Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule Regarding the Automated Improvement Mechanism (AIM) and Solicitation Auction Mechanism (SAM), 9489-9493 [2020-03178]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
page number provided on each page.
Responses should include the name of
the person(s) or organization(s) filing
the comment. Comments containing
references, studies, research, and other
empirical data that are not widely
published should include copies or
electronic links of the referenced
materials. No business proprietary
information, copyrighted information,
or personally identifiable information
should be submitted in response to this
RFI.
In accordance with FAR 15.202(3),
responses to this notice are not offers
and cannot be accepted by the Federal
Government to form a binding contract.
Additionally, those submitting
responses are solely responsible for all
expenses associated with response
preparation.
For
additional information, please direct
your questions to Lisa Nichols at
publicaccess@ostp.eop.gov.
FOR FURTHER INFORMATION CONTACT:
In
February of 2013, OSTP issued the
memorandum Increasing Access to the
Results of Federally Funded Scientific
Research. The memorandum directed
Federal agencies with more than $100M
in research and development (R&D)
expenditures to develop plans to make
the results of federally funded
unclassified research that are published
in peer-reviewed publications, and
digitally formatted scientific data,
publicly available. Federal agency plans
required that published work be made
available following a twelve-month
post-publication embargo period.
OSTP and the NSTC SOS continue to
explore opportunities to make the
knowledge, information and data
generated by federally funded research
more readily accessible to students,
clinicians, businesses, entrepreneurs,
researchers, technologists, and the
general public who support these
investments as a means to accelerate
knowledge and innovation. Over the
course of the last two years, OSTP has
had nearly 100 meetings with
stakeholders on open science, current
policy on public access to the results of
federally funded research, the evolution
of scholarly communications, and
access to data and code associated with
published results. This RFI aims to
expand on these consultations and
provide all interested individuals and
organizations with the opportunity to
provide recommendations on
approaches for ensuring broad public
access to the peer-reviewed scholarly
publications, data and code that result
from federally funded scientific
khammond on DSKJM1Z7X2PROD with NOTICES
SUPPLEMENTARY INFORMATION:
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
research. OSTP is interested in
perspectives on the following topics:
• What current limitations exist to the
effective communication of research
outputs (publications, data, and code)
and how might communications evolve
to accelerate public access while
advancing the quality of scientific
research? What are the barriers to and
opportunities for change?
• What more can Federal agencies do
to make tax-payer funded research
results, including peer-reviewed author
manuscripts, data, and code funded by
the Federal Government, freely and
publicly accessible in a way that
minimizes delay, maximizes access, and
enhances usability? How can the
Federal Government engage with other
sectors to achieve these goals?
• How would American science
leadership and American
competitiveness benefit from immediate
access to these resources? What are
potential challenges and effective
approaches for overcoming them?
Analyses that weigh the trade-offs of
different approaches and models,
especially those that provide data, will
be particularly helpful.
• Any additional information that
might be considered for Federal policies
related to public access to peerreviewed author manuscripts, data, and
code resulting from federally supported
research.
Dated: February 12, 2020.
Sean Bonyun,
Chief of Staff, Office of Science and
Technology Policy.
[FR Doc. 2020–03189 Filed 2–18–20; 8:45 am]
BILLING CODE 3270–F9–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88176; File No. SR–CBOE–
2020–007]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule Regarding the Automated
Improvement Mechanism (AIM) and
Solicitation Auction Mechanism (SAM)
February 12, 2020.
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 January
30, 2020, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00039
Fmt 4703
Sfmt 4703
9489
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Fees Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
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
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fees schedule in connection with the
fees related to orders and auction
responses executed in the Automated
Improvement Mechanism (‘‘AIM’’) and
Solicitation Auction Mechanism
(‘‘SAM’’) Auctions.3
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
3 The Exchange initially filed the proposed fee
changes on December 2, 2019 (SR–CBOE–2019–
112). On January 30, 2020, the Exchange withdrew
that filing and submitted this filing.
E:\FR\FM\19FEN1.SGM
19FEN1
9490
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
Based on publicly available information,
no single options exchange has more
than 19% of the market share.4 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue use
of certain categories of products, in
response to fee changes. Accordingly,
competitive forces constrain the
Exchange’s transaction fees, and market
participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. In response to the competitive
environment, the Exchange offers
specific rates and credits in its fees
schedule, like that of other options
exchanges’ fees schedules, which the
Exchange believes provide incentive to
Trading Permit Holders (‘‘TPHs’’) to
increase order flow of certain qualifying
orders.
AIM and SAM include functionality
in which a Trading Permit Holder
(‘‘TPH’’) (an ‘‘Initiating TPH’’) may
electronically submit for execution an
order it represents as agent on behalf of
a customer,5 broker dealer, or any other
person or entity (‘‘Agency Order’’)
against any other order it represents as
agent, as well as against principal
interest in AIM only, (an ‘‘Initiating
Order’’) provided it submits the Agency
Order for electronic execution into the
AIM or SAM Auctions.6 The Exchange
may designate any class of options
traded on Cboe Options as eligible for
AIM or SAM. The Exchange notes that
all Users, other than the Initiating TPH,
may submit responses to an Auction
(‘‘AIM Responses’’).7 AIM and SAM
Auctions take into account AIM
Responses to the applicable Auction as
well as contra interest resting on the
Cboe Options Book at the conclusion of
the Auction (‘‘unrelated orders’’),
regardless of whether such unrelated
orders were already present on the Book
when the Agency Order was received by
the Exchange or were received after the
4 See Cboe Global Markets U.S. Options Market
Volume Summary (January 30, 2020), available at
https://markets.cboe.com/us/options/market_
statistics/.
5 The term ‘‘customer’’ means a Public Customer
or a broker-dealer. The term ‘‘Public Customer’’
means a person that is not a broker-dealer. See Rule
1.1.
