Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fees Schedule With Respect To Expiring Fee Waivers and Incentive Programs, 42939-42943 [2020-15213]
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15208 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89281; File No. SR–CBOE–
2020–061]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Amend Its
Fees Schedule With Respect To
Expiring Fee Waivers and Incentive
Programs
July 9, 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 July 1,
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.
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I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Fees Schedule with respect to
expiring fee waivers and incentive
programs. 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
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Cboe Options Fees Schedule, ‘‘MSCI LMM
Incentive Program’’ Table; and Securities Exchange
Act Release Nos. 83585 (July 2, 2018), 83 FR 31825
1 15
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concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Fees Schedule to (1) make permanent
the MSCI EAFE Index (‘‘MXEA’’)
options and MSCI Emerging Markets
Index (‘‘MXEF’’) options Lead Market
Maker (‘‘LMM’’) Incentive Program that
is otherwise set to expire June 30, 2020,
(2) amend the Global Trading Hours
(‘‘GTH’’) Cboe Volatility Index (‘‘VIX’’)
options and VIX Weekly (‘‘VIXW’’)
options LMM Incentive Program, (3)
amend the S&P 500 Index (SPX) options
and SPX Weekly (‘‘SPXW’’) options
LMM Incentive Program and (4) clarify
that certain facility fees will be waived
while the trading floor is operating in a
modified manner. The Exchange
proposes to implement these
amendments to its Fees Schedule on
July 1, 2020.
MXEA and MXEF LMM Incentive
Program
The Exchange proposes to
permanently adopt the financial
program for LMMs appointed in MXEA
and MXEF options.3 Currently, if the
appointed LMM in MXEA and MXEF
provides continuous electronic quotes
during Regular Trading Hours that meet
or exceed the above heightened quoting
standards in at least 90% of the MXEA
and MXEF series 80% of the time in a
given month, the LMM will receive a
payment for that month in the amount
of $20,000 per class, per month. The
Fees Schedule currently provides that
this program will be in place through
June 30, 2020. The Exchange believes
that making this incentive program
permanent would continue to encourage
LMM(s) in MXEA and MXEF to serve in
an important role as LMMs that provide
significant liquidity in these options,
which, in turn, provides, and would
(July 9, 2018) (SR–CBOE–2018–050); 85114
(February 12, 2019), 84 FR 4878 (February 19, 2019)
(SR–CBOE–2019–006); 86361 (July 11, 2019), 84 FR
34243 (July 17, 2019) (SR–CBOE–2019–031); and
87953 (January 13, 2020), 85 FR 3091 (January 17,
2020) (SR–CBOE–2020–001).
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42939
continue to provide, greater trading
opportunities, added market
transparency and enhanced price
discovery for all market participants in
MXEA and MXEF. The Exchange notes,
too, that it also proposes to remove
obsolete language regarding
applicability of the program in February
2019.
GTH VIX/VIXW LMM Program
The Exchange currently offers a
financial incentive program for LMMs
quoting in GTH appointed in VIX/
VIXW.4 Currently, pursuant to the Fees
Schedule, if an LMM in VIX/VIXW
provides continuous electronic quotes
during GTH that meet or exceed the
below heightened quoting standards in
at least 99% of each of the VIX and
VIXW series, 90% of the time in a given
month, the LMM will receive a rebate
for that month in the amount of $20,000
for VIX and $5,000 for VIXW.
Premium level
$0.00–$100.00 ............................
$100.01–$200.00 ........................
Greater than $200.00 .................
Maximum
allowable
width
$10.00
16.00
24.00
Additionally, a GTH LMM in VIX/
VIXW is not currently obligated to
satisfy the heightened quoting standards
described in the table above. Rather, an
LMM is eligible to receive the rebate if
it satisfies the heightened quoting
standards above, which the Exchange
believes encourages LMMs to provide
liquidity during GTH. The Exchange
may also consider other exceptions to
this quoting standard based on
demonstrated legal or regulatory
requirements or other mitigating
circumstances.
The Exchange now proposes to amend
the GTH VIX/VIXW LMM Incentive
Program to apply new heightened
quoting standards to VIX during GTH.5
Specifically, a GTH LMM in VIX must
provide continuous electronic quotes
during GTH that meet or exceed the new
proposed heightened quoting standards
(below), in the same percentage of the
series (i.e., 99%) for the same percentage
of the time (i.e., 90%) in a given month
in order to receive a rebate for that
month in the proposed amount of
$15,000.
4 The Exchange notes that an LMM appointed in
VIX also holds an appointment in VIXW.
5 The current heighted quoting standard is not
changing for VIXW.
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
Premium level
Expiring
Near term
Mid term
Long term
15 days or less
15 days to 60 days
61 days to 270 days
271 days or greater
Width
Width
Width
$0.00–$1.00 .....................
$1.01–$3.00 .....................
$3.01–$5.00 .....................
$5.01–$10.00 ...................
$10.01–$30.00 .................
Greater than $30.00 .........
Size
$0.75
1.00
1.00
1.50
2.50
5.00
25
15
15
10
5
3
Additionally, each LMM that meets
the proposed heightened quoting
standards for VIX options will receive a
proposed rebate in the amount of $0.03
per contract applied to all VIX/VIXW
options contracts executed in its
Market-Maker capacity during Regular
Trading Hours. The Exchange also
proposes to remove obsolete language
regarding applicability of the program in
February 2020.
