPH may purchase one or more ports for its market making
business based on the amount of message traffic needed to support that
business, and then purchase separate ports for proprietary trading or
customer facing businesses so that those businesses have their own
distinct connection, allowing the firm to send multiple messages into
the Exchange's trading system in parallel rather than sequentially.
Some TPHs that provide direct market access to their customers may also
choose to purchase separate ports for different clients as a service
for latency sensitive customers that desire the lowest possible latency
to improve trading performance. Thus, while a smaller TPH that demands
more limited message traffic may connect through a service bureau or
other service provider, or may choose to purchase one or two logical
ports that are billed at a rate of $750 per month each, a larger market
participant with a substantial and diversified U.S. options business
may opt to purchase additional ports to support both the volume and
types of activity that they conduct on the Exchange. While the Exchange
has no way of predicting with certainty the amount or type of logical
ports market participants will in fact purchase post-migration, the
Exchange anticipated approximately 16% of TPHs to purchase one to two
logical ports, and approximately 22% of TPHs to not purchase any
logical ports. To date, 13% of TPHs purchased one to two logical ports
and 27% have not purchased any logical ports. At the same time, market
participants that desire more total capacity due to their business
needs, or that wish to segregate order flow by purchasing separate
capacity allocations to reduce latency or for other operational
reasons, would be permitted to choose to purchase such additional
capacity at the same marginal cost. The Exchange believes the proposal
to assess an additional Logical and BOE Bulk port fee for incremental
usage per logical port is reasonable because the proposed fees are
modestly higher than the proposed Logical Port and BOE Bulk fees and
encourage users to mitigate message traffic as necessary. The Exchange
notes one of its Affiliated Exchanges has similar implied port
fees.\66\
---------------------------------------------------------------------------
\66\ See e.g., Cboe C2 Options Exchange Fees Schedule, Logical
Connectivity Fees.
---------------------------------------------------------------------------
In sum, the Exchange believes that the proposed BOE/FIX Logical
Port and BOE Bulk Port fees are appropriate as these fees would ensure
that market participants continue to pay for the amount of capacity
that they request, and the market participants that pay the most are
the ones that demand the most resources from the Exchange. The Exchange
also believes that its logical connectivity fees are aligned with the
goals of the Commission in facilitating a competitive market for all
firms that trade on the Exchange and of ensuring that critical market
infrastructure has ``levels of capacity, integrity, resiliency,
availability, and security adequate to maintain their operational
capability and promote the maintenance of fair and orderly markets.''
\67\
---------------------------------------------------------------------------
\67\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72251 (December 5, 2014) (File No. S7-01-13)
(Regulation SCI Adopting Release).
---------------------------------------------------------------------------
The Exchange believes waiving the FIX/BOE Logical Port fee for one
FIX Logical Port used to access PULSe and Silexx (for FLEX Trading) is
reasonable because it will allow all TPHs using PULSe and Silexx to
avoid having to pay a fee that they would otherwise have to pay. The
waiver is equitable and not unfairly discriminatory because TPHs using
PULSe are already subject to a monthly fee for the PULSe Workstation,
which the Exchange views as inclusive of fees to access the Exchange.
Moreover, while PULSe users today do not require a FIX/CMI Login Id,
post-migration, due to changes to the connectivity infrastructure,
PULSe users will be required to maintain a FIX Logical Port and as such
incur a fee they previously would not have been subject to. Similarly,
the Exchange believes that the waiver for Silexx (for FLEX trading)
will encourage TPHs to transact business using FLEX Options using the
new Silexx System and encourage trading of FLEX Options. Additionally,
the Exchange notes that it currently waives the Login Id fees for Login
IDs used to access the CFLEX system.