6 See Rule 5.37 (AIM); Rule 5.39 (SAM); Rule 5.38
(Complex AIM); Rule 5.40 (Complex SAM); Rule
5.73 (FLEX AIM); and Rule 5.74 (FLEX SAM).
7 For purposes of this filing and the proposed fee,
the term ‘‘AIM Response’’ will include responses
submitted to AIM and SAM Auctions.
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
Exchange commenced the applicable
Auction. If contracts remain from one or
more unrelated orders at the time the
Auction ends, they are considered for
participation in the AIM or SAM order
allocation process.
The Exchange notes that it recently
updated its rules in connection with the
AIM and SAM Auctions to permit all
Users to respond to such Auctions; AIM
responses were previously restricted to
Market-Makers with an appointment in
the applicable class and TPHs
representing orders at the top of the
Book, and SAM responses were
previously available to all TPHs, except
responses could not be submitted for the
account of an away market-maker.8
Because AIM Responses were limited to
certain market participants, the
Exchange did not impose separate fees
on Auction responders (as it did for the
Auction Agency and Contra orders). As
a result, the Exchange now proposes to
adopt fee codes for certain AIM
Responses (the ‘‘AIM Response’’ fee as
proposed in the fees schedule, which is
consistent with other AIM-specific
headings and fee codes in the fees
schedule that also encompass orders in
SAM). Specifically, the Exchange
proposes to add: (1) Fee code ‘‘NB’’,
which would be appended to nonCustomer, non-Market-Maker AIM
Responses in penny classes and
assessed a fee of $0.50 per contract; and
(2) and fee code ‘‘NC’’, which would be
appended to Non-Customer, NonMarket-Maker AIM Responses in nonpenny classes and assessed a fee of
$1.05. Non-Customer, non-MarketMaker orders include: Clearing Trading
Permit Holder (‘‘F’’ Capacity Code);
non-Trading Permit Holder Affiliate
(‘‘L’’ Capacity Code); Broker-Dealer (‘‘B’’
Capacity Code); Non-Trading Permit
Holder Market-Maker (‘‘N’’ Capacity
Code); Join Back-Office (‘‘J’’ Capacity
Code); and Professional (‘‘U’’ Capacity
Code) orders. The Exchange also
proposes to add footnote 20, which
clarifies that the AIM Responder fee
applies to AIM Responses of the
aforementioned capacities in all
products, except Sector Indexes 9 and
Underlying Symbol List A,10 executed
in AIM, SAM, FLEX AIM, and FLEX
SAM Auctions. The Exchange notes that
the same FLEX AIM and FLEX SAM
8 See Securities Exchange Act Release No. 87072
(September 24, 2019), 84 FR 51673 (September 30,
2019) (SR–CBOE–2019–045); and Securities
Exchange Act Release No. 87192 (October 1, 2019),
84 FR 53525 (October 7, 2019) (SR–CBOE–2019–
063).
9 See Cboe Exchange, Inc. Fees Schedule, footnote
47.
10 See Cboe Exchange, Inc. Fees Schedule,
footnote 34.
PO 00000
Frm 00040
Fmt 4703
Sfmt 4703
responses will be assessed the same fee,
which is consistent with the structure of
the Exchange’s current fees for AIM
Agency/Primary and AIM Contra orders,
which apply uniformly to qualifying
orders in AIM, SAM, FLEX AIM, and
FLEX SAM.11 The Exchange further
notes that excluding orders in Sector
Indexes and Underlying Symbol List A
from the proposed AIM Response fee is
also consistent with the same exclusions
under the structure of the Exchange’s
fees for AIM Agency/Primary and AIM
Contra orders.12 These specific sets of
proprietary products are also commonly
excluded from a variety of fee programs,
qualification calculations and
transaction fees, including the Volume
Incentive Program (‘‘VIP’’), the
Marketing Fee, and the Clearing Trading
Permit Holder Fee Cap (‘‘Fee Cap’’).13
Additionally, in light of the proposed
fee, the Exchange also proposes to
exclude non-Customer, non-MarketMaker AIM Responses from the
Complex Surcharge, described in
footnote 35. The Complex Surcharge is
assessed per contract per side for noncustomer complex order executions that
remove liquidity from the Complex
Order Book (‘‘COB’’) and auction
responses in the Complex Order
Auction (‘‘COA’’) and AIM in all classes
except Sector Indexes and Underlying
Symbol List A.
The Exchange also proposes to adopt
Break-Up Credits, applicable to
Customer Agency orders when traded
against a qualifying AIM response
(yielding fee code NB or NC, as
proposed). Specifically, the Exchange
proposes a Break-Up Credit of $0.25 per
contract with respect to a Customer
Agency order in a Penny Pilot Class and
a Break-Up Credit of $0.60 per contract
with respect to a Customer Agency
order in a Non-Penny Pilot Class.
The proposed AIM Responder fees for
non-Customer, non-Market-Maker AIM
Responses, which covers the market
participants recently permitted to
respond to Auctions, are designed as an
additional incentive for Market-Makers
to increase their responses to AIM and
SAM Auctions. Prior to opening up the
Auctions to all market participants,
Market-Makers were naturally
11 See Cboe Exchange, Inc. Fees Schedule,
footnotes 18 and 19.
12 Also like the structure of the Exchange’s fees
for AIM Agency/Primary and AIM Contra orders,
the applicable standard transaction fees will
continue to apply to AIM Response orders in Sector
Indexes and Underlying Symbol List A. The
Exchange notes this in proposed footnote 20.
13 See Cboe Exchange, Inc. Fees Schedule,
‘‘Volume Incentive Program’’ table and footnote 36,
‘‘Marketing Fee’’ table, and ‘‘Clearing Trading
Permit Holder Fee Cap’’ table and footnote 11,
respectively.
E:\FR\FM\19FEN1.SGM
19FEN1
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
incentivized to respond to Auctions as
they were the exclusive (or among the
exclusive) market participants permitted
to submit responses. Therefore, the
Exchange believes the proposed AIM
Responder fees for non-Customer, nonMarket-Maker responses will encourage
Market-Makers to continue to respond
to Auctions and compete to provide
price improvement in a competitive
auction process, thus contributing to a
deeper, more liquid auction process
with additional execution opportunities
which benefits all market participants.
