Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee, 48306-48309 [2020-17350]

Download as PDF 48306 Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices Exchange directors, officers, employees, or agents, and Exchange’s costs of defending legal proceedings are similar to those approved by the Commission for a number of self-regulatory organizations. More specifically, the Commission recently approved the Members Exchange Form 1 application which includes Rule 11.14 (Limitation of Liability),23 the Long-Term Stock Exchange Form 1 application which includes Rule 11.260 (Limitation of Liability),24 and the Investors Exchange Form 1 application which includes Rule 11.260 (Limitation of Liability).25 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act because all Participants would be subject to the same limits on liability, liability caps and reimbursement requirements. The proposed rule change is designed to provide greater harmonization among similar rules across the Exchange’s affiliates, NYSE Arca and NYSE National, resulting in more efficient regulatory compliance for common members. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. jbell on DSKJLSW7X2PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 26 and Rule 19b–4(f)(6) thereunder.27 Because the 23 See Securities Exchange Act Release No. 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020) (In the Matter of the Application of MEMX LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission). 24 See Securities Exchange Act Release No. 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019) (In the Matter of the Application of Long-Term Stock Exchange, Inc.; for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission). 25 See Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 41142 (June 23, 2016) (In the Matter of the Application of: Investors’ Exchange, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission). 26 15 U.S.C. 78s(b)(3)(A)(iii). 27 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, VerDate Sep<11>2014 20:31 Aug 07, 2020 Jkt 250001 proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 28 of the Act to determine whether the proposed rule change should be approved or disapproved. 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–NYSECHX–2020–24, and should be submitted on or before August 31, 2020. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 J. Matthew DeLesDernier, Assistant Secretary. 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– NYSECHX–2020–24 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–NYSECHX–2020–24. 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 at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 28 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00158 Fmt 4703 Sfmt 4703 [FR Doc. 2020–17349 Filed 8–7–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89469; File No. SR–CBOE– 2020–069] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee August 4, 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 21, 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 29 17 CFR 200.30–3(a)(12). 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 E:\FR\FM\10AUN1.SGM 10AUN1 Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices 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 relating to the Options Regulatory Fee. 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. jbell on DSKJLSW7X2PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to reduce the Options Regulatory Fee (‘‘ORF’’) from $0.0045 per contract to $0.0023 per contract, effective August 3, 2020, in order to help ensure that revenue collected from the ORF, in combination with other regulatory fees and fines, does not exceed the Exchange’s total regulatory costs. The ORF is assessed by Cboe Options to each Trading Permit Holder (‘‘TPH’’) for options transactions cleared by the TPH that are cleared by the Options Clearing Corporation (‘‘OCC’’) in the customer range, regardless of the exchange on which the transaction occurs.3 In other words, the Exchange imposes the ORF on all customer-range transactions cleared by a TPH, even if the transactions do not take place on the Exchange. The ORF is collected by OCC on behalf of the Exchange from the Clearing Trading Permit Holder 3 The Exchange notes ORF also applies to customer-range transactions executed during Global Trading Hours. VerDate Sep<11>2014 20:31 Aug 07, 2020 Jkt 250001 (‘‘CTPH’’) or non-CTPH that ultimately clears the transaction. With respect to linkage transactions, Cboe Options reimburses its routing broker providing Routing Services pursuant to Cboe Options Rule 5.36 for options regulatory fees it incurs in connection with the Routing Services it provides. Revenue generated from ORF, when combined with all of the Exchange’s other regulatory fees and fines, is designed to recover a material portion of the regulatory costs to the Exchange of the supervision and regulation of TPH customer options business including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. Regulatory costs include direct regulatory expenses and certain indirect expenses for work allocated in support of the regulatory function. The direct expenses include in-house and thirdparty service provider costs to support the day to day regulatory work such as surveillances, investigations and examinations. The indirect expenses include support from such areas as human resources, legal, information technology, facilities and accounting. These indirect expenses are estimated to be approximately 26% of Cboe Options’ total regulatory costs for 2020. Thus, direct expenses are estimated to be approximately 74% of total regulatory costs for 2020. In addition, it is Cboe Options’ practice that revenue generated from ORF not exceed more than 75% of total annual regulatory costs. The Exchange monitors its regulatory costs and revenues at a minimum on a semi-annual basis. If the Exchange determines regulatory revenues exceed or are insufficient to cover a material portion of its regulatory costs in a given year, the Exchange will adjust the ORF by submitting a fee change filing to the Commission. The Exchange also notifies TPHs of adjustments to the ORF via regulatory circular and/or Exchange Notice.4 Based on the Exchange’s most recent semi-annual review, the Exchange is proposing to reduce the amount of ORF that will be collected by the Exchange from $0.0045 per contract side to $0.0023 per contract side. The proposed decrease is based on the Exchange’s estimated projections for its regulatory costs, which have decreased, 4 The Exchange endeavors to provide TPHs with such notice at least 30 calendar days prior to the effective date of the change. The Exchange notified TPHs of the proposed rate change for August 3, 2020 on July 1, 2020. See Cboe Options Regulatory Circular RG20–042 ‘‘Options Regulatory Fee Decrease and Discontinuation of Regulatory Circular’’ and Exchange Notice, C2020070100 ‘‘Cboe Options Exchanges Regulatory Fee Update Effective August 3, 2020.’’ PO 00000 Frm 00159 Fmt 4703 Sfmt 4703 48307 balanced with recent options volumes, which has significantly increased. For example, total options contract volume in June 2020 was 82.2% higher than the total options contract volume in June 2019.5 In fact, June 2020 was the highest options volume month in the history of U.S. equity options industry.6 In particular, customer options volume across the industry has also significantly increased year to date. For example, total customer options contract volume in April 2020 was 50.27% higher than total customer volume in April 2019 and total customer options contract volume in May 2020, was 29.10% higher than total customer volume in May 2019. These expectations are estimated, preliminary and may change. There can be no assurance that the Exchange’s final costs for 2020 will not differ materially from these expectations and prior practice, nor can the Exchange predict with certainty whether options volume will remain at the current level going forward. The Exchange notes however, that when combined with the Exchange’s other non-ORF regulatory fees and fines, the revenue being generated by ORF using the current rate results in revenue that is running in excess of the Exchange’s estimated regulatory costs for the year.7 Particularly, as noted above, the options market has seen a substantial increase in volume over the first half of the year, due in large part to the extreme volatility in the marketplace as a result of the COVID–19 pandemic. This unprecedented spike in volatility resulted in significantly higher volume than was originally projected by the Exchange (thereby resulting in substantially higher ORF revenue than projected). Moreover, in addition to projected reductions in regulatory expenses, the Exchange experienced further unanticipated reductions in costs, in connection with COVID–19 (e.g., reduction in travel expenses).8 The Exchange therefore proposes to decrease the ORF in order to ensure it does not 5 See https://www.theocc.com/Newsroom/PressReleases/2020/07-01-OCC-June-2020-Total-VolumeUp-Nearly-81-Perc. 6 Id. The previous record for highest U.S. equity options volume was March 2020. For further context, the Exchange notes that The Options Clearing Corporation total volume for March 2020 was up 62.8% as compared to March 2019. 7 Consistent with Rule 2.2 (Regulatory Revenue), the Exchange notes that notwithstanding the excess ORF revenue collected to date, it has not used such revenue for nonregulatory purposes. 8 The Exchange notes that in connection with proposed ORF rate changes, it provides the Commission confidential details regarding the Exchange’s projected regulatory revenue, including projected revenue from ORF, along with a breakout of its projected regulatory expenses, including both direct and indirect allocations. E:\FR\FM\10AUN1.SGM 10AUN1 48308 Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices exceed its regulatory costs for the year. Particularly, the Exchange believes that by decreasing the ORF, as amended, when combined with all of the Exchange’s other regulatory fees and fines, would allow the Exchange to continue covering a material portion of its regulatory costs, while lessening the potential for generating excess revenue that may otherwise occur using the current rate.9 The Exchange will continue to monitor the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed the Exchange’s total regulatory costs. jbell on DSKJLSW7X2PROD with NOTICES 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.10 Specifically, the Exchange believes the proposed rule change is consistent with Section 6(b)(4) of the Act,11 which provides that Exchange rules may provide for the equitable allocation of reasonable dues, fees, and other charges among its TPHs and other persons using its facilities. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 12 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes the proposed fee change is reasonable because customer transactions will be subject to a lower ORF fee than the current rate. Moreover, the proposed reduction is necessary in order for the Exchange to not collect revenue in excess of its anticipated regulatory costs, in combination with other regulatory fees and fines, which is consistent with the Exchange’s practices. The Exchange had designed the ORF to generate revenues that would be less than or equal to 75% of the Exchange’s regulatory costs, which is consistent with the view of the Commission that regulatory fees be used for regulatory purposes and not to support the Exchange’s business operations. As discussed above, however, after its semi-annual review of its regulatory costs and regulatory 9 The Exchange notes that its regulatory responsibilities with respect to TPH compliance with options sales practice rules have largely been allocated to FINRA under a 17d–2 agreement. The ORF is not designed to cover the cost of that options sales practice regulation. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(4). 