The Exchange believes its proposed fee for Purge Ports is
reasonable as it is also in line with the amount assessed for purge
ports offered by its Affiliated Exchanges, as well as other
exchanges.\68\ Moreover, the Exchange believes that offering purge port
functionality at the Exchange level promotes robust risk management
across the industry, and thereby facilitates investor protection. Some
market participants, and, in particular, larger firms, could build
similar risk functionality on their trading systems that permit the
flexible cancellation of orders entered on the Exchange. Offering
Exchange level protections however, ensures that such functionality is
widely available to all firms, including smaller firms that may
otherwise not be willing to incur the costs and development work
necessary to support their own customized mass cancel functionality.
The Exchange operates in a highly competitive market in which exchanges
offer connectivity and related services as a means to facilitate the
trading activities of TPHs and other participants. As the proposed
Purge Ports provide voluntary risk management functionality, excessive
fees would simply serve to reduce demand for this optional product. The
Exchange also believes that the proposed Purge Port fees are not
unfairly discriminatory because they will apply uniformly to all TPHs
that choose to use dedicated Purge Ports. The proposed Purge Ports are
completely voluntary and, as they relate solely to optional risk
management functionality, no TPH is required or under any regulatory
obligation to utilize them. The Exchange believes that adopting
separate fees for these ports ensures that the associated costs are
borne exclusively by TPHs that determine to use them based on their
business needs, including Market-Makers or similarly situated market
participants. Similar to Purge Ports, Spin and GRP Ports are optional
products that provide an alternative means for market participants to
receive
[[Page 69440]]
multicast data and request and receive a retransmission of such data.
As such excessive fees would simply serve to reduce demand for these
products, which TPHs are under no regulatory obligation to utilize. All
TPHs that voluntarily select these service options (i.e., Purge Ports,
Spin Ports or GRP Ports) will be charged the same amount for the same
respective services. All TPHs have the option to select any
connectivity option, and there is no differentiation among TPHs with
regard to the fees charged for the services offered by the Exchange.
---------------------------------------------------------------------------
\68\ See Affiliated Exchange Fee Schedules, Logical Port Fees.
See also; Nasdaq ISE Pricing Schedule, Section 7(C). ISE charges a
fee of $1,100 per month for SQF Purge Ports.
---------------------------------------------------------------------------
Access Credits
The Exchange believes the proposal to adopt credits for BOE Bulk
Ports is reasonable, equitable and not unfairly discriminatory because
it provides an opportunity for TPHs to pay lower fees for logical
connectivity. The Exchange notes that the proposed credits are in lieu
of the current credits that Market-Makers are eligible to receive today
for Trading Permits fees. Although only Market-Makers may receive the
proposed BOE Bulk Port credits, Market-Makers are valuable market
participants that provide liquidity in the marketplace and incur costs
that other market participants do not incur. For example, Market-Makers
have a number of obligations, including quoting obligations and fees
associated with appointments that other market participants do not
have. The Exchange also believes that the proposals provide incremental
incentives for TPHs to strive for the higher tier levels, which provide
increasingly higher benefits for satisfying increasingly more stringent
criteria, including criteria to provide more liquidity to the Exchange.
The Exchange believes the value of the proposed credits is commensurate
with the difficulty to achieve the corresponding tier thresholds of
each program.