Meeting or exceeding the heightened
quoting standards in VIX, as proposed,
to receive the proposed compensation
payment remains optional for a GTH
LMM. The Exchange notes that the
heightened quoting standard currently
in place will continue to apply to VIXW,
as will the $5,000 rebate offered for
meeting such standards in VIXW.
Premium level
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Size
$0.50
0.75
0.75
1.00
1.50
3.00
50
25
25
10
5
5
$0.50
0.75
0.75
1.00
2.50
5.00
Additionally, the Exchange notes that a
GTH VIX/VIXW LMM may need to
undertake expenses to be able to quote
at a significantly heightened standard in
VIX/VIXW, such as purchase more
logical connectivity based on its
increased capacity needs. The Exchange
believes the proposed heightened
quoting requirements and rebate for VIX
under the GTH VIX/VIXW LMM
Incentive Program is designed to
continue to encourage GTH LMMs to
provide significant liquidity in VIX
options during GTH. The Exchange also
notes that the proposed heightened
quoting standards are substantially
similar to the detail and format (specific
expiration categories and corresponding
premiums, quote widths, and sizes) of
the heightened quoting standards
$1.00
1.00
1.20
2.00
4.00
7.00
10
10
7
5
3
2
currently in place for GTH SPX/SPXW
LMMs.6
GTH SPX/SPXW LMM Program
As indicated above, the Exchange also
currently offers a financial incentive
program for LMMs quoting in GTH
appointed in SPX/SPXW.7 Currently,
pursuant to the Fees Schedule, if an
LMM in SPX/SPXW provides
continuous electronic quotes during
GTH that meet or exceed the below
heightened quoting standards in at least
99% of each of the SPX and SPXW
series, 90% of the time in a given
month, the LMM will receive a rebate
for that month in the amount of $10,000
for SPX and $10,000 for SPXW.
Mid term
Long term
7 days or less
8 days to 60 days
61 days to 270 days
271 days or greater
Width
Width
Size
$0.50
2.00
5.00
10.00
20.00
30.00
Width
10
7
5
3
2
1
Size
$0.40
1.60
4.00
8.00
16.00
24.00
25
18
13
8
5
3
program from at least 99% of the series
to at least 85% of the series. The
proposed decrease is intended to ease
the heightened quoting standard for
GTH LMMs in the appointed class so
that LMMs are further incentivized to
provide significant liquidity in GTH in
SPX/SPXW to meet the incrementally
less difficult heighten quoting
standards.
6 See Fees Schedule, ‘‘GTH SPX/SPXW Incentive
Program’’ Table.
7 The Exchange notes that an LMM appointed in
SPX also holds an appointment in SPXW.
17:59 Jul 14, 2020
50
25
25
10
5
3
Size
Near term
Like with the GTH LMM VIX/VIXW
Incentive Program, a GTH LMM in SPX/
SPXW is not currently obligated to
satisfy the heightened quoting standards
described in the table above, but instead
is eligible to receive the rebate if they
satisfy the heightened quoting standards
above, which are also designed to
encourage LMMs to provide liquidity
during GTH. The Exchange may also
consider other exceptions to this
quoting standard based on demonstrated
legal or regulatory requirements or other
mitigating circumstances.
The Exchange proposes to decrease
the percentage of each the SPX and
SPXW series that an LMM must quote
in order to receive the current rebate
under the GTH SPX/SPXW incentive
VerDate Sep<11>2014
Size
Expiring
Width
$0.00–$5.00 .....................
$5.01–$15.00 ...................
$15.01–$50.00 .................
$50.01–$100.00 ...............
$100.01–$200.00 .............
Greater than $200.00 .......
Width
Jkt 250001
$0.60
2.40
6.00
12.00
24.00
36.00
Exchange Operating in Modified State—
Footnote 24 Clarification
The Exchange recently submitted a
rule filing, SR–CBOE–2020–058, that
adopted footnote 24 of the Fees
Schedule to govern pricing changes that
apply for the duration of time the
Exchange trading floor is being operated
PO 00000
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Size
15
11
8
5
3
1
$1.00
4.00
10.00
20.00
40.00
60.00
Size
10
7
5
3
2
1
in a modified manner in connection
with the COVID–19 pandemic.8
Footnote 24 provides, among other
things, for certain pricing changes and
waives certain facilities fees for the
duration of time the Exchange is
operating in a modified state in
connection with the COVID–19
pandemic. The Exchange now proposes
to amend footnote 24 to clarify that,
when the Exchange trading floor is
being operate in a modified manner in
connection with the COVID–19
pandemic, TPHs will not be assessed
fees on facility services that are not
currently in use, which may be due to
the TPH being unable to be present on
the trading floor as a consequence of the
pandemic. Specifically, the proposed
8 See
E:\FR\FM\15JYN1.SGM
SR–CBOE–2020–058 (filed June 24, 2020).
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
amendment provides that, if a TPH is
unable to utilize designated facility
services while the trading floor is
operating in a modified state,
corresponding fees, including for
Exchangefone maintenance, single line
maintenance, intra floor lines, voice
circuits, data circuits at local carrier
(entrance), and data circuits at in-house
frame, will not be assessed. The
proposed change also incorporates
references to footnote 24 next to each of
the above-listed designated facility
services within the Facility Fees (per
month) Table in the Fees Schedule.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.9 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 10 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,11 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.