12 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:31 Aug 07, 2020 Jkt 250001 revenues, which includes revenues from ORF and other regulatory fees and fines, the Exchange determined that absent a reduction in ORF, it would be collecting revenue in excess of 75% of its regulatory costs. Indeed, the Exchange notes that when taking into account the recent options volume, coupled with the projected reduction in regulatory costs, it estimates the ORF will generate revenues that would cover more than the approximated 75% of the Exchange’s projected regulatory costs. Moreover, when coupled with the Exchange’s other regulatory fees and revenues, the Exchange estimates ORF to generate over 100% of the Exchange’s projected regulatory costs. As such, the Exchange believes it’s reasonable and appropriate to decrease the ORF amount from $0.0045 to $0.0023 per contract side. The Exchange also believes the proposed fee change is equitable and not unfairly discriminatory in that it is charged to all TPHs on all their transactions that clear in the customer range at the OCC. The Exchange believes the ORF ensures fairness by assessing higher fees to those TPHs that require more Exchange regulatory services based on the amount of customer options business they conduct. Regulating customer trading activity is much more labor intensive and requires greater expenditure of human and technical resources than regulating non-customer trading activity, which tends to be more automated and less labor-intensive. For example, there are costs associated with main office and branch office examinations (e.g., staff and travel expenses), as well as investigations into customer complaints and the terminations of Registered persons. As a result, the costs associated with administering the customer component of the Exchange’s overall regulatory program are materially higher than the costs associated with administering the non-customer component (e.g., TPH proprietary transactions) of its regulatory program.13 Moreover, the Exchange notes that it has broad regulatory responsibilities with respect to its TPHs’ activities, irrespective of where their transactions take place. Many of the Exchange’s surveillance programs for customer trading activity may require the Exchange to look at activity across all markets, such as reviews related to position limit 13 If the Exchange changes its method of funding regulation or if circumstances otherwise change in the future, the Exchange may decide to modify the ORF or assess a separate regulatory fee on TPH proprietary transactions if the Exchange deems it advisable. PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 violations and manipulation. Indeed, the Exchange cannot effectively review for such conduct without looking at and evaluating activity irregardless of where it transpires. In addition to its own surveillance programs, the Exchange also works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (‘‘ISG’’) 14 the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. Accordingly, there is a strong nexus between the ORF and the Exchange’s regulatory activities with respect to its TPH’s customer trading activity. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. This proposal does not create an unnecessary or inappropriate intra-market burden on competition because the ORF applies to all customer activity, thereby raising regulatory revenue to offset regulatory expenses. It also supplements the regulatory revenue derived from noncustomer activity. The Exchange notes, however, the proposed change is not designed to address any competitive issues. Indeed, this proposal does not create an unnecessary or inappropriate inter-market burden on competition because it is a regulatory fee that supports regulation in furtherance of the purposes of the Act. The Exchange is obligated to ensure that the amount of regulatory revenue collected from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. 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. 14 ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by cooperatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG’s information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. E:\FR\FM\10AUN1.SGM 10AUN1 Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices 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. Comments may be submitted by any of the following methods: jbell on DSKJLSW7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– CBOE–2020–069 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 No. SR–CBOE–2020–069. 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 No. SR–CBOE–2020–069, and should be submitted on or before August 31, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–17350 Filed 8–7–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89467; File No. SR– NASDAQ–2020–046] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Compliance Rule Under General 7 of the Exchange’s Rulebook August 4, 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 July 31, 2020, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend General 7 of the Exchange Rulebook, the Exchange’s compliance rule (‘‘Compliance Rule’’) regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 17 15 U.S.C. 78s(b)(3)(A). 16 17 CFR 240.19b–4(f). 1 15 15 VerDate Sep<11>2014 20:31 Aug 07, 2020 Jkt 250001 PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 48309 NMS Plan’’ or ‘‘Plan’’) 3 to be consistent with an amendment to the CAT NMS Plan recently approved by the Commission. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, 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 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 purpose of this proposed rule change is to amend General 7, the Compliance Rule regarding the CAT NMS Plan, to be consistent with an amendment to the CAT NMS Plan recently approved by the Commission.4 The Commission approved an amendment to the CAT NMS Plan to amend the requirements for Firm Designated IDs in four ways: (1) To prohibit the use of account numbers as Firm Designated IDs for trading accounts that are not proprietary accounts; (2) to require that the Firm Designated ID for a trading account be persistent over time for each Industry Member so that a single account may be tracked across time within a single Industry Member; (3) to permit the use of relationship identifiers as Firm Designated IDs in certain circumstances; and (4) to permit the use of entity identifiers as Firm Designated IDs in certain circumstances (the ‘‘FDID Amendment’’). As a result, the Exchange proposes to amend the definition of ‘‘Firm Designated ID’’ in General 7, Section 1 to reflect the changes to the CAT NMS Plan regarding 3 Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the Compliance Rule. 4 Securities Exchange Act Release No. 89397 (July 24, 2020), 85 FR 45941 (July 30, 2020). E:\FR\FM\10AUN1.SGM 10AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 154 (Monday, August 10, 2020)]
[Notices]
[Pages 48306-48309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17350]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89469; File No. SR-CBOE-2020-069]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Options Regulatory Fee