First, the Exchange believes the proposed BOE Bulk Port fee credits
provided under AVP will incentivize the routing of orders to the
Exchange by TPHs that have both Market-Maker and agency operations, as
well as incent Market-Makers to continue to provide critical liquidity
notwithstanding the costs incurred with being a Market-Maker. More
specifically, in the options industry, many options orders are routed
by consolidators, which are firms that have both order router and
Market-Maker operations. The Exchange is aware not only of the
importance of providing credits on the order routing side in order to
encourage the submission of orders, but also of the operations costs on
the Market-Maker side. The Exchange believes the proposed change to AVP
continues to allow the Exchange to provide relief to the Market-Maker
side via the credits, albeit credits on BOE Bulk Port fees instead of
Trading Permit fees. Additionally, the proposed credits may incentivize
and attract more volume and liquidity to the Exchange, which will
benefit all Exchange participants through increased opportunities to
trade as well as enhancing price discovery. While the Exchange has no
way of predicting with certainty how many and which TPHs will satisfy
the required criteria to receive the credits, the Exchange had
anticipated approximately two TPHs (out of approximately 5 TPHs that
are eligible for AVP) to reach VIP Tiers 4 or 5 and consequently earn
the BOE Bulk Port fee credits for their respective Market-Maker
affiliate. For the month of October 2019, two TPHs received access
credits under Tier 5 and no TPHs received credits under Tier 4. The
Exchange notes that it believes its reasonable, equitable and not
unfairly discriminatory to no longer provider access credits for
Market-Makers whose affiliates achieve VIP Tiers 2 or 3 as the Exchange
has adopted another opportunity for all Market-Makers, not just Market-
Makers that are part of a consolidator, to receive credits on BOE Bulk
Port fees (i.e., credits available via the proposed Market-Maker Access
Credit Program). More specifically, limiting the credits under AVP to
the top two tiers enables the Exchange to provide further credits under
the new Market-Maker Access Credit Program. Furthermore, the Exchange
notes that it is not required to provide any credits at any tier level.
The Exchange believes the proposed BOE Bulk Port fee credits
available for TPHs that reach certain Performance Tiers under the
Liquidity Provider Sliding Scale Adjustment Table is reasonable as the
credits provide for reduced connectivity costs for those Market-Makers
that reach the required thresholds. The Exchange believe it's
reasonable, equitable and not unfairly discriminatory to provide
credits to those Market-Makers that primarily provide and post
liquidity to the Exchange, as the Exchange wants to continue to
encourage Market-Makers with significant Make Rates to continue to
participate on the Exchange and add liquidity. Greater liquidity
benefits all market participants by providing more trading
opportunities and tighter spreads.
Moreover, the Exchange notes that Market-Makers with a high Make
Rate percentage generally require higher amounts of capacity than other
Market-Makers. Particularly, Market-Makers with high Make Rates are
generally streaming significantly more quotes than those with lower
Make Rates. As such, Market-Makers with high Make Rates may incur more
costs than other Market-Makers as they may need to purchase multiple
BOE Bulk Ports in order to accommodate their capacity needs. The
Exchange believes the proposed credits for BOE Bulk Ports encourages
Market-Makers to continue to provide liquidity for the Exchange,
notwithstanding the costs incurred by purchasing multiple ports.
Particularly, the proposal is intended to mitigate the costs incurred
by traditional Market-Makers that focus on adding liquidity to the
Exchange (as opposed to those that provide and take, or just take).
While the Exchange cannot predict with certainty which Market-Makers
will reach Performance Tiers 4 and 5 each month, based on historical
performance it anticipated approximately 10 Market-Makers would achieve
Tiers 4 or 5. In October 2019, 12 Market-Makers achieved Tiers 4 or 5.
Lastly, the Exchange notes that it is common practice among options
exchanges to differentiate fees for adding liquidity and fees for
removing liquidity.\69\
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\69\ See e.g., MIAX Options Fees Schedule, Section 1(a), Market
Maker Transaction Fees.
---------------------------------------------------------------------------
Bandwidth Packets and CMI CAS Server Fees
The Exchange believes it's reasonable to eliminate Bandwidth Packet
fees and the CMI CAS Server fee because TPHs will not pay fees for
these connectivity options and because Bandwidth Packets and CAS
Servers have been retired and rendered obsolete as part of the
migration. The Exchange believes that even though it will be
discontinuing Bandwidth Packets, the proposed incremental pricing for
Logical Ports and BOE Bulk Ports will continue to encourage users to
mitigate message traffic. The proposed change is equitable and not
unfairly discriminatory because it will apply uniformly to all TPHs.