MXEA and MXEF LLM Incentive
Program
The Exchange believes it is reasonable
to make the MXEA and MXEF LMM
Incentive Program permanent because
the Exchange wants to continue
incentivizing the LMM(s) in these
products to continue to provide liquid
and active markets in these products to
encourage its growth. The Exchange
notes that without the proposed
financial incentive, there may not be
sufficient incentive for TPHs to
undertake an obligation to quote at
heightened levels, which could result in
lower levels of liquidity to the detriment
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
11 15 U.S.C. 78f(b)(4).
10 15
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of all market participants. The Exchange
believes that the program is equitable
and not unfairly discriminatory to only
offer this financial incentive to MXEA
and MXEF LMM(s), because it benefits
all market participants trading in these
options to encourage the LMM(s) to
satisfy the heightened quoting standard,
in turn, increasing liquidity and
providing more trading opportunities,
tighter spreads, added market
transparency, and enhanced price
discovery. Indeed, the Exchange notes
that LMMs provide a crucial role in
providing quotes and the opportunity
for market participants to trade
products, including MXEA and MXEF,
which can lead to increased volume,
thereby providing for a robust market. In
addition, the Exchange notes that all
Market-Maker types (i.e. LMMs, DPMs,
as well as Primary Market-Makers
(‘‘PMMs’’)) take on a number of
obligations, including quoting
obligations, that other market
participants do not have. Such MarketMakers have added market-making and
regulatory requirements, which
normally do not apply to other market
participants. For example, MarketMakers 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. Also, if a MSCI LMM does not
satisfy the heightened quoting standard,
then it simply will not receive the
offered per class payment for that
month.
GTH VIX/VIXW LMM and GTH SPX/
SPXW Incentive Programs
The Exchange believes the amended
heightened quoting standards and rebate
amount, along with the proposed credit
during RTH for meeting the heightened
quoting standards, in VIX series are
reasonably designed to continue to
incentivize an appointed LMM to meet
the GTH quoting standards for VIX,
thereby providing liquid and active
markets, which facilitates tighter
spreads, increased trading
opportunities, and overall enhanced
market quality to the benefit of all
market participants. The Exchange
believes that the proposed changes to
the program in connection with the
heightened quoting standards in VIX are
reasonable in that they are substantially
similar to the detail and format (specific
expiration categories and corresponding
premiums, quote widths, and sizes) of
the heightened quoting standards
currently in place for GTH SPX/SPXW
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42941
LMMs.12 Quote widths and sizes typical
in VIX options differ from that in SPX
options, therefore, the proposed
heightened quoting requirements reflect
quote widths and sizes that align with
the market characteristic in VIX options.
Additionally, the Exchange believes the
15 days or less expiration for the ‘‘near
term’’ expiration category (as opposed to
a 7 days or less expiration for the near
term) makes it easier for GTH LMMs in
VIX to satisfy the near-term heightened
quoting standard category, as proposed,
because higher volatility generally
occurs within the 7 days or less
expiration timeframe, wherein it
becomes more difficult for LMMs to
quote within specified widths and sizes.
Moreover, the Exchange believes that
reducing the monthly rebate from
$20,000 to $15,000, and adopting a
credit for all VIX/VIXW executions in a
Market-Maker capacity, for meeting the
heightened quoting standards in VIX, as
proposed, is reasonable and equitable as
it will continue to offer a monthly
rebate, though reduced, that falls within
a comparable realm of rebates offered
for other, similar LMM incentive
programs 13 while also offering an
additional opportunity in which a GTH
VIX LMM may receive an additional
rebate on its activity in VIX/VIXW.
Similarly, the Exchange believes it is
reasonable to ease the percentage of the
SPX/SPXW series for which a GTH
SPX/SPXW LMM must quote in order to
receive the existing rebate pursuant to
the GTH SPX/SPXW LMM Incentive
Program, because the proposed change
is reasonably designed to slightly
decrease the difficulty in meeting the
heightened quoting standards, which, in
turn, provides increased incentivize for
GTH LMMs to provide significant
liquidity in SPX/SPXW during GTH.
The Exchange believes that although the
proposed change decreases the amount
of the series that a GTH LMM may quote
in order to receive the program’s rebate,
the proposed percentage (85%) remains
well above even half the series, and, the
Exchange notes, the 90% timing
requirement will remain in place;
consequently, a GTH LMM must
continue to submit significant liquidity
in order to receive the rebate.
The Exchange believes it is equitable
and not unfairly discriminatory to
continue to only offer this financial
incentive to GTH VIX/VIXW and GTH
12 See
supra note 5.
Fees Schedule, ‘‘MSCI LMM Incentive
Program’’ Table, which offers appointed LMMs
payment of $20,000 for meeting certain heightened
quoting requirements; and ‘‘GTH SPX/SPXW
Incentive Program’’ Table, which offers appointed
LMMs payment of $10,000 for meeting certain
heightened quoting requirements.