August 4, 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 21, 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

[[Page 48307]]

proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 relating to the Options Regulatory Fee. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to reduce the Options Regulatory Fee 
(``ORF'') from $0.0045 per contract to $0.0023 per contract, effective 
August 3, 2020, in order to help ensure that revenue collected from the 
ORF, in combination with other regulatory fees and fines, does not 
exceed the Exchange's total regulatory costs.
    The ORF is assessed by Cboe Options to each Trading Permit Holder 
(``TPH'') for options transactions cleared by the TPH that are cleared 
by the Options Clearing Corporation (``OCC'') in the customer range, 
regardless of the exchange on which the transaction occurs.\3\ In other 
words, the Exchange imposes the ORF on all customer-range transactions 
cleared by a TPH, even if the transactions do not take place on the 
Exchange. The ORF is collected by OCC on behalf of the Exchange from 
the Clearing Trading Permit Holder (``CTPH'') or non-CTPH that 
ultimately clears the transaction. With respect to linkage 
transactions, Cboe Options reimburses its routing broker providing 
Routing Services pursuant to Cboe Options Rule 5.36 for options 
regulatory fees it incurs in connection with the Routing Services it 
provides.
---------------------------------------------------------------------------

    \3\ The Exchange notes ORF also applies to customer-range 
transactions executed during Global Trading Hours.
---------------------------------------------------------------------------