Access Fees
The Exchange believes the restructuring of its Trading Permits is
reasonable in light of the changes to the Exchange's connectivity
infrastructure in connection with the migration and the resulting
separation of bandwidth allowance, logins and appointment costs from
each Trading Permit. The Exchange also believes that it is reasonable
to harmonize the Exchange's Trading Permit structure and corresponding
connectivity options to
[[Page 69441]]
more closely align with the structures offered at its Affiliated
Exchanges once the Exchange is on a common platform as its Affiliated
Exchanges.\70\ The proposed Trading Permit structure and corresponding
fees are also in line with the structure and fees provided by other
exchanges. The proposed Trading Permit fees are also equitable and not
unfairly discriminatory because the Exchange will apply the same fees
to all market participants that use the same type and number of Trading
Permits.
---------------------------------------------------------------------------
\70\ For example, the Exchange's affiliate, C2, similarly
provides for Trading Permits that are not tied to connectivity, and
similar physical and logical port options at similar pricings. See
Cboe C2 Options Exchange Fees Schedule. Physical connectivity and
logical connectivity are also not tied to any type of permits on the
Exchange's other options exchange affiliates.
---------------------------------------------------------------------------
With respect to electronic Trading Permits, the Exchange notes that
TPHs previously requested multiple Trading Permits because of
bandwidth, login or appointment cost needs. As described above, in
connection with migration, bandwidth, logins and appointment costs are
no longer tied to Trading Permits or Bandwidth Packets and as such, the
need to hold multiple permits and/or Bandwidth Packets is obsolete. As
such, the Exchange believes the structure to require only one of each
type of applicable electronic Trading Permit is appropriate. Moreover,
the Exchange believes offering separate marketing making permits for
off-floor and on-floor Market-Makers provides for a cleaner, more
streamlined approach to trading permits and corresponding fees. Other
exchanges similarly provide separate and distinct fees for Market-
Makers that operate on-floor vs off-floor and their corresponding fees
are similar to those proposed by the Exchange.\71\
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\71\ See e.g., PHLX Section 8A, Permit and Registration Fees.
See also, BOX Options Fee Schedule, Section IX Participant Fees;
NYSE American Options Fees Schedule, Section III(A) Monthly ATP Fees
and NYSE Arca Options Fees and Charges, OTP Trading Participant
Rights. For similar Trading Floor Permits for Floor Market Makers,
Nasdaq PHLX charges $6,000; BOX charges up to $5,500 for 3
registered permits in addition to a $1,500 Participant Fee, NYSE
Arca charges up to $6,000; and NYSE American charges up to $8,000.
---------------------------------------------------------------------------
The Exchange believes the proposed fee for its MM EAP Trading
Permits is reasonable as it is the same fee it assess today for Market-
Maker Trading Permits (i.e., $5,000 per month per permit).
Additionally, the proposed fee is in line with, and in some cases even
lower than, the amounts assessed for similar access fees at other
exchanges, including its affiliate C2.\72\ The Exchange believes the
proposed EAP fee is also reasonable, and in line with the fees assessed
by other Exchanges for non-Market-Maker electronic access.\73\ The
Exchange notes that while the Trading Permit fee is increasing, TPHs
overall cost to access the Exchange may be reduced in light of the fact
that a TPH no longer must purchase multiple Trading Permits, Bandwidth
Packets and Login Ids in order to receive sufficient bandwidth and
logins to meet their respective business needs. To illustrate the value
of the new connectivity infrastructure, the Exchange notes that the
cost that would be incurred by a TPH today in order to receive the same
amount of order capacity that will be provided by a single Logical Port
post-migration (i.e., 5,000 orders per second), is approximately 98%
higher than the cost for the same capacity post-migration. The
following examples further demonstrate potential cost savings/value
added for an EAP holder with modest capacity needs and an EAP holder
with larger capacity needs:
---------------------------------------------------------------------------
\72\ See e.g., Cboe C2 Options Exchange Fees Schedule. See also,
NYSE Arca Options Fees and Charges, General Options and Trading
Permit (OTP) Fees, which assesses up to $6,000 per Market Maker OTP
and NYSE American Options Fee Schedule, Section III. Monthly ATP
Fees, which assess up to $8,000 per Market Maker ATP. See also, PHLX
Section 8A, Permit and Registration Fees, which assesses up to
$4,000 per Market Maker Permit.
