Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fees Schedule, 19200-19203 [2020-07082]

Download as PDF 19200 Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Notices 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– ISE–2020–14 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. jbell on DSKJLSW7X2PROD with NOTICES All submissions should refer to File Number SR–ISE–2020–14. 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–ISE–2020–14 and should be submitted on or before April 27, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88526; File No. SR–CBOE– 2020–024] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fees Schedule March 31, 2020. 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 March 23, 2020, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change 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. [FR Doc. 2020–07080 Filed 4–3–20; 8:45 am] BILLING CODE 8011–01–P 1 15 17 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:47 Apr 03, 2020 2 17 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00069 Fmt 4703 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 Footnote 12 of the Fees Schedule, which governs pricing changes in the event the Exchange trading floor becomes inoperable. In the event the trading floor becomes inoperable, the Exchange will continue to operate in a screen-based only environment using a floorless configuration of the System that is operational while the trading floor facility is inoperable. The Exchange would operate using that configuration only until the Exchange’s trading floor facility became operational. Open outcry trading would not be available in the event the trading floor becomes inoperable. Particularly, the Exchange proposes to incorporate into Footnote 12, changes related to Related Future Cross (‘‘RFC’’) transactions. By way of background, the Exchange recently adopted Rule 5.24(e)(1)(D), which provides that in the event the trading floor is inoperable, a Trading Permit Holder (‘‘TPH’’) may execute an RFC order, which is comprised of an SPX or VIX option combo order coupled with a contra-side order or orders totaling an equal number of option combo orders, which is identified to the Exchange as being part of an exchange of option contracts for related futures positions.3 Particularly, Rule 5.24(e)(1)(D) permits unexposed crosses of riskless packaged transactions (i.e., RFC transactions) which include SPX/ SPXW or VIX option combos offset by futures contracts. The proposal to allow RFC transactions was adopted to replicate functionality that is otherwise available when the Exchange is operating with an open outcry environment. RFC transactions are intended to provide means for transferring risk from futures positions into related combo positions for purposes of reducing capital requirements on portfolios held at bank clearing firms. The Exchange first proposes to provide that in the event the trading floor becomes inoperable, the Exchange shall waive the SPX and SPXW Execution Surcharges for SPX and SPXW volume executed as an RFC order for the duration of time the Exchange operates in a screen-based only environment. The Exchange currently assesses a SPX Execution Surcharge of $0.21 per contract and a SPXW Execution Surcharge of $0.13 per 3 See Sfmt 4703 E:\FR\FM\06APN1.SGM SR–CBOE–2020–023. 06APN1 Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Notices contract for non-Market Maker orders in SPX and SPXW, respectively that are executed electronically (with some exceptions).4 The Execution Surcharges were adopted to ensure that there is reasonable cost equivalence between the primary execution channels for SPX and SPXW. More specifically, the Execution Surcharges minimize the cost differentials between manual and electronic executions, which is in the interest of the Exchange as it must both maintain robust electronic systems as well as provide for economic opportunity for floor brokers to continue to conduct business, as the Exchange believes they serve an important function in achieving price discovery and customer executions.5 In the event the trading floor becomes inoperable, the only execution available for SPX and SPXW would be electronic executions. The Exchange still wishes to encourage floor brokers to continue to conduct business on the Exchange, albeit electronically when the floor is inoperable. To that end, in order to approximate the trading floor environment electronically, the Exchange will allow TPHs to execute RFC orders electronically, as noted above. As such, the Exchange does not wish to discourage floor brokers from executing SPX and SPXW RFC transactions when the trading floor is inoperable by assessing the Execution Surcharges such volume. Indeed, in the absence of the trading floor being inoperable, RFC orders would otherwise execute on the floor 6 and not be subject to the Execution Surcharges. The Exchange notes that AIM executions are similarly excluded from the Execution Surcharges as such functionality is similarly only made available for SPX in the event the trading floor is inoperable.7 The Exchange next proposes to adopt an RFC Execution Surcharge for RFC initiating orders for all market participants which would apply only when the Exchange operates in a screen4 See Cboe Options Fees Schedule, Footnote 21. e.g., Securities Exchange Act Release No. 71295 (January 14, 2014) 79 FR 3443 (January 21, 2014) (SR–CBOE–2013–129). 