    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of TPH customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. Regulatory costs include direct regulatory 
expenses and certain indirect expenses for work allocated in support of 
the regulatory function. The direct expenses include in-house and 
third-party service provider costs to support the day to day regulatory 
work such as surveillances, investigations and examinations. The 
indirect expenses include support from such areas as human resources, 
legal, information technology, facilities and accounting. These 
indirect expenses are estimated to be approximately 26% of Cboe 
Options' total regulatory costs for 2020. Thus, direct expenses are 
estimated to be approximately 74% of total regulatory costs for 2020. 
In addition, it is Cboe Options' practice that revenue generated from 
ORF not exceed more than 75% of total annual regulatory costs.
    The Exchange monitors its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs in a given year, the Exchange will adjust the ORF by 
submitting a fee change filing to the Commission. The Exchange also 
notifies TPHs of adjustments to the ORF via regulatory circular and/or 
Exchange Notice.\4\ Based on the Exchange's most recent semi-annual 
review, the Exchange is proposing to reduce the amount of ORF that will 
be collected by the Exchange from $0.0045 per contract side to $0.0023 
per contract side. The proposed decrease is based on the Exchange's 
estimated projections for its regulatory costs, which have decreased, 
balanced with recent options volumes, which has significantly 
increased. For example, total options contract volume in June 2020 was 
82.2% higher than the total options contract volume in June 2019.\5\ In 
fact, June 2020 was the highest options volume month in the history of 
U.S. equity options industry.\6\ In particular, customer options volume 
across the industry has also significantly increased year to date. For 
example, total customer options contract volume in April 2020 was 
50.27% higher than total customer volume in April 2019 and total 
customer options contract volume in May 2020, was 29.10% higher than 
total customer volume in May 2019. These expectations are estimated, 
preliminary and may change. There can be no assurance that the 
Exchange's final costs for 2020 will not differ materially from these 
expectations and prior practice, nor can the Exchange predict with 
certainty whether options volume will remain at the current level going 
forward. The Exchange notes however, that when combined with the 
Exchange's other non-ORF regulatory fees and fines, the revenue being 
generated by ORF using the current rate results in revenue that is 
running in excess of the Exchange's estimated regulatory costs for the 
year.\7\ Particularly, as noted above, the options market has seen a 
substantial increase in volume over the first half of the year, due in 
large part to the extreme volatility in the marketplace as a result of 
the COVID-19 pandemic. This unprecedented spike in volatility resulted 
in significantly higher volume than was originally projected by the 
Exchange (thereby resulting in substantially higher ORF revenue than 
projected). Moreover, in addition to projected reductions in regulatory 
expenses, the Exchange experienced further unanticipated reductions in 
costs, in connection with COVID-19 (e.g., reduction in travel 
expenses).\8\ The Exchange therefore proposes to decrease the ORF in 
order to ensure it does not

[[Page 48308]]