Likewise, the Exchange believes the
proposed Break-Up Credits will
encourage Customer order flow to
Auctions. Increased Customer order
flow benefits all market participants
because it continues to attract liquidity
to the Exchange by providing more
trading opportunities. This attracts
Market-Makers and other liquidity
providers, thus, facilitating price
improvement in the auction process,
signaling additional corresponding
increase in order flow from other market
participants, and, as a result,
contributing towards a robust, wellbalanced market ecosystem.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,14 in general, and
furthers the requirements of Section
6(b)(4),15 in particular, as it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its facilities and does not
unfairly discriminate between
customers, issuers, brokers or dealers.
As stated above, the Exchange operates
in a highly-competitive market in which
market participants can readily direct
order flow to competing venues if they
deem fee levels at a particular venue to
be excessive or incentives to be
insufficient. The proposed fee changes
reflect a competitive pricing structure
designed to incentivize market
participants to direct their order flow to
the Exchange’s price improvement
Auctions, which the Exchange believes
would enhance market quality to the
benefit of all TPHs.
The Exchange believes that its
proposed adoption of fees for nonCustomer, non-Market-Maker responses
and Break-Up Credits for Customer
Agency orders is consistent with
Section 6(b)(4) of the Act in that the
proposal is reasonable, equitable and
not unfairly discriminatory. Also, as
noted above, the Exchange operates in
highly competitive market. The
14 15
15 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
Exchange is only one of several options
venues to which market participants
may direct their order flow, and it
represents a small percentage of the
overall market. The Exchange believes
that the proposed fees are reasonable,
equitable, and not unfairly
discriminatory in that competing
options exchanges,16 including the
Exchange’s affiliated options
exchanges,17 offer substantially the
same fees and credits in connection
with similar price improvement
auctions, as the Exchange now
proposes.
The Exchange believes that it is
reasonable to assess a fee for nonCustomer, non-Market-Maker AIM
Responses because it is reasonably
designed to incentivize Market-Makers
to continue to respond, and potentially
increase their responses, to AIM and
SAM Auctions in light of the recent
opening of the Auctions to other market
participants not previously permitted to
respond to such Auctions. The
Exchange believes that encouraging
increased Market-Maker order flow will
increase liquidity and Auction
execution and price improvement
opportunities to the benefit of all
participants. Deepening the Exchange’s
liquidity pool and offering additional
opportunities enables all investors to
enjoy cost savings, supporting the
quality of price discovery, promoting
market transparency and improving
investor protection. The Exchange
believes excluding non-Customer, nonMarket-Maker AIM Reponses from the
Complex Surcharge is reasonable as
such market participants will not be
assessed the extra surcharge. The
Exchange also notes that auction
responses in COA and AIM are
currently capped at $0.50 per contract
for non-customer complex orders in
16 See MIAX Options Fee Schedule, Section
1(a)(v), ‘‘MIAX Price Improvement Mechanism
(‘‘PRIME’’) Fees, which assesses a fee of $0.50
(Penny Classes) and $0.99 (non-Penny Classes) for
PRIME responses, and offers a break-up credit of
$0.25 (Penny Classes) and $0.60 (non-Penny
Classes) for PRIME Agency orders; see also NYSE
American Options Fee Schedule, Section I(G),
‘‘CUBE Auction Fees and Credits’’, which assesses
a fee of $0.50 (Penny Classes) and $0.99 (non-Penny
Classes) for CUBE (its Customer Best Execution
Auction) responses, and offers a break-up credit of
$0.25 (Penny Classes) and $0.60 (non-Penny
Classes) for PRIME Agency orders, and an Initiating
Participant Credit (akin to an Agency Order) of
$0.30 (Penny Pilot) and $0.70 (non-Penny Pilot).
17 See EDGX Options Exchange Fee Schedule,
‘‘Fee Codes and Associated Fees’’, fee code BD is
appended to AIM Responder Penny Pilot orders and
is assessed a fee of $0.50 per share, and fee code
BE is appended to AIM Responder Non-Penny Pilot
orders and is assessed a fee of $1.05 per share; and
‘‘AIM Break-Up Credits’’, which offers a credit of
$0.25 for AIM Agency Orders in Penny Pilot
securities and $0.60 for such orders in non-Penny
Pilot securities.
PO 00000
Frm 00041
Fmt 4703
Sfmt 4703
9491
Penny classes (which includes the
applicable transaction fee, Complex
Surcharge and Marketing Fee (if
applicable)).18 As such, given the
proposed fee for AIM Responses is $0.50
per contract, the Complex Surcharge
would, in effect, not be assessed for
non-customer, non-Market-Maker
complex orders in Penny classes. The
Exchange also notes that other types of
orders are currently excluded from the
Complex Surcharge.19 Similarly, the
Exchange believes that applying a
Break-Up Credit to Customer Agency
orders is a reasonable means to
encourage Customer order flow to
Exchange Auctions. As stated, increased
Customer order flow provides continued
liquidity to the Exchange, in that it
provides additional transaction
opportunities which attract MarketMakers and other liquidity providers (by
means of both unrelated orders and
responses in connection with the
Auctions), thus facilitating price
improvement and signals an increase in
additional order flow from other market
participants. In turn, these increases
benefit all market participants by
contributing towards a robust and wellbalanced market ecosystem.
The Exchange also believes that the
proposed fees in connection with AIM
Responses and Customer Agency orders
does not represent a significant
departure from the fees and credits
rebates currently offered under the fees
schedule for these market participants.
For example, under the existing fees
schedule orders with F and L Capacity
Codes are assessed a fee of $0.43 per
contract in Penny Classes and $0.70 per
contract in non-Penny Classes, while
orders with B, N, U, or J Capacity Codes
are assessed a fee of $0.47 per contract
in Penny Classes and $0.75 per contract
in non-Penny Classes. Additionally,
under the existing ‘‘Volume Incentive
Program’’, Customer orders may receive
credits ranging from $0.09 to $0.24 per
contract executed in AIM.