\73\ See e.g., PHLX Section 8A, Permit and Registration Fees,
which assesses up to $4,000 per Permit for all member and member
organizations other than Floor Specialists and Market Makers.
TPH That Holds 1 EAP, No Bandwidth Packets and 1 CMI Login
----------------------------------------------------------------------------------------------------------------
Current fee structure Post-migration fee structure
----------------------------------------------------------------------------------------------------------------
EAP.............................. $1,600................................ $3,000.
CMI Login/Logical Port........... $750.................................. $750.
Bandwidth Packets................ 0..................................... N/A.
Total Bandwidth Available........ 30 orders/sec......................... 5,000 orders/sec.
Total Cost....................... $2,350................................ $3,750.
Total Cost per message........... $78.33/order/sec...................... $0.75/order/sec.
----------------------------------------------------------------------------------------------------------------
TPH That Holds 1 EAP, 4 Bandwidth Packets and 15 CMI Logins
----------------------------------------------------------------------------------------------------------------
Current fee structure Post-migration fee structure
----------------------------------------------------------------------------------------------------------------
EAP.............................. $1,600................................ $3,000.
CMI Login/Logical Port........... $11,250 ([email protected])...................... $750.
Bandwidth Packets................ $6,400 ([email protected]$1,600)..................... N/A.
Total Bandwidth Available........ 150 orders/sec........................ 5,000 orders/sec.
Total Cost....................... $19,250............................... $3,750.
Total Cost per message........... $128.33/order/sec..................... $0.75/order/sec.
----------------------------------------------------------------------------------------------------------------
The Exchange believes the proposal to adopt a new Clearing TPH
Permit is reasonable because it offers TPHs that only clear
transactions of TPHs a discount. Particularly, Clearing TPHs that also
submit orders electronically to the Exchange would purchase the
proposed EAP at $3,000 per permit. The Exchange believe it's reasonable
to provide a discount to Clearing TPHs that only clear transactions and
do not otherwise submit electronic orders to the Exchange. The Exchange
notes that another exchange similarly charges a separate fee for
clearing firms.\74\
---------------------------------------------------------------------------
\74\ See e.g., NYSE Arca Options Fees and Charges, General
Options and Trading Permit (OTP) Fees and NYSE American Options Fee
Schedule, Section III. Monthly ATP Fees.
---------------------------------------------------------------------------
The Exchange believes the proposed fee structure for on-floor
Market-Makers is reasonable as the fees are in line with those offered
at other Exchanges.\75\ The Exchange believes that the proposed fee
[[Page 69442]]
for MM Floor Permits as compared to MM EAPs is reasonable because it is
only modestly higher than MM EAPs and Floor MMs don't have other costs
that MM EAP holders have, such as MM EAP Appointment fees.
---------------------------------------------------------------------------
\75\ See e.g., PHLX Section 8A, Permit and Registration Fees,
which assesses $6,000 per permit for Floor Specialists and Market
Makers.
---------------------------------------------------------------------------
The Exchange believes its proposed fees for Floor Broker Permits
are reasonable because the fees are similar to, and in some cases lower
than, the fees the Exchange currently assesses for such permits.
Specifically, based on the number of Trading Permits TPHs held upon
migration, 60% of TPHs that hold Floor Broker Trading Permits will pay
lower Trading Permit fees. Particularly, any Floor Broker holding ten
or less Floor Broker Trading Permits will pay lower fees under the
proposed tiers as compared to what they pay today. While the remaining
40% of TPHs holding Floor Broker Trading Permits (who each hold between
12-21 Floor Broker Trading Permits) will pay higher fees, the Exchange
notes the monthly increase is de minimis, ranging from an increase of
0.6%--2.72%.\76\
---------------------------------------------------------------------------
\76\ The Floor Brokers whose fees are increasing have each
committed to a minimum number of permits and therefore currently
receive the rates set forth in the current Floor Broker TP Sliding
Scale.