6 If the trading floor is open, floor brokers may execute crosses of option combos (i.e., synthetic futures) on the trading floor on behalf of market participants who were exchanging futures contracts for related options positions. Market participants enter into these exchanges in or to swap related exposures. For instance, if a market participant has positions in VIX options but would prefer to hold a corresponding position in VIX futures (such as, for example, to reduce margin or risk related to the option positions), that market participant may swap its VIX options positions with another market participant’s VIX futures positions that have corresponding risk exposure. 7 See Cboe Options Fees Schedule, Footnote 12. jbell on DSKJLSW7X2PROD with NOTICES 5 See VerDate Sep<11>2014 17:47 Apr 03, 2020 Jkt 250001 based only environment and which would be invoiced to the executing TPH. Specifically, the Exchange proposes to adopt a $0.05 per contract fee for SPX and SPXW RFC initiating orders and a $0.04 per contract fee for VIX RFC initiating orders. The Exchange notes that currently, SPX, SPXW and VIX orders executed via open-outcry are assessed floor brokerage fees. Specifically, SPX/SPXW orders are assessed a floor brokerage fee of $0.04 per contract fee for non-crossed orders and a $0.02 per contract fee for crossed orders and VIX orders are assessed a floor brokerage fee of $0.03 per contract for non-crossed orders and $0.015 per contract for crossed orders. The Exchange notes that in the event the trading floor becomes inoperable, volume that would otherwise be executed on the floor would have to be executed electronically. The Exchange believes it’s appropriate to continue to assess this volume a modest fee, notwithstanding the fact that it is being moved to an electronic channel. The Exchange notes the proposed fees are the same as applied to SPX/SPXW and VIX AIM Agency/Primary Orders (i.e., ‘‘AIM Execution Surcharge’’), which was adopted recently for similar reasons and is applied only in the event the trading floor is inoperable. The Exchange therefore proposes to amend the title to AIM Execution Surcharge to ‘‘AIM and RFC Execution Surcharge Fee’’ and modify Footnote 12 to clarify that this Surcharge will also apply to volume executed as an RFC transaction. The Exchange also proposes to provide that SPX/SPXW and VIX contracts executed as an RFC order during the time when the Exchange operates in a screen-based only environment will not count towards the 1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier Appointment Fees. Currently, the Exchange assesses separate monthly Tier Appointment Fees to electronic and floor Market-Maker holding a MarketMaker Electronic Access Permit or Market-Maker Floor Permit, respectively, that trade SPX (including SPXW) and VIX contracts at any time during the month. The Exchange proposes to exclude SPX/SPXW and VIX volume executed as an RFC order during the time when the Exchange operates in a screen-based only environment, as the Exchange does not wish to discourage the sending of such orders during that time. The Exchange notes that the electronic Tier Appointment fees are intended to be assessed to Market-Maker TPHs who act as Market-Makers electronically and PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 19201 engage in trading of these products (as opposed to those who normally execute volume via open outcry, but must participate electronically due to the trading floor being inoperable). 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.8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 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,10 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. The Exchange believes the proposed rule change to waive SPX and SPXW Execution Surcharges for RFC orders in the event the trading floor becomes inoperable is reasonable because market participants will not be subject to these extra surcharge for these executions. As noted above, the Execution Surcharges minimize the cost differentials between manual and electronic executions, which is in the interest of the Exchange as it must both maintain robust electronic systems as well as provide for economic opportunity for floor brokers to continue to conduct business, as the Exchange believes they serve an important function in achieving price discovery and customer executions.11 In the event the trading floor becomes inoperable, the Exchange still wishes to incentivize floor brokers to conduct business on the Exchange, albeit electronically and as such does not wish to assess a surcharge on volume that was otherwise executed on floor and not 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 10 15 U.S.C. 78f(b)(4). 