13 See
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SPX/SPXW LMMs, as amended, because
it benefits all market participants
trading VIX/VIXW and SPX/SPXW
during GTH to encourage the LMMs to
satisfy the heightened quoting standard,
which ensures, and may even provide
increased, liquidity, which thereby may
provide more trading opportunities and
tighter spreads. Indeed, the Exchange
notes that the GTH LMMs serve a
crucial role in providing quotes and the
opportunity for market participants to
trade VIX/VIXW and SPX/SPXW, which
can lead to increased volume, providing
for robust markets. The Exchange
ultimately wishes to sufficiently
incentive a GTH LMM to provide liquid
and active markets in VIX/VIXW and
SPX/SPXW during GTH to encourage
liquidity. The Exchange believes that
the programs, even as amended, will
continue to encourage increased quoting
to add liquidity in VIX, and in SPX/
SPXW, thereby protecting investors and
the public interest. The Exchange also
notes that a GTH LMM may have added
costs each month that it needs to
undertake in order to satisfy that
heightened quoting standard (e.g.,
having to purchase additional logical
connectivity). The Exchange believes
the proposed amendments are equitable
and not unfairly discriminatory because
they equally apply to any TPH that is
appointed as a GTH VIX/VIXW or SPX/
SPXW LMM, respectively. Additionally,
if a GTH LMM does not satisfy the
heightened quoting standard in VIX/
VIXW or SPX/SPXW, as applicable, for
any given month, then it simply will not
receive the offered payment for that
month.
Exchange Operating in Modified State—
Footnote 24 Clarification
The Exchange believes the proposed
rule change to waive fees for designated
facility services unable to be utilized
when the trading floor is operated in a
modified manner is reasonable because
TPHs will not be assessed fees for such
facility services that they are not
currently using as a result of not
accessing the trading floor due to the
COVID–19 pandemic. The Exchange
notes that footnote 24 already provides
for waivers of certain facilities fees
while the Exchange trading floor is
operating in a modified manner and
such facilities are not being used by
TPHs. The proposed change merely
clarifies that the fees normally assessed
for designated facility services
(Exchangefone maintenance, single line
maintenance, intra floor lines, voice
circuits, data circuits at local carrier
(entrance), and data circuits at in-house
frame) will be included in the list of
floor-related fees for facility services
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17:59 Jul 14, 2020
Jkt 250001
that are waived when the services are
not in use due to COVID–19
complications. The Exchange believes
that it is reasonable not to charge a
service fee to TPHs when such services
are not being utilized as a result of the
Exchange operating in a modified
manner. The listed facility fees each
apply to a service that a TPH may not
be utilizing because such TPH is not
currently active on the trading floor and
using the facilities as a result of the
COVID–19 pandemic. The Exchange
believes the proposed rule change
relating to waiving certain service fees
is also reasonable, equitable and not
unfairly discriminatory as it applies
equally to all floor TPHs who do not use
such services while the trading floor is
operating in a modified manner.
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.
The Exchange believes the proposed
rule change does impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Particularly,
the proposed changes to existing
incentive programs that already apply to
all LMMs appointed to the applicable
classes (i.e. MXEF, MXEA, VIX, VIXW,
SPX, SPXW) in a uniform manner. To
the extent these LMMs receive a benefit
that other market participants do not, as
stated, LMMs have different obligations
and are held to different standards. For
example, LMMs play a crucial role in
providing active and liquid markets in
their appointed products, thereby
providing a robust market which
benefits all market participants. Such
Market-Makers also have obligations
and regulatory requirements that other
participants do not have. The Exchange
also notes that the incentive programs
are designed to attract additional order
flow to the Exchange, wherein greater
liquidity benefits all market participants
by providing more trading
opportunities, tighter spreads, and
added market transparency and price
discovery, and signals to other market
participants to direct their order flow to
those markets, thereby contributing to
robust levels of liquidity.
The Exchange notes the proposed
changes in connection with footnote 24
are not intended to address any
competitive issue, but rather to address
fee changes it believes are reasonable
because the trading floor is currently
operating in a modified manner in
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Sfmt 4703
connection with COVID–19 in order to
help protect the safety and welfare of
individuals access the trading floor. The
Exchange does not believe that the
proposed rule change to waive the
service fees for those services not
currently in use 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
floor TPHs not utilizing such facility
services.
The Exchange believes the proposed
rule change does not impose any burden
on intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes in connection with
the incentive programs only affect
trading on Cboe Options, as the
incentive programs apply to
transactions in products exclusively
listed on Cboe Options. The Exchange
notes it operates in a highly competitive
market. In addition to Cboe Options,
TPHs have numerous alternative venues
that they may participate on and
director their order flow, including 15
other options exchanges, as well as offexchange venues, where competitive
products are available for trading. Based
on publicly available information, no
single options exchange has more than
18% of the market share of executed
volume of options trades.14 Therefore,
no exchange possesses significant
pricing power in the execution of option
order flow. Moreover, the Commission
has repeatedly expressed its preference
for competition over regulatory
intervention in 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.’’ 15 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
14 See Cboe Global Markets, U.S. Options Market
Volume Summary by Month (June 29, 2020),
available at https://markets.cboe.com/us/options/
market_share/.
15 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
E:\FR\FM\15JYN1.SGM
15JYN1
Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
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’ . . . .’’ 16 Accordingly, the
Exchange does not believe its proposed
changes to the incentive programs
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange does not believe that
the proposed rule change in connection
with the waiver of certain designated
facility service fees 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 17 and paragraph (f) of Rule
19b–4 18 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.
khammond on DSKJM1Z7X2PROD with NOTICES
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:
16 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)).