The Exchange also believes that the
proposed fees are equitable and not
unfairly discriminatory because the
proposed fee for AIM Responses will
apply equally to all non-Customer, nonMarket-Maker responses, i.e. all such
TPHs will be assessed the same amount.
Similarly, the exclusion of AIM
Responses from the Complex Surcharge
is equitable and not unfairly
discriminatory as it applies equally to
all non-Customer, non-Market-Maker
responses.
18 See
Cboe Options Fees Schedule, Footnote 35.
e.g. Cboe Options Fees Schedule, Footnote
35. Stock-option orders are currently excluded from
the Complex Surcharge.
19 See
E:\FR\FM\19FEN1.SGM
19FEN1
khammond on DSKJM1Z7X2PROD with NOTICES
9492
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
The Exchange also believes that
continuing to not assess a fee applicable
to Market-Maker responses other than
the applicable standard transaction fee
is equitable and not unfairly
discriminatory because Market-Makers
are already subject to certain other
transaction fees not otherwise
applicable to other market participants.
In particular, in addition to MarketMaker-specific standard transaction
fees,20 Market-Makers are also currently
assessed a marketing fee of $0.25 in
Penny Pilot classes and $0.70 in all
other classes on certain transactions
resulting from customer orders,21
including qualifying orders submitted as
AIM Responses. Further, MarketMakers, unlike other market
participants, take on a number of
obligations, including quoting
obligations that other market
participants do not have, as well as
added market making and regulatory
requirements, which normally do not
apply to other market participants. For
example, Market-Makers have
obligations to maintain continuous
markets, engage in a course of dealings
reasonably calculated to contribute to
the maintenance of a fair and orderly
market, and to not make bids or offers
or enter into transactions that are
inconsistent with a course of dealing.
Additionally, the Exchange notes that
Market-Makers (with an appointment in
the applicable class) may not submit
solicited orders into an AIM Auction; 22
this restriction does not apply to Firm
orders. As stated, the Exchange also
recognizes that Market-Makers are the
primary liquidity providers in the
options markets, and particularly,
during AIM auctions. Thus, the
Exchange believes Market-Makers
provide the most accurate prices
reflective of the true state of the market
and are primarily responsible for
encouraging more aggressive quoting
and superior price improvement during
an AIM Auction. As a result, the
Exchange believes it is important to
continue to incent Market-Makers to
actively participate in such auctions by
means of continuing to assess no fee
other than the current applicable
standard transaction fees for MarketMaker AIM Response orders. Increased
Market-Maker liquidity also increases
trading opportunities and signals to
other participants to increase their order
20 See Cboe Options Fees Schedule, ‘‘SPX
Liquidity Provider Sliding Scale’’ table; ‘‘Liquidity
Provider Sliding Scale’’ table; and ‘‘Liquidity
Provider Sliding Scale Adjustment Table’’.
21 That is, Market-Maker orders that execute
against customer orders.
22 This is also true for SAM Auctions. See Rule
5.39.
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
flow, which benefits all market
participants.
Likewise, the Exchange believes that
providing a Break-Up Credit for
Customer Agency orders is equitable
and not unfairly discriminatory because
the proposed Break-Up Credit will
apply equally to all Customer Agency
orders that execute in an Auction
against qualifying responses. The
Exchange notes that while Customer
Agency orders will receive the Break-Up
Credit, as opposed to other Agency
orders, the Exchange believes that this
application of the credit is equitable and
not unfairly discriminatory because, as
stated above, Customer order flow
enhances liquidity on the Exchange, in
turn providing more trading
opportunities and attracting other
market participants, thus, facilitating
tighter spreads, increased order flow
and trading opportunities to the benefit
of all market participants. Moreover, the
options industry has a long history of
providing preferential pricing to
Customers, and the Exchange’s current
fees schedule currently does so in many
places, as do the fees structures of
multiple other exchanges.23
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 intramarket or
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, as
discussed above, the Exchange believes
that the proposed change would
encourage the submission of additional
liquidity to price improvement auctions
of a public exchange, thereby promoting
market depth, price discovery and
transparency and enhancing order
execution and price improvement
opportunities for all TPHs. As a result,
the Exchange believes that the proposed
change furthers the Commission’s goal
in adopting Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 24
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary or appropriate in
23 See MIAX Options Fee Schedule, Section
1(a)(v), ‘‘MIAX Price Improvement Mechanism
(‘‘PRIME’’) Fees, and NYSE American Options Fee
Schedule, Section I(G), ‘‘CUBE Auction Fees and
Credits’’, each of which assesses a lower transaction
fee for customer orders than that of other market
participants for executions in their respective
auctions.
24 Securities Exchange Act Release No. 51808, 70
FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
PO 00000
Frm 00042
Fmt 4703
Sfmt 4703
furtherance of the purposes of the Act
because the proposed changes will
apply uniformly to all non-Customer,
non-Market-Maker responses and to all
Customer Agency orders, respectively.
As described above, different market
participants have different
circumstances, such as the fact that
Market-Makers have marketing fees
(which apply to qualifying transactions
in AIM auctions) and other MarketMaker-specific transaction fees, as well
as quoting obligations and restrictions
within an AIM Auction that other
market participants do not have.
Market-Makers have also recently lost
their exclusive Auction response
incentive. Additionally, the Exchange
notes the fact that preferential pricing to
Customers is a long-standing options
industry practice. The proposed fee
changes serve to enhance Market-Maker
and Customer order flow to the
Exchange’s Auctions, which, as a result,
facilitates increased liquidity and
execution opportunities to the benefit of
all market participants. In addition to
this, the Exchange notes that it currently
assesses similar fees for certain nonCustomer, non-Market-Maker orders and
similar credits for certain Customer
orders.