11 See Securities Exchange Act Release No. 71295 (January 14, 2014) 79 FR 3443 (January 21, 2014) (SR–CBOE–2013–129). 9 15 E:\FR\FM\06APN1.SGM 06APN1 jbell on DSKJLSW7X2PROD with NOTICES 19202 Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Notices electronically as an RFC order. As discussed above, market participants may be able to execute RFC orders comprised of SPX or SPXW options electronically in the event the trading floor is inoperable in order to best approximate the trading floor in an electronic environment. Indeed, the Exchange believes waiving the Execution Surcharges for volume executed as an RFC order in the event the trading floor is inoperable will promote and encourage trading of these products notwithstanding the fact that manual executions are no longer available. Additionally, the Exchange does not wish to assess the Execution Surcharges on RFC transactions as such transactions are intended to replicate functionality that is otherwise available when the Exchange is operating with an open outcry environment and is further intended to provide means for transferring risk from futures positions into related combo positions for purposes of reducing capital requirements on portfolios held at bank clearing firms. The Exchange believes the proposed change is also equitable and not unfairly discriminatory as it applies uniformly to all similarly situated market participants that submit RFC orders who will be subject to equivalent execution costs while the trading floor is inoperable. Also, as noted above, the Exchange notes that AIM executions are similarly excluded from the Execution Surcharges as such functionality is similarly only made available in the event the trading floor is inoperable. The Exchange believes the proposal to adopt an RFC Execution Surcharge for SPX/SPXW and VIX RFC initiating orders is reasonable as the proposed rates are similar to the total rates charged for volume that is executed via open-outcry.12 The Exchange also notes that the Fees Schedule already provides for a similar scenario of such rates being assessed in the event the trading floor is inoperable. For example, Footnote 15 of the Fees Schedule provides that in the event the Exchange’s exclusively listed options must be traded at a Back-up Exchange pursuant to Cboe Options Rule 5.26, the Back-up Exchange has agreed to apply the per contract and per contract side fees (i.e., the Floor Brokerage fees) to such transactions. Accordingly, the Exchange believes it’s similarly appropriate to adopt and apply similar fees to transactions that must occur via an electronic execution channel (instead of on a Back-Up Exchange) due to the Exchange’s trading 12 See Cboe Options Fees Schedule, Floor Brokerage Fees. VerDate Sep<11>2014 17:47 Apr 03, 2020 Jkt 250001 floor being inoperable. The Exchange also notes that as discussed above, it is not otherwise assessing the SPX/SPXW Execution Surcharges on RFC SPX/ SPXW orders. The Exchange believes the proposed change is also equitable and not unfairly discriminatory as it applies uniformly to all similarly situated market participants that submit RFC orders who will be subject to equivalent execution costs while the trading floor is inoperable. Additionally, the Exchange notes the RFC Execution Surcharge is the same as the AIM Execution Surcharge, which was recently adopted for similar reasons for when the trading floor is inoperable.13 The Exchange believes its proposal to provide that SPX/SPXW and VIX contracts executed as an RFC order during a time when the Exchange operates in a screen-based only environment will not count towards the 1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier Appointment Fees is reasonable as Market-Makers that would otherwise meet the current contract thresholds due to the need to participate on the Exchange electronically will not be subject to an additional Tier Appointment Fee for volume executed as an RFC order. The Exchange believes the proposed change is reasonable as the Tier Appointment fees were intended to apply to TPHs who act as electronic Market-Makers in SPX/SPX and VIX, not those that, notwithstanding the trading floor being inoperable, would act as floor Market-Makers and trade these products. Accordingly, the Exchange does not wish to assess the Tier Appointment fees to MarketMakers who do not usually conduct significant electronic volume in these products and would not participate electronically if not for the trading floor being inoperable. Additionally, the Exchange does not wish to discourage the use of RFC orders for SPX/SPXW and VIX as RFC transactions would provide Market-Makers with needed relief from the effect of the current exposure method (‘‘CEM’’) on the options market. The proposed change is equitable and not unfairly discriminatory because it will apply uniformly to all similarly situated market participants, as it applies to all Market-Makers trading in these products. The Exchange notes such exclusion is similar to the exclusion of SPX/SPXW and VIX volume executed via AIM.14 13 See 14 See PO 00000 SR–CBOE–2020–021. Cboe Options Fees Schedule, Footnote 12. Frm 00071 Fmt 4703 Sfmt 4703 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will impose any burden on competition that are not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes the proposed changes are not intended to address any competitive issue, but rather to address fee changes it believes are reasonable in the event the trading floor becomes inoperable, thereby only permitting electronic participation on the Exchange. 