17 15 U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
17:59 Jul 14, 2020
Jkt 250001
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–2020–061 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–2020–061. 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. 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–
2020–061, and should be submitted on
or before August 5, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15213 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89272; File No. SR–
CboeEDGX–2020–034]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Order Granting Accelerated
Approval of a Proposed Rule Change
To Add the Consolidated Audit Trail
Industry Member Compliance Rules to
the List of Minor Rule Violations in
Rules 8.15 and 25.3
July 9, 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 July 8,
2020, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘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 and approving
the proposal on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
add the Consolidated Audit Trail
(‘‘CAT’’) industry member compliance
rules (‘‘CAT Compliance Rules’’) to the
list of minor rule violations in Rules
8.15 and 25.3. 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://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
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.
1 15
19 17
CFR 200.30–3(a)(12).
Frm 00125
Fmt 4703
Sfmt 4703
42943
2 17
E:\FR\FM\15JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
15JYN1
]]>Agencies
[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42939-42943]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15213]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89281; File No. SR-CBOE-2020-061]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Its Fees Schedule With Respect To Expiring Fee Waivers and
Incentive Programs
July 9, 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 July 1, 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 the
Substance of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule with respect to expiring fee waivers and
incentive programs. 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 to (1) make
permanent the MSCI EAFE Index (``MXEA'') options and MSCI Emerging
Markets Index (``MXEF'') options Lead Market Maker (``LMM'') Incentive
Program that is otherwise set to expire June 30, 2020, (2) amend the
Global Trading Hours (``GTH'') Cboe Volatility Index (``VIX'') options
and VIX Weekly (``VIXW'') options LMM Incentive Program, (3) amend the
S&P 500 Index (SPX) options and SPX Weekly (``SPXW'') options LMM
Incentive Program and (4) clarify that certain facility fees will be
waived while the trading floor is operating in a modified manner. The
Exchange proposes to implement these amendments to its Fees Schedule on
July 1, 2020.
MXEA and MXEF LMM Incentive Program
The Exchange proposes to permanently adopt the financial program
for LMMs appointed in MXEA and MXEF options.\3\ Currently, if the
appointed LMM in MXEA and MXEF provides continuous electronic quotes
during Regular Trading Hours that meet or exceed the above heightened
quoting standards in at least 90% of the MXEA and MXEF series 80% of
the time in a given month, the LMM will receive a payment for that
month in the amount of $20,000 per class, per month. The Fees Schedule
currently provides that this program will be in place through June 30,
2020. The Exchange believes that making this incentive program
permanent would continue to encourage LMM(s) in MXEA and MXEF to serve
in an important role as LMMs that provide significant liquidity in
these options, which, in turn, provides, and would continue to provide,
greater trading opportunities, added market transparency and enhanced
price discovery for all market participants in MXEA and MXEF. The
Exchange notes, too, that it also proposes to remove obsolete language
regarding applicability of the program in February 2019.
---------------------------------------------------------------------------
\3\ See Cboe Options Fees Schedule, ``MSCI LMM Incentive
Program'' Table; and Securities Exchange Act Release Nos. 83585
(July 2, 2018), 83 FR 31825 (July 9, 2018) (SR-CBOE-2018-050); 85114
(February 12, 2019), 84 FR 4878 (February 19, 2019) (SR-CBOE-2019-
006); 86361 (July 11, 2019), 84 FR 34243 (July 17, 2019) (SR-CBOE-
2019-031); and 87953 (January 13, 2020), 85 FR 3091 (January 17,
2020) (SR-CBOE-2020-001).
---------------------------------------------------------------------------
GTH VIX/VIXW LMM Program
The Exchange currently offers a financial incentive program for
LMMs quoting in GTH appointed in VIX/VIXW.\4\ Currently, pursuant to
the Fees Schedule, if an LMM in VIX/VIXW provides continuous electronic
quotes during GTH that meet or exceed the below heightened quoting
standards in at least 99% of each of the VIX and VIXW series, 90% of
the time in a given month, the LMM will receive a rebate for that month
in the amount of $20,000 for VIX and $5,000 for VIXW.
---------------------------------------------------------------------------
\4\ The Exchange notes that an LMM appointed in VIX also holds
an appointment in VIXW.
------------------------------------------------------------------------
Maximum
Premium level allowable
width
------------------------------------------------------------------------
$0.00-$100.00............................................... $10.00
$100.01-$200.00............................................. 16.00
Greater than $200.00........................................ 24.00
------------------------------------------------------------------------
Additionally, a GTH LMM in VIX/VIXW is not currently obligated to
satisfy the heightened quoting standards described in the table above.
Rather, an LMM is eligible to receive the rebate if it satisfies the
heightened quoting standards above, which the Exchange believes
encourages LMMs to provide liquidity during GTH. The Exchange may also
consider other exceptions to this quoting standard based on
demonstrated legal or regulatory requirements or other mitigating
circumstances.
The Exchange now proposes to amend the GTH VIX/VIXW LMM Incentive
Program to apply new heightened quoting standards to VIX during GTH.\5\
Specifically, a GTH LMM in VIX must provide continuous electronic
quotes during GTH that meet or exceed the new proposed heightened
quoting standards (below), in the same percentage of the series (i.e.,
99%) for the same percentage of the time (i.e., 90%) in a given month
in order to receive a rebate for that month in the proposed amount of
$15,000.
---------------------------------------------------------------------------
\5\ The current heighted quoting standard is not changing for
VIXW.