exceed its regulatory costs for the year. Particularly, the Exchange 
believes that by decreasing the ORF, as amended, when combined with all 
of the Exchange's other regulatory fees and fines, would allow the 
Exchange to continue covering a material portion of its regulatory 
costs, while lessening the potential for generating excess revenue that 
may otherwise occur using the current rate.\9\
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    \4\ The Exchange endeavors to provide TPHs with such notice at 
least 30 calendar days prior to the effective date of the change. 
The Exchange notified TPHs of the proposed rate change for August 3, 
2020 on July 1, 2020. See Cboe Options Regulatory Circular RG20-042 
``Options Regulatory Fee Decrease and Discontinuation of Regulatory 
Circular'' and Exchange Notice, C2020070100 ``Cboe Options Exchanges 
Regulatory Fee Update Effective August 3, 2020.''
    \5\ See https://www.theocc.com/Newsroom/Press-Releases/2020/07-01-OCC-June-2020-Total-Volume-Up-Nearly-81-Perc.
    \6\ Id. The previous record for highest U.S. equity options 
volume was March 2020. For further context, the Exchange notes that 
The Options Clearing Corporation total volume for March 2020 was up 
62.8% as compared to March 2019.
    \7\ Consistent with Rule 2.2 (Regulatory Revenue), the Exchange 
notes that notwithstanding the excess ORF revenue collected to date, 
it has not used such revenue for nonregulatory purposes.
    \8\ The Exchange notes that in connection with proposed ORF rate 
changes, it provides the Commission confidential details regarding 
the Exchange's projected regulatory revenue, including projected 
revenue from ORF, along with a breakout of its projected regulatory 
expenses, including both direct and indirect allocations.
    \9\ The Exchange notes that its regulatory responsibilities with 
respect to TPH compliance with options sales practice rules have 
largely been allocated to FINRA under a 17d-2 agreement. The ORF is 
not designed to cover the cost of that options sales practice 
regulation.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\11\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its TPHs and other persons using its facilities. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \12\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee change is reasonable because 
customer transactions will be subject to a lower ORF fee than the 
current rate. Moreover, the proposed reduction is necessary in order 
for the Exchange to not collect revenue in excess of its anticipated 
regulatory costs, in combination with other regulatory fees and fines, 
which is consistent with the Exchange's practices. The Exchange had 
designed the ORF to generate revenues that would be less than or equal 
to 75% of the Exchange's regulatory costs, which is consistent with the 
view of the Commission that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business operations. As 
discussed above, however, after its semi-annual review of its 
regulatory costs and regulatory revenues, which includes revenues from 
ORF and other regulatory fees and fines, the Exchange determined that 
absent a reduction in ORF, it would be collecting revenue in excess of 
75% of its regulatory costs. Indeed, the Exchange notes that when 
taking into account the recent options volume, coupled with the 
projected reduction in regulatory costs, it estimates the ORF will 
generate revenues that would cover more than the approximated 75% of 
the Exchange's projected regulatory costs. Moreover, when coupled with 
the Exchange's other regulatory fees and revenues, the Exchange 
estimates ORF to generate over 100% of the Exchange's projected 
regulatory costs. As such, the Exchange believes it's reasonable and 
appropriate to decrease the ORF amount from $0.0045 to $0.0023 per 
contract side.
    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all TPHs on all 
their transactions that clear in the customer range at the OCC. The 
Exchange believes the ORF ensures fairness by assessing higher fees to 
those TPHs that require more Exchange regulatory services based on the 
amount of customer options business they conduct. Regulating customer 
trading activity is much more labor intensive and requires greater 
expenditure of human and technical resources than regulating non-
customer trading activity, which tends to be more automated and less 
labor-intensive. For example, there are costs associated with main 
office and branch office examinations (e.g., staff and travel 
expenses), as well as investigations into customer complaints and the 
terminations of Registered persons. As a result, the costs associated 
with administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., TPH proprietary 
transactions) of its regulatory program.\13\ Moreover, the Exchange 
notes that it has broad regulatory responsibilities with respect to its 
TPHs' activities, irrespective of where their transactions take place. 
Many of the Exchange's surveillance programs for customer trading 
activity may require the Exchange to look at activity across all 
markets, such as reviews related to position limit violations and 
manipulation. Indeed, the Exchange cannot effectively review for such 
conduct without looking at and evaluating activity irregardless of 
where it transpires. In addition to its own surveillance programs, the 
Exchange also works with other SROs and exchanges on intermarket 
surveillance related issues. Through its participation in the 
Intermarket Surveillance Group (``ISG'') \14\ the Exchange shares 
information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. Accordingly, there is a strong nexus between the ORF 
and the Exchange's regulatory activities with respect to its TPH's 
customer trading activity.
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    \13\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on TPH 
proprietary transactions if the Exchange deems it advisable.
    \14\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. The Exchange 
notes, however, the proposed change is not designed to address any 
competitive issues. Indeed, this proposal does not create an 
unnecessary or inappropriate inter-market burden on competition because 
it is a regulatory fee that supports regulation in furtherance of the 
purposes of the Act. The Exchange is obligated to ensure that the 
amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.

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.

[[Page 48309]]

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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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 No. SR-CBOE-2020-069 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 No. SR-CBOE-2020-069. 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 No. SR-CBOE-2020-069, and should be submitted on 
or before August 31, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17350 Filed 8-7-20; 8:45 am]
BILLING CODE 8011-01-P

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