The Exchange also does not believe
that the proposed fees will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the Act because, as noted
above, competing options exchanges,25
including the Exchange’s affiliated
options exchange,26 currently have
substantially similar fees in place in
connection with similar price
improvement auctions. Additionally,
and as previously discussed, the
Exchange operates in a highly
competitive market. TPHs have
numerous alternative venues that they
may participate on and direct their
order flow, including 15 other options
exchanges, many of which offer
substantially similar price improvement
auctions. Based on publicly available
information, no single options exchange
has more than 19% of the market
share.27 Therefore, no exchange
possesses significant pricing power in
the execution of option order flow.
Indeed, participants can readily choose
to send their orders to other exchange,
and, additionally off-exchange venues,
if they deem fee levels at those other
venues to be more favorable. Moreover,
the Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
25 See
supra note 13.
supra note 14.
27 See supra note 3.
26 See
E:\FR\FM\19FEN1.SGM
19FEN1
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
determining prices, products, and
services in the securities markets.
Specifically, in Regulation NMS, the
Commission highlighted the importance
of market forces in determining prices
and SRO revenues and, also, recognized
that current regulation of the market
system ‘‘has been remarkably successful
in promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 28 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’.29 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.
khammond on DSKJM1Z7X2PROD with NOTICES
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 30 and paragraph (f) of Rule
19b–4 31 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
28 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
29 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
30 15 U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2020–007 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–2020–007. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
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–2020–007 and
should be submitted on or before March
11, 2020.
32 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00043
Fmt 4703
Sfmt 4703
9493
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–03178 Filed 2–18–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88177; File No. SR–
CboeEDGA–2019–013]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Introduce the Small Retail Broker
Distribution Program
February 12, 2020.
On August 1, 2019, Cboe EDGA
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘EDGA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend the
EDGA fee schedule to introduce a Small
Retail Broker Distribution Program (the
‘‘Program’’). The proposed rule change
was immediately effective upon filing
with the Commission pursuant to
Section 19(b)(3)(A) of the Act.3 The
proposed rule change was published for
comment in the Federal Register on
August 20, 2019.4 The Commission
received no comment letters regarding
the proposed rule change. On
September 30, 2019, under Sections
19(b)(2) and (b)(3)(C) of the Act,5 the
Commission temporarily suspended the
proposed rule change and instituted
proceedings to determine whether to
approve or disapprove the proposed
rule change (‘‘OIP’’).6 The Commission
has received no comment letters in
response to the OIP.
Section 19(b)(2) of the Act 7 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of filing of the proposed rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(2) and (b)(3)(A).
4 See Securities Exchange Act Release No. 86676
(August 14, 2019), 84 FR 43218 (‘‘Notice’’).
5 15 U.S.C. 78s(b)(3)(C).
6 See Securities Exchange Act Release No. 87165
(September 30, 2019), 84 FR 53205 (October 4,
2019).
7 15 U.S.C. 78s(b)(2).
2 17
E:\FR\FM\19FEN1.SGM
19FEN1
]]>Agencies
[Federal Register Volume 85, Number 33 (Wednesday, February 19, 2020)]
[Notices]
[Pages 9489-9493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03178]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88176; File No. SR-CBOE-2020-007]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule Regarding the Automated Improvement Mechanism (AIM)
and Solicitation Auction Mechanism (SAM)
February 12, 2020.
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 January 30, 2020, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/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
The Exchange proposes to amend its fees schedule in connection with
the fees related to orders and auction responses executed in the
Automated Improvement Mechanism (``AIM'') and Solicitation Auction
Mechanism (``SAM'') Auctions.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
December 2, 2019 (SR-CBOE-2019-112). On January 30, 2020, the
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow.
[[Page 9490]]
Based on publicly available information, no single options exchange has
more than 19% of the market share.\4\ Thus, in such a low-concentrated
and highly competitive market, no single options exchange possesses
significant pricing power in the execution of option order flow. The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue use of certain categories of products,
in response to fee changes. Accordingly, competitive forces constrain
the Exchange's transaction fees, and market participants can readily
trade on competing venues if they deem pricing levels at those other
venues to be more favorable. In response to the competitive
environment, the Exchange offers specific rates and credits in its fees
schedule, like that of other options exchanges' fees schedules, which
the Exchange believes provide incentive to Trading Permit Holders
(``TPHs'') to increase order flow of certain qualifying orders.
---------------------------------------------------------------------------
\4\ See Cboe Global Markets U.S. Options Market Volume Summary
(January 30, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
AIM and SAM include functionality in which a Trading Permit Holder
(``TPH'') (an ``Initiating TPH'') may electronically submit for
execution an order it represents as agent on behalf of a customer,\5\
broker dealer, or any other person or entity (``Agency Order'') against
any other order it represents as agent, as well as against principal
interest in AIM only, (an ``Initiating Order'') provided it submits the
Agency Order for electronic execution into the AIM or SAM Auctions.\6\
The Exchange may designate any class of options traded on Cboe Options
as eligible for AIM or SAM. The Exchange notes that all Users, other
than the Initiating TPH, may submit responses to an Auction (``AIM
Responses'').\7\ AIM and SAM Auctions take into account AIM Responses
to the applicable Auction as well as contra interest resting on the
Cboe Options Book at the conclusion of the Auction (``unrelated
orders''), regardless of whether such unrelated orders were already
present on the Book when the Agency Order was received by the Exchange
or were received after the Exchange commenced the applicable Auction.
If contracts remain from one or more unrelated orders at the time the
Auction ends, they are considered for participation in the AIM or SAM
order allocation process.
---------------------------------------------------------------------------
\5\ The term ``customer'' means a Public Customer or a broker-
dealer. The term ``Public Customer'' means a person that is not a
broker-dealer. See Rule 1.1.
\6\ See Rule 5.37 (AIM); Rule 5.39 (SAM); Rule 5.38 (Complex
AIM); Rule 5.40 (Complex SAM); Rule 5.73 (FLEX AIM); and Rule 5.74
(FLEX SAM).