[[Page 42940]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level 15 days or less 15 days to 60 days 61 days to 270 days 271 days or greater
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$1.00..................................... $0.75 25 $0.50 50 $0.50 50 $1.00 10
$1.01-$3.00..................................... 1.00 15 0.75 25 0.75 25 1.00 10
$3.01-$5.00..................................... 1.00 15 0.75 25 0.75 25 1.20 7
$5.01-$10.00.................................... 1.50 10 1.00 10 1.00 10 2.00 5
$10.01-$30.00................................... 2.50 5 1.50 5 2.50 5 4.00 3
Greater than $30.00............................. 5.00 3 3.00 5 5.00 3 7.00 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Additionally, each LMM that meets the proposed heightened quoting
standards for VIX options will receive a proposed rebate in the amount
of $0.03 per contract applied to all VIX/VIXW options contracts
executed in its Market-Maker capacity during Regular Trading Hours. The
Exchange also proposes to remove obsolete language regarding
applicability of the program in February 2020.
Meeting or exceeding the heightened quoting standards in VIX, as
proposed, to receive the proposed compensation payment remains optional
for a GTH LMM. The Exchange notes that the heightened quoting standard
currently in place will continue to apply to VIXW, as will the $5,000
rebate offered for meeting such standards in VIXW. Additionally, the
Exchange notes that a GTH VIX/VIXW LMM may need to undertake expenses
to be able to quote at a significantly heightened standard in VIX/VIXW,
such as purchase more logical connectivity based on its increased
capacity needs. The Exchange believes the proposed heightened quoting
requirements and rebate for VIX under the GTH VIX/VIXW LMM Incentive
Program is designed to continue to encourage GTH LMMs to provide
significant liquidity in VIX options during GTH. The Exchange also
notes that the proposed heightened quoting standards are substantially
similar to the detail and format (specific expiration categories and
corresponding premiums, quote widths, and sizes) of the heightened
quoting standards currently in place for GTH SPX/SPXW LMMs.\6\
---------------------------------------------------------------------------
\6\ See Fees Schedule, ``GTH SPX/SPXW Incentive Program'' Table.
---------------------------------------------------------------------------
GTH SPX/SPXW LMM Program
As indicated above, the Exchange also currently offers a financial
incentive program for LMMs quoting in GTH appointed in SPX/SPXW.\7\
Currently, pursuant to the Fees Schedule, if an LMM in SPX/SPXW
provides continuous electronic quotes during GTH that meet or exceed
the below heightened quoting standards in at least 99% of each of the
SPX and SPXW series, 90% of the time in a given month, the LMM will
receive a rebate for that month in the amount of $10,000 for SPX and
$10,000 for SPXW.
---------------------------------------------------------------------------
\7\ The Exchange notes that an LMM appointed in SPX also holds
an appointment in SPXW.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiring Near term Mid term Long term
-------------------------------------------------------------------------------------------------------
Premium level 7 days or less 8 days to 60 days 61 days to 270 days 271 days or greater
-------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00-$5.00..................................... $0.50 10 $0.40 25 $0.60 15 $1.00 10
$5.01-$15.00.................................... 2.00 7 1.60 18 2.40 11 4.00 7
$15.01-$50.00................................... 5.00 5 4.00 13 6.00 8 10.00 5
$50.01-$100.00.................................. 10.00 3 8.00 8 12.00 5 20.00 3
$100.01-$200.00................................. 20.00 2 16.00 5 24.00 3 40.00 2
Greater than $200.00............................ 30.00 1 24.00 3 36.00 1 60.00 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Like with the GTH LMM VIX/VIXW Incentive Program, a GTH LMM in SPX/
SPXW is not currently obligated to satisfy the heightened quoting
standards described in the table above, but instead is eligible to
receive the rebate if they satisfy the heightened quoting standards
above, which are also designed to encourage LMMs to provide liquidity
during GTH. The Exchange may also consider other exceptions to this
quoting standard based on demonstrated legal or regulatory requirements
or other mitigating circumstances.
The Exchange proposes to decrease the percentage of each the SPX
and SPXW series that an LMM must quote in order to receive the current
rebate under the GTH SPX/SPXW incentive program from at least 99% of
the series to at least 85% of the series. The proposed decrease is
intended to ease the heightened quoting standard for GTH LMMs in the
appointed class so that LMMs are further incentivized to provide
significant liquidity in GTH in SPX/SPXW to meet the incrementally less
difficult heighten quoting standards.
Exchange Operating in Modified State--Footnote 24 Clarification
The Exchange recently submitted a rule filing, SR-CBOE-2020-058,
that adopted footnote 24 of the Fees Schedule to govern pricing changes
that apply for the duration of time the Exchange trading floor is being
operated in a modified manner in connection with the COVID-19
pandemic.\8\ Footnote 24 provides, among other things, for certain
pricing changes and waives certain facilities fees for the duration of
time the Exchange is operating in a modified state in connection with
the COVID-19 pandemic. The Exchange now proposes to amend footnote 24
to clarify that, when the Exchange trading floor is being operate in a
modified manner in connection with the COVID-19 pandemic, TPHs will not
be assessed fees on facility services that are not currently in use,
which may be due to the TPH being unable to be present on the trading
floor as a consequence of the pandemic. Specifically, the proposed
[[Page 42941]]
amendment provides that, if a TPH is unable to utilize designated
facility services while the trading floor is operating in a modified
state, corresponding fees, including for Exchangefone maintenance,
single line maintenance, intra floor lines, voice circuits, data
circuits at local carrier (entrance), and data circuits at in-house
frame, will not be assessed. The proposed change also incorporates
references to footnote 24 next to each of the above-listed designated
facility services within the Facility Fees (per month) Table in the
Fees Schedule.