---------------------------------------------------------------------------
The Exchange believes the proposed ADV Discount is reasonable
because it provides an opportunity for Floor Brokers to pay lower FB
Trading Permit fees, similar to the current rebate program offered to
Floor Brokers. The Exchange notes that while the new ADV Discount
program includes only customer volume (``C'' origin code) as compared
to Customer and Professional Customer/Voluntary Professional, the
amount of Professional Customer/Voluntary Professional volume was de
minimis and the Exchange does not believe the absence of such volume
will have a significant impact.\77\ Additionally, the Exchange notes
that while the ADV requirements under the proposed ADV Discount program
are higher than are required under the current rebate program, the
proposed ADV Discount counts volume from all products towards the
thresholds as compared to the current rebate program which excludes
volume from Underlying Symbol List A (except RLG, RLV, RUI, and UKXM),
DJX, XSP, and subcabinet trades. Moreover, the ADV Discount is designed
to encourage the execution of orders in all classes via open outcry,
which may increase volume, which would benefit all market participants
(including Floor Brokers who do not hit the ADV thresholds) trading via
open outcry (and indeed, this increased volume could make it possible
for some Floor Brokers to hit the ADV thresholds). The Exchange
believes the proposed discounts are equitable and not unfairly
discriminatory because all Floor Brokers are eligible. While the
Exchange has no way of predicting with certainty how many and which
TPHs will satisfy the various thresholds under the ADV Discount, the
Exchange anticipated approximately 3 Floor Brokers to receive a rebate
under the program. To date, 2 Floor Brokers have received a rebate
under the program.
---------------------------------------------------------------------------
\77\ Furthermore, post-migration the Exchange will not have
Voluntary Professionals.
---------------------------------------------------------------------------
The Exchange believes its proposed MM EAP Appointment fees are
reasonable in light of the Exchange's elimination of appointment costs
tied to Trading Permits. Other exchanges also offer a similar structure
with respect to fees for appointment classes.\78\ Additionally, the
proposed MM EAP Appointment fee structure results in approximately 36%
electronic MMs paying lower fees for trading permit and appointment
costs. For example, in order to have the ability to make electronic
markets in every class on the Exchange, a Market-Maker would need 1
Market-Maker Trading Permit and 37 Appointment Units post-migration.
Under, the current pricing structure, in order for a Market-Maker to
quote the entire universe of available classes, a Market-Maker would
need 33 Appointment Credits, thus necessitating 33 Market-Maker Trading
Permits. With respect to fees for Trading Permits and Appointment Unit
Fees, under the proposed pricing structure, the cost for a TPH wishing
to quote the entire universe of available classes is approximately 29%
less (if they are not eligible for the MM TP Sliding Scale) or
approximately 2% less (if they are eligible for the MM TP Sliding
Scale). To further demonstrate the potential cost savings/value added,
the Exchange is providing the following examples comparing current
Market-Maker connectivity and access fees to projected connectivity and
access fees for different scenarios. The Exchange notes that the below
examples not only compare Trading Permit and Appointment Unit costs,
but also the cost incurred for logical connectivity and bandwidth.
Particularly, the first example demonstrates the total minimum cost
that would be incurred today in order for a Market-Maker to have the
same amount of capacity as a Market-Maker post-migration that would
have only 1 MM EAP and 1 Logical Port (i.e., 15,000 quotes/3 sec). The
Exchange is also providing examples that demonstrate the costs of (i) a
Market-Maker with small capacity needs and appointment unit of 1.0 and
(ii) a Market-Maker with large capacity needs and appointment cost/unit
of 30.0:
---------------------------------------------------------------------------
\78\ See e.g., PHLX Section 8. Membership Fees, B, Streaming
Quote Trader (``SQT'') Fees and C. Remote Market Maker Organization
(RMO) Fee.