\7\ For purposes of this filing and the proposed fee, the term
``AIM Response'' will include responses submitted to AIM and SAM
Auctions.
---------------------------------------------------------------------------
The Exchange notes that it recently updated its rules in connection
with the AIM and SAM Auctions to permit all Users to respond to such
Auctions; AIM responses were previously restricted to Market-Makers
with an appointment in the applicable class and TPHs representing
orders at the top of the Book, and SAM responses were previously
available to all TPHs, except responses could not be submitted for the
account of an away market-maker.\8\ Because AIM Responses were limited
to certain market participants, the Exchange did not impose separate
fees on Auction responders (as it did for the Auction Agency and Contra
orders). As a result, the Exchange now proposes to adopt fee codes for
certain AIM Responses (the ``AIM Response'' fee as proposed in the fees
schedule, which is consistent with other AIM-specific headings and fee
codes in the fees schedule that also encompass orders in SAM).
Specifically, the Exchange proposes to add: (1) Fee code ``NB'', which
would be appended to non-Customer, non-Market-Maker AIM Responses in
penny classes and assessed a fee of $0.50 per contract; and (2) and fee
code ``NC'', which would be appended to Non-Customer, Non-Market-Maker
AIM Responses in non-penny classes and assessed a fee of $1.05. Non-
Customer, non-Market-Maker orders include: Clearing Trading Permit
Holder (``F'' Capacity Code); non-Trading Permit Holder Affiliate
(``L'' Capacity Code); Broker-Dealer (``B'' Capacity Code); Non-Trading
Permit Holder Market-Maker (``N'' Capacity Code); Join Back-Office
(``J'' Capacity Code); and Professional (``U'' Capacity Code) orders.
The Exchange also proposes to add footnote 20, which clarifies that the
AIM Responder fee applies to AIM Responses of the aforementioned
capacities in all products, except Sector Indexes \9\ and Underlying
Symbol List A,\10\ executed in AIM, SAM, FLEX AIM, and FLEX SAM
Auctions. The Exchange notes that the same FLEX AIM and FLEX SAM
responses will be assessed the same fee, which is consistent with the
structure of the Exchange's current fees for AIM Agency/Primary and AIM
Contra orders, which apply uniformly to qualifying orders in AIM, SAM,
FLEX AIM, and FLEX SAM.\11\ The Exchange further notes that excluding
orders in Sector Indexes and Underlying Symbol List A from the proposed
AIM Response fee is also consistent with the same exclusions under the
structure of the Exchange's fees for AIM Agency/Primary and AIM Contra
orders.\12\ These specific sets of proprietary products are also
commonly excluded from a variety of fee programs, qualification
calculations and transaction fees, including the Volume Incentive
Program (``VIP''), the Marketing Fee, and the Clearing Trading Permit
Holder Fee Cap (``Fee Cap'').\13\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 87072 (September 24,
2019), 84 FR 51673 (September 30, 2019) (SR-CBOE-2019-045); and
Securities Exchange Act Release No. 87192 (October 1, 2019), 84 FR
53525 (October 7, 2019) (SR-CBOE-2019-063).
\9\ See Cboe Exchange, Inc. Fees Schedule, footnote 47.
\10\ See Cboe Exchange, Inc. Fees Schedule, footnote 34.
\11\ See Cboe Exchange, Inc. Fees Schedule, footnotes 18 and 19.
\12\ Also like the structure of the Exchange's fees for AIM
Agency/Primary and AIM Contra orders, the applicable standard
transaction fees will continue to apply to AIM Response orders in
Sector Indexes and Underlying Symbol List A. The Exchange notes this
in proposed footnote 20.
\13\ See Cboe Exchange, Inc. Fees Schedule, ``Volume Incentive
Program'' table and footnote 36, ``Marketing Fee'' table, and
``Clearing Trading Permit Holder Fee Cap'' table and footnote 11,
respectively.
---------------------------------------------------------------------------
Additionally, in light of the proposed fee, the Exchange also
proposes to exclude non-Customer, non-Market-Maker AIM Responses from
the Complex Surcharge, described in footnote 35. The Complex Surcharge
is assessed per contract per side for non-customer complex order
executions that remove liquidity from the Complex Order Book (``COB'')
and auction responses in the Complex Order Auction (``COA'') and AIM in
all classes except Sector Indexes and Underlying Symbol List A.
The Exchange also proposes to adopt Break-Up Credits, applicable to
Customer Agency orders when traded against a qualifying AIM response
(yielding fee code NB or NC, as proposed). Specifically, the Exchange
proposes a Break-Up Credit of $0.25 per contract with respect to a
Customer Agency order in a Penny Pilot Class and a Break-Up Credit of
$0.60 per contract with respect to a Customer Agency order in a Non-
Penny Pilot Class.
The proposed AIM Responder fees for non-Customer, non-Market-Maker
AIM Responses, which covers the market participants recently permitted
to respond to Auctions, are designed as an additional incentive for
Market-Makers to increase their responses to AIM and SAM Auctions.
Prior to opening up the Auctions to all market participants, Market-
Makers were naturally
[[Page 9491]]
incentivized to respond to Auctions as they were the exclusive (or
among the exclusive) market participants permitted to submit responses.