---------------------------------------------------------------------------
\8\ See SR-CBOE-2020-058 (filed June 24, 2020).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\11\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
MXEA and MXEF LLM Incentive Program
The Exchange believes it is reasonable to make the MXEA and MXEF
LMM Incentive Program permanent because the Exchange wants to continue
incentivizing the LMM(s) in these products to continue to provide
liquid and active markets in these products to encourage its growth.
The Exchange notes that without the proposed financial incentive, there
may not be sufficient incentive for TPHs to undertake an obligation to
quote at heightened levels, which could result in lower levels of
liquidity to the detriment of all market participants. The Exchange
believes that the program is equitable and not unfairly discriminatory
to only offer this financial incentive to MXEA and MXEF LMM(s), because
it benefits all market participants trading in these options to
encourage the LMM(s) to satisfy the heightened quoting standard, in
turn, increasing liquidity and providing more trading opportunities,
tighter spreads, added market transparency, and enhanced price
discovery. Indeed, the Exchange notes that LMMs provide a crucial role
in providing quotes and the opportunity for market participants to
trade products, including MXEA and MXEF, which can lead to increased
volume, thereby providing for a robust market. In addition, the
Exchange notes that all Market-Maker types (i.e. LMMs, DPMs, as well as
Primary Market-Makers (``PMMs'')) take on a number of obligations,
including quoting obligations, that other market participants do not
have. Such Market-Makers have added market-making and regulatory
requirements, which normally do not apply to other market participants.
For example, Market-Makers have obligations to maintain continuous
markets, engage in a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market, and to not
make bids or offers or enter into transactions that are inconsistent
with a course of dealing. Also, if a MSCI LMM does not satisfy the
heightened quoting standard, then it simply will not receive the
offered per class payment for that month.
GTH VIX/VIXW LMM and GTH SPX/SPXW Incentive Programs
The Exchange believes the amended heightened quoting standards and
rebate amount, along with the proposed credit during RTH for meeting
the heightened quoting standards, in VIX series are reasonably designed
to continue to incentivize an appointed LMM to meet the GTH quoting
standards for VIX, thereby providing liquid and active markets, which
facilitates tighter spreads, increased trading opportunities, and
overall enhanced market quality to the benefit of all market
participants. The Exchange believes that the proposed changes to the
program in connection with the heightened quoting standards in VIX are
reasonable in that they are substantially similar to the detail and
format (specific expiration categories and corresponding premiums,
quote widths, and sizes) of the heightened quoting standards currently
in place for GTH SPX/SPXW LMMs.\12\ Quote widths and sizes typical in
VIX options differ from that in SPX options, therefore, the proposed
heightened quoting requirements reflect quote widths and sizes that
align with the market characteristic in VIX options. Additionally, the
Exchange believes the 15 days or less expiration for the ``near term''
expiration category (as opposed to a 7 days or less expiration for the
near term) makes it easier for GTH LMMs in VIX to satisfy the near-term
heightened quoting standard category, as proposed, because higher
volatility generally occurs within the 7 days or less expiration
timeframe, wherein it becomes more difficult for LMMs to quote within
specified widths and sizes. Moreover, the Exchange believes that
reducing the monthly rebate from $20,000 to $15,000, and adopting a
credit for all VIX/VIXW executions in a Market-Maker capacity, for
meeting the heightened quoting standards in VIX, as proposed, is
reasonable and equitable as it will continue to offer a monthly rebate,
though reduced, that falls within a comparable realm of rebates offered
for other, similar LMM incentive programs \13\ while also offering an
additional opportunity in which a GTH VIX LMM may receive an additional
rebate on its activity in VIX/VIXW.
---------------------------------------------------------------------------
\12\ See supra note 5.
\13\ See Fees Schedule, ``MSCI LMM Incentive Program'' Table,
which offers appointed LMMs payment of $20,000 for meeting certain
heightened quoting requirements; and ``GTH SPX/SPXW Incentive
Program'' Table, which offers appointed LMMs payment of $10,000 for
meeting certain heightened quoting requirements.
---------------------------------------------------------------------------
Similarly, the Exchange believes it is reasonable to ease the
percentage of the SPX/SPXW series for which a GTH SPX/SPXW LMM must
quote in order to receive the existing rebate pursuant to the GTH SPX/
SPXW LMM Incentive Program, because the proposed change is reasonably
designed to slightly decrease the difficulty in meeting the heightened
quoting standards, which, in turn, provides increased incentivize for
GTH LMMs to provide significant liquidity in SPX/SPXW during GTH. The
Exchange believes that although the proposed change decreases the
amount of the series that a GTH LMM may quote in order to receive the
program's rebate, the proposed percentage (85%) remains well above even
half the series, and, the Exchange notes, the 90% timing requirement
will remain in place; consequently, a GTH LMM must continue to submit
significant liquidity in order to receive the rebate.