------------------------------------------------------------------------
Current fee Post-migration fee
structure structure
------------------------------------------------------------------------
Market-Maker That Needs Capacity of 15,000/Quotes/3 Seconds
------------------------------------------------------------------------
MM Permit/MM EAP............ $5,000.............. $5,000.
Appointment Unit Cost....... N/A (1 appointment $0 (1 appointment
cost). unit).
CMI Login/Logical Port...... $750 \79\........... $750.
Bandwidth Packets........... $5,500 ([email protected]$2,750)... N/A.
Total Bandwidth Available... 15,000 quotes/3 sec. 15,000 quotes/3 sec.
Total Cost.................. $11,250............. $5,750.
Total Cost per message $0.75/quote/3 sec... $0.38/quote/3 sec.
allowed.
------------------------------------------------------------------------
Market Maker That Needs Capacity of No More Than 5,000 Quotes/3 Secs
------------------------------------------------------------------------
MM Permit/MM EAP............ $5,000.............. $5,000.
Appointment Unit Cost....... N/A (1 appointment $0 (1 appointment
cost). unit).
CMI Login/Logical Port...... $750................ $750.
Bandwidth Packets........... 0................... N/A.
Total Bandwidth Available... 5,000 quotes/3 sec.. 15,000 quotes/3 sec.
Total Cost.................. $5,750.............. $5,750.
[[Page 69443]]
Total Cost per message $1.15/quote/3 sec... $0.38/quote/3 sec.
allowed.
------------------------------------------------------------------------
Market-Maker That Needs 30 Appointment Units and Capacity of 300,000
Quotes/3 Sec
------------------------------------------------------------------------
MM Permits/MM EAP........... $105,000 (30 MM $5,000.
Permits assumes
eligible for MM TP
Sliding Scale).
\80\
Appointment Units Cost...... N/A (30 appointment $95,500 (30
costs). appointment units).
CMI Logins/BOE Bulk Port.... $3,000 ([email protected]$750) \81\ $3,000 (2 BOE
[email protected]$1,500).
Bandwidth Packets........... $82,500 ([email protected]$2750).. N/A.
Total Bandwidth Available... 300,000 quotes/3 sec * 450,000 quotes/3
sec.
Total Cost.................. $190,500............ $103,500.
Total Cost per message $0.63/quotes/3 sec.. $0.23/quote/3 sec.
allowed.
------------------------------------------------------------------------
* Possible performance degradation at 15,000 messages per second.
The Exchange believes its proposal to provide separate fees for
Tier Appointments for MM EAPs and MM Floor Permits as the Exchange will
be issuing separate Trading Permits for on-floor and off-floor market
making as discussed above. The proposal to eliminate the volume
threshold for the electronic SPX Tier Appointment fee is reasonable as
no TPHs in the past several months have electronically traded more than
1 SPX contract or less than 100 SPX contracts per month and therefore
will not be negatively impacted by the proposed change, and because it
aligns the electronic SPX Tier Appointment with the floor SPX Tier
Appointment, which has no volume threshold. The Exchange believes the
proposal to increase the electronic volume thresholds for VIX and RUT
are reasonable as those that do not regularly trade VIX or RUT in open-
outcry will continue to not be assessed the fee. In fact, any TPH that
executes more than 100 contracts but less than 1,000 in the respective
classes will no longer have to pay the proposed Tier Appointment fee.
As noted above, the Exchange is not proposing to change the amounts
assessed for each Tier Appointment Fee. The proposed change is
equitable and not unfairly discriminatory because it will apply
uniformly to all TPHs.
---------------------------------------------------------------------------
\79\ The maximum quoting bandwidth that may be applied to a
single Login Id is 80,000 quotes/3 sec.