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 apply equally to all similarly situated market participants. The Exchange does not believe that the proposed rule changes will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed changes only affect trading on the Exchange in limited circumstances. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 15 and paragraph (f) of Rule 19b–4 16 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. 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. 15 15 16 17 E:\FR\FM\06APN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). 06APN1 Federal Register / Vol. 85, No. 66 / Monday, April 6, 2020 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION the most significant aspects of such statements. Electronic Comments [Release No. 34–88519; File No. SR–Phlx– 2020–09] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change • 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–2020–024 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–2020–024. 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 offices 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–2020–024, and should be submitted on or before April 27, 2020. jbell on DSKJLSW7X2PROD with NOTICES 19203 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–07082 Filed 4–3–20; 8:45 am] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Relocate the Phlx Series 8000 and 9000 Rules and Incorporate by Reference the Disciplinary Rules of The Nasdaq Stock Market LLC March 31, 2020. 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 March 20, 2020, Nasdaq PHLX LLC (‘‘Phlx’’ 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to relocate the Phlx Series 8000 and 9000 Rules from its current rulebook (‘‘Rulebook’’) into its new Rulebook shell. The Exchange is also proposing to simultaneously replace the text of the current Phlx Series 8000 and 9000 Rules with introductory paragraphs to each that incorporate by reference The Nasdaq Stock Market LLC’s (‘‘Nasdaq’’) Series 8000 and 9000 Rules located in Nasdaq General 5 Discipline. The text of the proposed rule change is available on the Exchange’s website at https://nasdaqphlx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 BILLING CODE 8011–01–P 1 15 17 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:47 Apr 03, 2020 2 17 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00072 Fmt 4703 Sfmt 4703 1. Purpose Rule Relocation The Exchange proposes to relocate the current Phlx Rule 8000 and 9000 Series Rules into the new Rulebook shell. The relocation and harmonization of these rules is part of the Exchange’s continued effort to promote efficiency and conformity of its processes with those of its Affiliated Exchanges.3 The Exchange believes that the placement of these Phlx Rules into their new location in the shell will facilitate the use of the Rulebook by members, member organizations, persons associated with member organizations, or other persons subject to its jurisdiction. Specifically, the Exchange proposes to relocate the following rules into General 5 Discipline: Proposed new rule number Current rule number Section 1 ........ Rule 9110(d) Disciplinary Jurisdiction. 8000. Investigations and Sanctions. 9000. Code of Procedure. Section 2 ........ Section 3 ........ Incorporation by Reference The Exchange also proposes to simultaneously replace the current Phlx Series 8000 and 9000 Rules with introductory paragraphs to each that incorporate by reference the Nasdaq Series 8000 and 9000 Rules (located in General 5 Discipline), respectively, and state that such Nasdaq Rules shall be applicable to Exchange Members, Member Organizations, persons associated with Member Organizations, and other persons subject to the Exchange’s jurisdiction.4 Except as noted below, the Nasdaq Series 8000 and 9000 Rules are substantially similar to the current Phlx Series 8000 and 9000 Rules, respectively. To account for any 3 The term ‘‘Affiliated Exchanges’’ refers to Nasdaq; Nasdaq BX, Inc.; Nasdaq ISE, LLC; Nasdaq GEMX, LLC; and Nasdaq MRX, LLC. 4 The Exchange notes that the proposed changes will not become operative unless and until the Commission approves the Exchange’s request, which it has filed pursuant to Section 36 of the Exchange Act and SEC Rule 0–12 thereunder, for an exemption from the rule filing requirements of Section 19(b) of the Exchange Act as to changes to Phlx Series 8000 (New General 5, Section 2) and 9000 (New General 5, Section 3) Rules that are effected solely by virtue of a change to the Nasdaq Series 8000 or 9000 Rules. E:\FR\FM\06APN1.SGM 06APN1