Therefore, the Exchange believes the proposed AIM Responder fees for
non-Customer, non-Market-Maker responses will encourage Market-Makers
to continue to respond to Auctions and compete to provide price
improvement in a competitive auction process, thus contributing to a
deeper, more liquid auction process with additional execution
opportunities which benefits all market participants. Likewise, the
Exchange believes the proposed Break-Up Credits will encourage Customer
order flow to Auctions. Increased Customer order flow benefits all
market participants because it continues to attract liquidity to the
Exchange by providing more trading opportunities. This attracts Market-
Makers and other liquidity providers, thus, facilitating price
improvement in the auction process, signaling additional corresponding
increase in order flow from other market participants, and, as a
result, contributing towards a robust, well-balanced market ecosystem.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\14\ in general, and furthers the
requirements of Section 6(b)(4),\15\ in particular, as it is designed
to provide for the equitable allocation of reasonable dues, fees and
other charges among its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers. As stated above, the
Exchange operates in a highly-competitive market in which market
participants can readily direct order flow to competing venues if they
deem fee levels at a particular venue to be excessive or incentives to
be insufficient. The proposed fee changes reflect a competitive pricing
structure designed to incentivize market participants to direct their
order flow to the Exchange's price improvement Auctions, which the
Exchange believes would enhance market quality to the benefit of all
TPHs.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that its proposed adoption of fees for non-
Customer, non-Market-Maker responses and Break-Up Credits for Customer
Agency orders is consistent with Section 6(b)(4) of the Act in that the
proposal is reasonable, equitable and not unfairly discriminatory.
Also, as noted above, the Exchange operates in highly competitive
market. The Exchange is only one of several options venues to which
market participants may direct their order flow, and it represents a
small percentage of the overall market. The Exchange believes that the
proposed fees are reasonable, equitable, and not unfairly
discriminatory in that competing options exchanges,\16\ including the
Exchange's affiliated options exchanges,\17\ offer substantially the
same fees and credits in connection with similar price improvement
auctions, as the Exchange now proposes.
---------------------------------------------------------------------------
\16\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX
Price Improvement Mechanism (``PRIME'') Fees, which assesses a fee
of $0.50 (Penny Classes) and $0.99 (non-Penny Classes) for PRIME
responses, and offers a break-up credit of $0.25 (Penny Classes) and
$0.60 (non-Penny Classes) for PRIME Agency orders; see also NYSE
American Options Fee Schedule, Section I(G), ``CUBE Auction Fees and
Credits'', which assesses a fee of $0.50 (Penny Classes) and $0.99
(non-Penny Classes) for CUBE (its Customer Best Execution Auction)
responses, and offers a break-up credit of $0.25 (Penny Classes) and
$0.60 (non-Penny Classes) for PRIME Agency orders, and an Initiating
Participant Credit (akin to an Agency Order) of $0.30 (Penny Pilot)
and $0.70 (non-Penny Pilot).
\17\ See EDGX Options Exchange Fee Schedule, ``Fee Codes and
Associated Fees'', fee code BD is appended to AIM Responder Penny
Pilot orders and is assessed a fee of $0.50 per share, and fee code
BE is appended to AIM Responder Non-Penny Pilot orders and is
assessed a fee of $1.05 per share; and ``AIM Break-Up Credits'',
which offers a credit of $0.25 for AIM Agency Orders in Penny Pilot
securities and $0.60 for such orders in non-Penny Pilot securities.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to assess a fee for
non-Customer, non-Market-Maker AIM Responses because it is reasonably
designed to incentivize Market-Makers to continue to respond, and
potentially increase their responses, to AIM and SAM Auctions in light
of the recent opening of the Auctions to other market participants not
previously permitted to respond to such Auctions. The Exchange believes
that encouraging increased Market-Maker order flow will increase
liquidity and Auction execution and price improvement opportunities to
the benefit of all participants. Deepening the Exchange's liquidity
pool and offering additional opportunities enables all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection. The
Exchange believes excluding non-Customer, non-Market-Maker AIM Reponses
from the Complex Surcharge is reasonable as such market participants
will not be assessed the extra surcharge. The Exchange also notes that
auction responses in COA and AIM are currently capped at $0.50 per
contract for non-customer complex orders in Penny classes (which
includes the applicable transaction fee, Complex Surcharge and
Marketing Fee (if applicable)).\18\ As such, given the proposed fee for
AIM Responses is $0.50 per contract, the Complex Surcharge would, in
effect, not be assessed for non-customer, non-Market-Maker complex
orders in Penny classes. The Exchange also notes that other types of
orders are currently excluded from the Complex Surcharge.\19\
Similarly, the Exchange believes that applying a Break-Up Credit to
Customer Agency orders is a reasonable means to encourage Customer
order flow to Exchange Auctions. As stated, increased Customer order
flow provides continued liquidity to the Exchange, in that it provides
additional transaction opportunities which attract Market-Makers and
other liquidity providers (by means of both unrelated orders and
responses in connection with the Auctions), thus facilitating price
improvement and signals an increase in additional order flow from other
market participants. In turn, these increases benefit all market
participants by contributing towards a robust and well-balanced market
ecosystem.
---------------------------------------------------------------------------
\18\ See Cboe Options Fees Schedule, Footnote 35.
\19\ See e.g. Cboe Options Fees Schedule, Footnote 35. Stock-
option orders are currently excluded from the Complex Surcharge.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fees in connection
with AIM Responses and Customer Agency orders does not represent a
significant departure from the fees and credits rebates currently
offered under the fees schedule for these market participants. For
example, under the existing fees schedule orders with F and L Capacity
Codes are assessed a fee of $0.43 per contract in Penny Classes and
$0.70 per contract in non-Penny Classes, while orders with B, N, U, or
J Capacity Codes are assessed a fee of $0.47 per contract in Penny
Classes and $0.75 per contract in non-Penny Classes. Additionally,
under the existing ``Volume Incentive Program'', Customer orders may
receive credits ranging from $0.09 to $0.24 per contract executed in
AIM.
The Exchange also believes that the proposed fees are equitable and
not unfairly discriminatory because the proposed fee for AIM Responses
will apply equally to all non-Customer, non-Market-Maker responses,
i.e. all such TPHs will be assessed the same amount. Similarly, the
exclusion of AIM Responses from the Complex Surcharge is equitable and
not unfairly discriminatory as it applies equally to all non-Customer,
non-Market-Maker responses.