\80\ For simplicity of the comparison, this assumes no
appointments in SPX, VIX, RUT, XEO or OEX (which are not included in
the TP Sliding Scale).
\81\ Given the bandwidth limit per Login Id of 80,000 quotes/3
sec, example assumes Market-Maker purchases minimum amount of Login
IDs to accommodate 300,000 quotes/3 sec.
---------------------------------------------------------------------------
Trading Permit Holder Regulatory Fee
The Exchange believes it's reasonable to eliminate the Trading
Permit Holder Regulatory fee because TPHs will not pay this fee and
because the Exchange is restructuring its Trading Permit structure. The
Exchange notes that although it will less closely be covering the costs
of regulating all TPHs and performing its regulatory responsibilities,
it still has sufficient funds to do so. The proposed change is
equitable and not unfairly discriminatory because it will apply
uniformly to all TPHs.
The Exchange believes corresponding changes to eliminate obsolete
language in connection with the proposed changes described above and to
relocate and reorganize its fees in connection with the proposed
changes maintain clarity in the Fees Schedule and alleviate potential
confusion, thereby removing impediments to and perfecting the mechanism
of a free and open market and a national market system, and, in
general, protecting investors and the public interest.
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.
With respect to intra-market competition, the Exchange does not
believe that the proposed rule change would place certain market
participants at the Exchange at a relative disadvantage compared to
other market participants or affect the ability of such market
participants to compete. As stated above, the Exchange does not believe
its proposed pricing will impose a barrier to entry to smaller
participants and notes that its proposed connectivity pricing is
associated with relative usage of the various market participants. For
example, market participants with modest capacity needs can buy the
less expensive 1 Gb Physical Port and utilize only one Logical Port.
Moreover, the pricing for 1 Gb Physical Ports and FIX/BOE Logical Ports
are no different than are assessed today (i.e., $1,500 and $750 per
port, respectively), yet the capacity and access associated with each
is greatly increasing. While pricing may be increased for larger
capacity physical and logical ports, such options provide far more
capacity and are purchased by those that consume more resources from
the network. Accordingly, the proposed connectivity fees do not favor
certain categories of market participants in a manner that would impose
a burden on competition; rather, the allocation reflects the network
resources consumed by the various size of market participants--lowest
bandwidth consuming members pay the least, and highest bandwidth
consuming members pays the most, particularly since higher bandwidth
consumption translates to higher costs to the Exchange.
The Exchange also does not believe that the proposed rule change
will result in any burden on inter-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act. As
discussed in the Statutory Basis section above, options market
participants are not forced to connect to (or purchase market data
from) all options exchanges, as shown by the number of TPHs at Cboe and
shown by the fact that there are varying number of members across each
of Cboe's Affiliated Exchanges. The Exchange operates in a highly
competitive environment, and its ability to price access and
connectivity is constrained by competition among exchanges and third
parties. As discussed, there are other options markets of which market
participants may connect to trade options. There is also a possible
range of alternative strategies, including routing to the exchange
through another participant or market center or taking the exchange's
data indirectly. For example, there are 15 other U.S. options
exchanges, which the Exchange must consider in its pricing discipline
in order to compete for market participants. In this competitive
environment, market participants are free to choose which competing
exchange or reseller to use to satisfy their business needs. As a
result, the Exchange believes this proposed rule change permits fair
competition
[[Page 69444]]
among national securities exchanges. Accordingly, the Exchange does not
believe its proposed fee change imposes any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act.
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 \82\ and paragraph (f) of Rule 19b-4 \83\
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.
---------------------------------------------------------------------------
\82\ 15 U.S.C. 78s(b)(3)(A).
\83\ 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-2019-111 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-2019-111. 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 such 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 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-2019-111, and should be submitted
on or before January 8, 2020.
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\84\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\84\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27194 Filed 12-17-19; 8:45 am]
BILLING CODE 8011-01-P