Agencies

[Federal Register Volume 85, Number 66 (Monday, April 6, 2020)]
[Notices]
[Pages 19200-19203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07082]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88526; File No. SR-CBOE-2020-024]


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

March 31, 2020.
    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 March 23, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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 Footnote 12 of the Fees Schedule, 
which governs pricing changes in the event the Exchange trading floor 
becomes inoperable. In the event the trading floor becomes inoperable, 
the Exchange will continue to operate in a screen-based only 
environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange would operate using that configuration only until the 
Exchange's trading floor facility became operational. Open outcry 
trading would not be available in the event the trading floor becomes 
inoperable. Particularly, the Exchange proposes to incorporate into 
Footnote 12, changes related to Related Future Cross (``RFC'') 
transactions.
    By way of background, the Exchange recently adopted Rule 
5.24(e)(1)(D), which provides that in the event the trading floor is 
inoperable, a Trading Permit Holder (``TPH'') may execute an RFC order, 
which is comprised of an SPX or VIX option combo order coupled with a 
contra-side order or orders totaling an equal number of option combo 
orders, which is identified to the Exchange as being part of an 
exchange of option contracts for related futures positions.\3\ 
Particularly, Rule 5.24(e)(1)(D) permits unexposed crosses of riskless 
packaged transactions (i.e., RFC transactions) which include SPX/SPXW 
or VIX option combos offset by futures contracts. The proposal to allow 
RFC transactions was adopted to replicate functionality that is 
otherwise available when the Exchange is operating with an open outcry 
environment. RFC transactions are intended to provide means for 
transferring risk from futures positions into related combo positions 
for purposes of reducing capital requirements on portfolios held at 
bank clearing firms.
---------------------------------------------------------------------------

    \3\ See SR-CBOE-2020-023.
---------------------------------------------------------------------------

    The Exchange first proposes to provide that in the event the 
trading floor becomes inoperable, the Exchange shall waive the SPX and 
SPXW Execution Surcharges for SPX and SPXW volume executed as an RFC 
order for the duration of time the Exchange operates in a screen-based 
only environment. The Exchange currently assesses a SPX Execution 
Surcharge of $0.21 per contract and a SPXW Execution Surcharge of $0.13 
per

[[Page 19201]]

contract for non-Market Maker orders in SPX and SPXW, respectively that 
are executed electronically (with some exceptions).\4\ The Execution 
Surcharges were adopted to ensure that there is reasonable cost 
equivalence between the primary execution channels for SPX and SPXW. 
More specifically, the Execution Surcharges minimize the cost 
differentials between manual and electronic executions, which is in the 
interest of the Exchange as it must both maintain robust electronic 
systems as well as provide for economic opportunity for floor brokers 
to continue to conduct business, as the Exchange believes they serve an 
important function in achieving price discovery and customer 
executions.\5\ In the event the trading floor becomes inoperable, the 
only execution available for SPX and SPXW would be electronic 
executions. The Exchange still wishes to encourage floor brokers to 
continue to conduct business on the Exchange, albeit electronically 
when the floor is inoperable. To that end, in order to approximate the 
trading floor environment electronically, the Exchange will allow TPHs 
to execute RFC orders electronically, as noted above. As such, the 
Exchange does not wish to discourage floor brokers from executing SPX 
and SPXW RFC transactions when the trading floor is inoperable by 
assessing the Execution Surcharges such volume. Indeed, in the absence 
of the trading floor being inoperable, RFC orders would otherwise 
execute on the floor \6\ and not be subject to the Execution 
Surcharges. The Exchange notes that AIM executions are similarly 
excluded from the Execution Surcharges as such functionality is 
similarly only made available for SPX in the event the trading floor is 
inoperable.\7\
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    \4\ See Cboe Options Fees Schedule, Footnote 21.
    \5\ See e.g., Securities Exchange Act Release No. 71295 (January 
14, 2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
    \6\ If the trading floor is open, floor brokers may execute 
crosses of option combos (i.e., synthetic futures) on the trading 
floor on behalf of market participants who were exchanging futures 
contracts for related options positions. Market participants enter 
into these exchanges in or to swap related exposures. For instance, 
if a market participant has positions in VIX options but would 
prefer to hold a corresponding position in VIX futures (such as, for 
example, to reduce margin or risk related to the option positions), 
that market participant may swap its VIX options positions with 
another market participant's VIX futures positions that have 
corresponding risk exposure.
    \7\ See Cboe Options Fees Schedule, Footnote 12.
---------------------------------------------------------------------------