[[Page 9492]]
The Exchange also believes that continuing to not assess a fee
applicable to Market-Maker responses other than the applicable standard
transaction fee is equitable and not unfairly discriminatory because
Market-Makers are already subject to certain other transaction fees not
otherwise applicable to other market participants. In particular, in
addition to Market-Maker-specific standard transaction fees,\20\
Market-Makers are also currently assessed a marketing fee of $0.25 in
Penny Pilot classes and $0.70 in all other classes on certain
transactions resulting from customer orders,\21\ including qualifying
orders submitted as AIM Responses. Further, Market-Makers, unlike other
market participants, take on a number of obligations, including quoting
obligations that other market participants do not have, as well as
added market making and regulatory requirements, which normally do not
apply to other market participants. For example, Market-Makers have
obligations to maintain continuous markets, engage in a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and to not make bids or offers or enter into
transactions that are inconsistent with a course of dealing.
Additionally, the Exchange notes that Market-Makers (with an
appointment in the applicable class) may not submit solicited orders
into an AIM Auction; \22\ this restriction does not apply to Firm
orders. As stated, the Exchange also recognizes that Market-Makers are
the primary liquidity providers in the options markets, and
particularly, during AIM auctions. Thus, the Exchange believes Market-
Makers provide the most accurate prices reflective of the true state of
the market and are primarily responsible for encouraging more
aggressive quoting and superior price improvement during an AIM
Auction. As a result, the Exchange believes it is important to continue
to incent Market-Makers to actively participate in such auctions by
means of continuing to assess no fee other than the current applicable
standard transaction fees for Market-Maker AIM Response orders.
Increased Market-Maker liquidity also increases trading opportunities
and signals to other participants to increase their order flow, which
benefits all market participants.
---------------------------------------------------------------------------
\20\ See Cboe Options Fees Schedule, ``SPX Liquidity Provider
Sliding Scale'' table; ``Liquidity Provider Sliding Scale'' table;
and ``Liquidity Provider Sliding Scale Adjustment Table''.
\21\ That is, Market-Maker orders that execute against customer
orders.
\22\ This is also true for SAM Auctions. See Rule 5.39.
---------------------------------------------------------------------------
Likewise, the Exchange believes that providing a Break-Up Credit
for Customer Agency orders is equitable and not unfairly discriminatory
because the proposed Break-Up Credit will apply equally to all Customer
Agency orders that execute in an Auction against qualifying responses.
The Exchange notes that while Customer Agency orders will receive the
Break-Up Credit, as opposed to other Agency orders, the Exchange
believes that this application of the credit is equitable and not
unfairly discriminatory because, as stated above, Customer order flow
enhances liquidity on the Exchange, in turn providing more trading
opportunities and attracting other market participants, thus,
facilitating tighter spreads, increased order flow and trading
opportunities to the benefit of all market participants. Moreover, the
options industry has a long history of providing preferential pricing
to Customers, and the Exchange's current fees schedule currently does
so in many places, as do the fees structures of multiple other
exchanges.\23\
---------------------------------------------------------------------------
\23\ See MIAX Options Fee Schedule, Section 1(a)(v), ``MIAX
Price Improvement Mechanism (``PRIME'') Fees, and NYSE American
Options Fee Schedule, Section I(G), ``CUBE Auction Fees and
Credits'', each of which assesses a lower transaction fee for
customer orders than that of other market participants for
executions in their respective auctions.
---------------------------------------------------------------------------
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 intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Rather, as discussed above, the Exchange believes that the proposed
change would encourage the submission of additional liquidity to price
improvement auctions of a public exchange, thereby promoting market
depth, price discovery and transparency and enhancing order execution
and price improvement opportunities for all TPHs. As a result, the
Exchange believes that the proposed change furthers the Commission's
goal in adopting Regulation NMS of fostering competition among orders,
which promotes ``more efficient pricing of individual stocks for all
types of orders, large and small.'' \24\
---------------------------------------------------------------------------
\24\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed changes will apply uniformly to all non-Customer, non-Market-
Maker responses and to all Customer Agency orders, respectively. As
described above, different market participants have different
circumstances, such as the fact that Market-Makers have marketing fees
(which apply to qualifying transactions in AIM auctions) and other
Market-Maker-specific transaction fees, as well as quoting obligations
and restrictions within an AIM Auction that other market participants
do not have. Market-Makers have also recently lost their exclusive
Auction response incentive. Additionally, the Exchange notes the fact
that preferential pricing to Customers is a long-standing options
industry practice. The proposed fee changes serve to enhance Market-
Maker and Customer order flow to the Exchange's Auctions, which, as a
result, facilitates increased liquidity and execution opportunities to
the benefit of all market participants. In addition to this, the
Exchange notes that it currently assesses similar fees for certain non-
Customer, non-Market-Maker orders and similar credits for certain
Customer orders.
The Exchange also does not believe that the proposed fees will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act because, as noted above,
competing options exchanges,\25\ including the Exchange's affiliated
options exchange,\26\ currently have substantially similar fees in
place in connection with similar price improvement auctions.
Additionally, and as previously discussed, the Exchange operates in a
highly competitive market. TPHs have numerous alternative venues that
they may participate on and direct their order flow, including 15 other
options exchanges, many of which offer substantially similar price
improvement auctions. Based on publicly available information, no
single options exchange has more than 19% of the market share.\27\
Therefore, no exchange possesses significant pricing power in the
execution of option order flow. Indeed, participants can readily choose
to send their orders to other exchange, and, additionally off-exchange
venues, if they deem fee levels at those other venues to be more
favorable. Moreover, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in
[[Page 9493]]
determining prices, products, and services in the securities markets.
Specifically, in Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and,
also, recognized that current regulation of the market system ``has
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \28\ The fact that this market is competitive has also
long been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .''.\29\ 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.
---------------------------------------------------------------------------
\25\ See supra note 13.
\26\ See supra note 14.
\27\ See supra note 3.
\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\29\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
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 \30\ and paragraph (f) of Rule 19b-4 \31\
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.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 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-2020-007 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-2020-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit 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-2020-007 and should be submitted on
or before March 11, 2020.
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-03178 Filed 2-18-20; 8:45 am]
BILLING CODE 8011-01-P