The Exchange believes it is equitable and not unfairly
discriminatory to continue to only offer this financial incentive to
GTH VIX/VIXW and GTH
[[Page 42942]]
SPX/SPXW LMMs, as amended, because it benefits all market participants
trading VIX/VIXW and SPX/SPXW during GTH to encourage the LMMs to
satisfy the heightened quoting standard, which ensures, and may even
provide increased, liquidity, which thereby may provide more trading
opportunities and tighter spreads. Indeed, the Exchange notes that the
GTH LMMs serve a crucial role in providing quotes and the opportunity
for market participants to trade VIX/VIXW and SPX/SPXW, which can lead
to increased volume, providing for robust markets. The Exchange
ultimately wishes to sufficiently incentive a GTH LMM to provide liquid
and active markets in VIX/VIXW and SPX/SPXW during GTH to encourage
liquidity. The Exchange believes that the programs, even as amended,
will continue to encourage increased quoting to add liquidity in VIX,
and in SPX/SPXW, thereby protecting investors and the public interest.
The Exchange also notes that a GTH LMM may have added costs each month
that it needs to undertake in order to satisfy that heightened quoting
standard (e.g., having to purchase additional logical connectivity).
The Exchange believes the proposed amendments are equitable and not
unfairly discriminatory because they equally apply to any TPH that is
appointed as a GTH VIX/VIXW or SPX/SPXW LMM, respectively.
Additionally, if a GTH LMM does not satisfy the heightened quoting
standard in VIX/VIXW or SPX/SPXW, as applicable, for any given month,
then it simply will not receive the offered payment for that month.
Exchange Operating in Modified State--Footnote 24 Clarification
The Exchange believes the proposed rule change to waive fees for
designated facility services unable to be utilized when the trading
floor is operated in a modified manner is reasonable because TPHs will
not be assessed fees for such facility services that they are not
currently using as a result of not accessing the trading floor due to
the COVID-19 pandemic. The Exchange notes that footnote 24 already
provides for waivers of certain facilities fees while the Exchange
trading floor is operating in a modified manner and such facilities are
not being used by TPHs. The proposed change merely clarifies that the
fees normally assessed for designated facility services (Exchangefone
maintenance, single line maintenance, intra floor lines, voice
circuits, data circuits at local carrier (entrance), and data circuits
at in-house frame) will be included in the list of floor-related fees
for facility services that are waived when the services are not in use
due to COVID-19 complications. The Exchange believes that it is
reasonable not to charge a service fee to TPHs when such services are
not being utilized as a result of the Exchange operating in a modified
manner. The listed facility fees each apply to a service that a TPH may
not be utilizing because such TPH is not currently active on the
trading floor and using the facilities as a result of the COVID-19
pandemic. The Exchange believes the proposed rule change relating to
waiving certain service fees is also reasonable, equitable and not
unfairly discriminatory as it applies equally to all floor TPHs who do
not use such services while the trading floor is operating in a
modified manner.
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.
The Exchange believes the proposed rule change does impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
changes to existing incentive programs that already apply to all LMMs
appointed to the applicable classes (i.e. MXEF, MXEA, VIX, VIXW, SPX,
SPXW) in a uniform manner. To the extent these LMMs receive a benefit
that other market participants do not, as stated, LMMs have different
obligations and are held to different standards. For example, LMMs play
a crucial role in providing active and liquid markets in their
appointed products, thereby providing a robust market which benefits
all market participants. Such Market-Makers also have obligations and
regulatory requirements that other participants do not have. The
Exchange also notes that the incentive programs are designed to attract
additional order flow to the Exchange, wherein greater liquidity
benefits all market participants by providing more trading
opportunities, tighter spreads, and added market transparency and price
discovery, and signals to other market participants to direct their
order flow to those markets, thereby contributing to robust levels of
liquidity.
The Exchange notes the proposed changes in connection with footnote
24 are not intended to address any competitive issue, but rather to
address fee changes it believes are reasonable because the trading
floor is currently operating in a modified manner in connection with
COVID-19 in order to help protect the safety and welfare of individuals
access the trading floor. The Exchange does not believe that the
proposed rule change to waive the service fees for those services not
currently in use 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 floor TPHs not
utilizing such facility services.
The Exchange believes the proposed rule change does not impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes in
connection with the incentive programs only affect trading on Cboe
Options, as the incentive programs apply to transactions in products
exclusively listed on Cboe Options. The Exchange notes it operates in a
highly competitive market. In addition to Cboe Options, TPHs have
numerous alternative venues that they may participate on and director
their order flow, including 15 other options exchanges, as well as off-
exchange venues, where competitive products are available for trading.
Based on publicly available information, no single options exchange has
more than 18% of the market share of executed volume of options
trades.\14\ Therefore, no exchange possesses significant pricing power
in the execution of option order flow. Moreover, the Commission has
repeatedly expressed its preference for competition over regulatory
intervention in 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.'' \15\ 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
[[Page 42943]]
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' . . . .'' \16\ Accordingly, the Exchange does not believe its
proposed changes to the incentive programs impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\14\ See Cboe Global Markets, U.S. Options Market Volume Summary
by Month (June 29, 2020), available at https://markets.cboe.com/us/options/market_share/.
\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\16\ 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)).
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The Exchange does not believe that the proposed rule change in
connection with the waiver of certain designated facility service fees
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 \17\ and paragraph (f) of Rule 19b-4 \18\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
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-2020-061 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-2020-061. 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. 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-2020-061, and should be
submitted on or before August 5, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15213 Filed 7-14-20; 8:45 am]
BILLING CODE 8011-01-P