    The Exchange next proposes to adopt an RFC Execution Surcharge for 
RFC initiating orders for all market participants which would apply 
only when the Exchange operates in a screen-based only environment and 
which would be invoiced to the executing TPH. Specifically, the 
Exchange proposes to adopt a $0.05 per contract fee for SPX and SPXW 
RFC initiating orders and a $0.04 per contract fee for VIX RFC 
initiating orders. The Exchange notes that currently, SPX, SPXW and VIX 
orders executed via open-outcry are assessed floor brokerage fees. 
Specifically, SPX/SPXW orders are assessed a floor brokerage fee of 
$0.04 per contract fee for non-crossed orders and a $0.02 per contract 
fee for crossed orders and VIX orders are assessed a floor brokerage 
fee of $0.03 per contract for non-crossed orders and $0.015 per 
contract for crossed orders. The Exchange notes that in the event the 
trading floor becomes inoperable, volume that would otherwise be 
executed on the floor would have to be executed electronically. The 
Exchange believes it's appropriate to continue to assess this volume a 
modest fee, notwithstanding the fact that it is being moved to an 
electronic channel. The Exchange notes the proposed fees are the same 
as applied to SPX/SPXW and VIX AIM Agency/Primary Orders (i.e., ``AIM 
Execution Surcharge''), which was adopted recently for similar reasons 
and is applied only in the event the trading floor is inoperable. The 
Exchange therefore proposes to amend the title to AIM Execution 
Surcharge to ``AIM and RFC Execution Surcharge Fee'' and modify 
Footnote 12 to clarify that this Surcharge will also apply to volume 
executed as an RFC transaction.
    The Exchange also proposes to provide that SPX/SPXW and VIX 
contracts executed as an RFC order during the time when the Exchange 
operates in a screen-based only environment will not count towards the 
1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier 
Appointment Fees. Currently, the Exchange assesses separate monthly 
Tier Appointment Fees to electronic and floor Market-Maker holding a 
Market-Maker Electronic Access Permit or Market-Maker Floor Permit, 
respectively, that trade SPX (including SPXW) and VIX contracts at any 
time during the month. The Exchange proposes to exclude SPX/SPXW and 
VIX volume executed as an RFC order during the time when the Exchange 
operates in a screen-based only environment, as the Exchange does not 
wish to discourage the sending of such orders during that time. The 
Exchange notes that the electronic Tier Appointment fees are intended 
to be assessed to Market-Maker TPHs who act as Market-Makers 
electronically and engage in trading of these products (as opposed to 
those who normally execute volume via open outcry, but must participate 
electronically due to the trading floor being inoperable).
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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,\10\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change to waive SPX and 
SPXW Execution Surcharges for RFC orders in the event the trading floor 
becomes inoperable is reasonable because market participants will not 
be subject to these extra surcharge for these executions. As noted 
above, the Execution Surcharges minimize the cost differentials between 
manual and electronic executions, which is in the interest of the 
Exchange as it must both maintain robust electronic systems as well as 
provide for economic opportunity for floor brokers to continue to 
conduct business, as the Exchange believes they serve an important 
function in achieving price discovery and customer executions.\11\ In 
the event the trading floor becomes inoperable, the Exchange still 
wishes to incentivize floor brokers to conduct business on the 
Exchange, albeit electronically and as such does not wish to assess a 
surcharge on volume that was otherwise executed on floor and not

[[Page 19202]]

electronically as an RFC order. As discussed above, market participants 
may be able to execute RFC orders comprised of SPX or SPXW options 
electronically in the event the trading floor is inoperable in order to 
best approximate the trading floor in an electronic environment. 
Indeed, the Exchange believes waiving the Execution Surcharges for 
volume executed as an RFC order in the event the trading floor is 
inoperable will promote and encourage trading of these products 
notwithstanding the fact that manual executions are no longer 
available. Additionally, the Exchange does not wish to assess the 
Execution Surcharges on RFC transactions as such transactions are 
intended to replicate functionality that is otherwise available when 
the Exchange is operating with an open outcry environment and is 
further intended to provide means for transferring risk from futures 
positions into related combo positions for purposes of reducing capital 
requirements on portfolios held at bank clearing firms. The Exchange 
believes the proposed change is also equitable and not unfairly 
discriminatory as it applies uniformly to all similarly situated market 
participants that submit RFC orders who will be subject to equivalent 
execution costs while the trading floor is inoperable. Also, as noted 
above, the Exchange notes that AIM executions are similarly excluded 
from the Execution Surcharges as such functionality is similarly only 
made available in the event the trading floor is inoperable.
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 71295 (January 14, 
2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
---------------------------------------------------------------------------

    The Exchange believes the proposal to adopt an RFC Execution 
Surcharge for SPX/SPXW and VIX RFC initiating orders is reasonable as 
the proposed rates are similar to the total rates charged for volume 
that is executed via open-outcry.\12\ The Exchange also notes that the 
Fees Schedule already provides for a similar scenario of such rates 
being assessed in the event the trading floor is inoperable. For 
example, Footnote 15 of the Fees Schedule provides that in the event 
the Exchange's exclusively listed options must be traded at a Back-up 
Exchange pursuant to Cboe Options Rule 5.26, the Back-up Exchange has 
agreed to apply the per contract and per contract side fees (i.e., the 
Floor Brokerage fees) to such transactions. Accordingly, the Exchange 
believes it's similarly appropriate to adopt and apply similar fees to 
transactions that must occur via an electronic execution channel 
(instead of on a Back-Up Exchange) due to the Exchange's trading floor 
being inoperable. The Exchange also notes that as discussed above, it 
is not otherwise assessing the SPX/SPXW Execution Surcharges on RFC 
SPX/SPXW orders. The Exchange believes the proposed change is also 
equitable and not unfairly discriminatory as it applies uniformly to 
all similarly situated market participants that submit RFC orders who 
will be subject to equivalent execution costs while the trading floor 
is inoperable. Additionally, the Exchange notes the RFC Execution 
Surcharge is the same as the AIM Execution Surcharge, which was 
recently adopted for similar reasons for when the trading floor is 
inoperable.\13\
---------------------------------------------------------------------------

    \12\ See Cboe Options Fees Schedule, Floor Brokerage Fees.
    \13\ See SR-CBOE-2020-021.
---------------------------------------------------------------------------

    The Exchange believes its proposal to provide that SPX/SPXW and VIX 
contracts executed as an RFC order during a time when the Exchange 
operates in a screen-based only environment will not count towards the 
1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier 
Appointment Fees is reasonable as Market-Makers that would otherwise 
meet the current contract thresholds due to the need to participate on 
the Exchange electronically will not be subject to an additional Tier 
Appointment Fee for volume executed as an RFC order. The Exchange 
believes the proposed change is reasonable as the Tier Appointment fees 
were intended to apply to TPHs who act as electronic Market-Makers in 
SPX/SPX and VIX, not those that, notwithstanding the trading floor 
being inoperable, would act as floor Market-Makers and trade these 
products. Accordingly, the Exchange does not wish to assess the Tier 
Appointment fees to Market-Makers who do not usually conduct 
significant electronic volume in these products and would not 
participate electronically if not for the trading floor being 
inoperable. Additionally, the Exchange does not wish to discourage the 
use of RFC orders for SPX/SPXW and VIX as RFC transactions would 
provide Market-Makers with needed relief from the effect of the current 
exposure method (``CEM'') on the options market. The proposed change is 
equitable and not unfairly discriminatory because it will apply 
uniformly to all similarly situated market participants, as it applies 
to all Market-Makers trading in these products. The Exchange notes such 
exclusion is similar to the exclusion of SPX/SPXW and VIX volume 
executed via AIM.\14\
---------------------------------------------------------------------------

    \14\ See Cboe Options Fees Schedule, Footnote 12.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes the 
proposed changes are not intended to address any competitive issue, but 
rather to address fee changes it believes are reasonable in the event 
the trading floor becomes inoperable, thereby only permitting 
electronic participation on the Exchange. 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 apply equally to all 
similarly situated market participants. The Exchange does not believe 
that the proposed rule changes will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed changes only affect trading on 
the Exchange in limited circumstances.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \15\ and paragraph (f) of Rule 19b-4 \16\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 19203]]

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-2020-024 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-2020-024. 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 offices 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-2020-024, and should be submitted 
on or before April 27, 2020.

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

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

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07082 Filed 4-3-20; 8:45 am]
 BILLING CODE 8011-01-P
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